Extra Credit: Defaults Matter

We explore default risk, one of the most significant challenges in credit investing. We cover the data behind default risk, current trends and compensation, and Mawer's approach to managing this risk.

An AI Efficiency Breakthrough: DeepSeek’s Impact

A sudden release from a Chinese AI start-up rocked markets last week. DeepSeek, a new large-language model (LLM), has demonstrated performance comparable to OpenAI’s ChatGPT while dramatically reducing compute and power costs through innovative design and optimizations. This news has the potential to upend the current AI narratives and surrounding technology ecosystem that have been driving financial markets this cycle.

Extra Credit: Bank Additional Tier 1 Capital Instruments

In this piece, we cover the structure of AT1s, some history on how the space has evolved (including its use globally), thoughts on valuation, and potential use in a well constructed credit portfolio.

Dead Reckoning: Investing Lessons from the High Seas

The waters of the market are choppy and unpredictable. Investors, like sailors, must grapple with incomplete information, unexpected shifts, and the ever-present possibility of being wildly off course. The currents—momentum—can be powerful. PE multiples, EV-to-EBITDA ratios, earnings expectations, leading economic indicators, discounted cash flow models… all dead reckoning.

This article will illustrate several ideations and tools investors can incorporate into their processes to navigate the choppy, mercurial waters of long-term investing.

'Twas the week before Christmas

‘Twas the week before Christmas, so let's have some fun. Mawer recaps the main themes of 2024. 

Extra Credit: Why Not Just a “Little” High Yield?

High yield spreads continue to tighten. As risk premiums fall, and economic and political conditions appear positive for corporates in general, it is tempting to reach for yield in credit markets. As Howard Marks of Oaktree points out, the all-in yield (benchmark yield plus risk premium) on high yield is 7.0% and who doesn’t love a 7.0% return? What could possibly go wrong?

Extra Credit – Fallen Angels: Boeing on the Precipice

When this piece was being written, Boeing had not filed their US$25 billion shelf prospectus and the company was a downgrade candidate to high yield (HY) at both Moody's and S&P which would qualify them as a "Fallen Angel". The term “Fallen Angel” is often paired with its opposite, a “Rising Star”. We decided it would be interesting to highlight the importance and impact that a Fallen Angel has on both the IG market, and, more importantly, the HY or "Junk" bond market. 

Elections: Noise or Signal?

While speculators fuss over the cacophony of political campaigns and election forecasts, savvy investors recognize that the true impact of elections on financial markets is mostly short-term noise irrelevant to long-term financial strategies.

Public and Private Credit: Where investors should focus

Private credit assets have surged to $2-3 trillion USD over the past decade, but investors might benefit from shifting some focus back to public credit, which offers attractive returns, transparency, and liquidity. While both credit types share common features, the current strong tilt towards private credit may overlook the strategic advantages of a well-diversified public credit allocation.

The Power of Latent Earnings

Current profit levels for fast-growing companies might not necessarily be representative of their true earnings power or “latent earnings power.” When it comes to large businesses, we believe this concept may be underappreciated because they are generally assumed to be operating closer to a mature, steady state.   

A Case for Investing in U.S. Mid Caps

The U.S. equity market is the largest and deepest in the world. As such, it has been analyzed in many ways to determine the optimal means of gaining exposure.

Pricing Strategies: Upside Capture Versus Downside Protection

A company’s pricing strategy can help reveal insights into how a company's business model works, its sensitivity to elevated inflation, and why certain pricing strategies work better than others in different operating and economic environments. 

Getting Out There: Investing in Firsthand Knowledge

There's something highly worthwhile in seeing a company's operations with our own eyes.

U.S. Equity Insights: The Impact of Policy Shifts and AI | EP182

We discuss the early months of the new U.S. administration with Grayson Witcher, lead portfolio manager for the U.S. equity strategy at Mawer. Grayson touches on the impact of tariffs, including the practical and unpredictable aspects of tariffs and how they influence decision-making. Grayson also shares insights on the potential long-term effects of the AI boom and highlights recent portfolio adjustments in response to evolving market dynamics.

Credit Markets: Risks, Rewards, and the Road Ahead | EP181

We discuss credit markets with Brian Carney, lead portfolio manager of the Mawer Global Credit Opportunities strategy. Brian touches on the tightening of credit spreads, risks in the leveraged loan market, and the limited compensation for high-yield bonds relative to their risks. He also reviews concerns about U.S. government credit quality, private credit profitability, and corporate policy shifts. Looking back on Mawer's GCO strategy performance in 2024, Brian highlights future plans for growth, process refinement, and team expansion.

A “Balanced” Perspective Amid High Uncertainty | EP180

Balanced portfolio manager Steven Visscher discusses 2024 performance, asset allocation decisions, trade uncertainty, potential tariffs, and the impact of AI-driven productivity growth. He highlights the importance of long-term discipline, diversification, and staying rational in an unpredictable market, and more.

Navigating Tariff Tensions in Canada: Risks and Opportunities | EP179

We discuss the escalation of U.S./Canada tariff tensions with Mark Rutherford, co-manager of Mawer’s Canadian equity strategy. Mark provides historical context of how we got here; highlights the potential economic impact tariffs may have on the Canadian economy; provides specific portfolio holding examples of how businesses and industries may be affected; and mentions several potential benefits for Canada. Ultimately, he stresses that adhering to a disciplined, long-term investment approach is vital amid uncertainty.

Quarterly Update | Q4 2024 | EP178

We discuss 2024's economic landscape and what to expect in 2025, with Crista Caughlin, lead portfolio manager of the Mawer Canadian bond strategy. Crista highlights U.S. and Canadian growth trends, central bank rate adjustments, housing market dynamics, equity and fixed-income performance, and political uncertainties. She also discusses Mawer’s asset allocation strategy, balancing risks with opportunities amidst shifting fiscal policies, trade tensions, and global economic developments heading into 2025.

Canadian Equity: 2024 Overview and Looking Ahead to 2025 | EP177

We discuss the Canadian equity market with Mark Rutherford, co-manager of Mawer’s Canadian equity strategy. Mark highlights the key drivers behind Canadian equities' strong 2024 performance, highlighting standout sectors like technology, financials, energy midstream, and gold. He also examines challenges in telecommunications and real estate, discusses risks from slower economic growth, inflation, and higher mortgage rates, and emphasizes strategic portfolio adjustments.

Why Invest Outside of the U.S.? The Benefits of EAFE Large Cap | EP176

Equity Analyst Ian Turnbull joins the Art of Boring podcast to discuss Mawer’s EAFE large cap portfolio and tackle the question: why invest outside the U.S. at all? Ian takes us through quick two-minute drills on five of the portfolio’s key holdings. He highlights the portfolio's diversification benefits, AI's transformative potential in healthcare R&D, while acknowledging the challenges posed by regulatory hurdles, and more.

Maintaining an All-Weather Strategy: The U.S. Mid Cap Equity Landscape | EP175

We discuss the U.S. mid-cap landscape with Jeff Mo, manager of the U.S. mid cap equity strategy at Mawer. Jeff touches on risk management, emphasizing disciplined adherence to investment philosophy and the benefits of balancing risk and return through natural contradictions, like pairing discretionary consumer-focused SharkNinja with countercyclical firms such as FTI Consulting. Additional topics include preemptive risk management, maintaining an all-weather portfolio, and leveraging a robust inventory process to adapt.

Opportunities and Watchpoints: A Deep Dive into Global Credit | EP174

We discuss key trends and positioning in credit markets with Brian Carney, lead portfolio manager of the Mawer global credit opportunities strategy. We touch on the year’s strong performance driven by tighter spreads, higher yields, and emerging risks such as low risk premiums and the U.S. election. Topics include corporate issuance, fallen angels, and public-private credit convergence. Emphasizing capital preservation, Brian highlights portfolio positioning in high-quality, short-duration securities, such as North American bank bonds, while avoiding high-yield exposure.

The “S&P 493”: Managing Risks and Opportunities in the Global Equity Strategy | EP173

We discuss the global equity strategy with Christian Deckart, chief investment officer and portfolio manager at Mawer. Christian stresses managing absolute risk over relative risk for better long-term outcomes and details Mawer’s approach to risk management, focusing on decision-making, portfolio risks, and external factors such as government debt and rising rates. He also discusses adapting to AI trends, preferring companies leveraging AI applications over infrastructure investments. He emphasizes maintaining focus on fundamentals amid evolving global and technological landscapes.

Navigating Market Complexities: Insights from the Trading Desk | EP172

We discuss market insights with two representatives from the trading desk: Rita Tien, who trades the Americas from Toronto, and Peter Dmytruk, who trades Asia from Singapore. Rita and Peter highlight the complexities of trading, emphasizing the importance of regional differences, the role of the trading desk in executing investment decisions, and more. 

Banks Around the World: What Makes Top Financial Institutions Stand Out | EP171

In this episode, Mawer portfolio managers and analysts discuss what they fundamentally look for in a bank as an investment. Specifically, how they view banks and the industry trends, as well as local dynamics, and ultimately what makes each of these businesses both unique and attractive.

China in Focus: Traversing the Emerging Markets Landscape | EP170

Peter Lampert, lead portfolio manager of the International Equity Strategy, discusses the recent Chinese stimulus and its effects on emerging markets. He highlights key long-term risks in China, including weak sentiment, regulatory challenges, and geopolitical tensions, while emphasizing the potential of companies like Tencent and Tencent Music. The conversation also covers Turkey's Bim, a discount retailer thriving amid economic uncertainty. Peter explains how the portfolio's success stems from stock selection, especially with stealth performers like Vietnam’s FPT and Taiwan’s IGS, and the importance of balancing macro risks with company-specific growth potential.