It's time to profit from the growth and value of Canada

Greg Eckel of the Canadian General Investments trust claims that although the Canadian stock market is often disregarded, it is currently in a strong position to grow

Terry Tanaka: Your fund is rarely in the spotlight because Canada is constantly overshadowed by its bigger neighbor. Tell us a little about it.

Greg Eckel: The second-oldest closed-end fund in North America is a general Canadian equity investment trust. It was founded in 1930, and in 1995 it was listed in London. Consider it a one-stop shop for Canadian investment. The US receives up to 25% of the trust's assets (currently around 20%), usually in order to obtain access to products that aren't available in the Canadian market or for the additional liquidity that comes from the US.

Compared to the Canadian stock market as a whole, which strongly favors the financial industry, Canadian General Investments is more diversified. We look beyond the banks because we want to keep up our long history of outperforming the indexit has been more than 50 yearseven though that includes strong companies that aren't the fastest growers. Financials make up 31% of the index; when energy and materials are included, the percentage rises to 70%.

AVS: I recognize that you take a mostly bottom-up approach, but these are particularly difficult geopolitical times, with supply chains breaking apart and mercantilism on the rise. In your opinion, how does Canada fit into this geopolitical and economic framework?

Greg Eckel: Canada is regarded as centrist and pragmatic, and we have long been known for our geopolitical stability. As a major force behind trade initiatives and domestic spending, Mark Carney seems to have strengthened this reputation at a crucial juncture, which should enhance our chances and help progressively weaken our ties with the United States.

Terry Tanaka: What's the most recent trade news?

Greg Eckel: We have been continuing to negotiate the trade agreement with Canada and Mexico that was formerly known as NAFTA. It is called the Canada-United States-Mexico Agreement, or CUSMA. This was meant to shield about 90% of our products from US tariffs, but the US has threatened to impose additional import taxes on Canada. The problem looms over the market like a cloud and there is still a great deal of uncertainty. We still send about 75% of our exports to the United States.

Terry Tanaka: Canada's abundance of raw materials is a long-term advantage.

Greg Eckel: We own a company that refines and purifies critical minerals. Even though it's still tiny, it's a step in the right direction to challenge China's hegemony in the industry. The United States lacks the vast potash deposits that we possess. The other essential components of fertilizer, phosphate and nitrogen, are also purchased from us by the US, India, and China.

Due to the energy transition and central bank purchases, respectively, copper and gold are also promising, but uranium is a commodity that we have undoubtedly heavily influenced. The world's highest-grade uranium deposits are found in Saskatchewan's Athabasca Basin, where ore concentrations range from ten to one hundred times the global average.

The renewed interest in nuclear power has made uranium particularly promising. Cameco, a core holding from Canada, is the leading company in this industry. Although uranium and fertilizer are also available from Russia and eastern Europe, supply chains are being disrupted by sanctions, making it simpler for Western nations to purchase them from us. We have an extensive supply chain, making transportation simple.

Naturally, there are also gas and oil. We have historically used pipelines to transport it to the US because it is mostly in Alberta and not close to the coast. Pipeline construction to the coasts is currently being pushed. Lastly, we have an abundance of soft commodities, some of which are fresh water, corn, and maple syrup. We can contribute to global food production.

Terry Tanaka: What we refer to as "stagflation-lite"poor growth in the Western world and exorbitant pricesis one of BFIA's main concerns for the next ten or so years. Given the abundance of natural resource companies, Canada appears to be set fairly in this regard. Because raw materials are used in everything, these companies will typically have pricing power. Additionally, you appear to have many businesses with pricing power in other industries. In this context, you brought up Canadian Pacific Kansas City.

Greg Eckel: This does apply to a number of businesses. Canadian Pacific is well-positioned to benefit from the new trade agreement if it is implemented because it has a strong hold on supply chains, which gives it pricing power, and it connects Canada, the US, and Mexico. Within the rail industry in North America, the company's operating management team is the best.

In the meantime, the Gulf of Mexico and the two Canadian coasts are connected by the Canadian National Railway Company. TFI International is one of our top ten holdings. One of the biggest trucking companies is that. It's a unique take on transportation, but it has also grown well. It also has a significant presence in the US. So, in a sense, we have circled the transport wagons. We attempt to take advantage of the robust US economy through these businesses. Their pricing power should be strengthened by that.

Terry Tanaka: Is there still relative and absolute value, and are all these promising prospects fairly priced into the Canadian stock market?

Greg Eckel: For the majority of this year, the benchmark index, the TSX, has surpassed other significant developed markets. The financial and energy sectors have increased by 25%. The foundations, however, are still strong. This year, earnings growth should be in the low teens. Interest rates are stable, inflation is under control, and employment is steady. However, a wobble could be brought on by issues with trading.

Terry Tanaka: What kind of ratio of price to earnings are we discussing?

Greg Eckel: A forward price-earnings ratio of about 16.4%. The US score is 21.5. Seldom has the gap between the two markets been this large. America's dividend yield is half that of ours, which is approximately 2.1%.

Terry Tanaka: You mentioned that the economy and its southern neighbor are still closely connected, and it's likely that the stock market is as well."Wall Street leash effect" is always present in other equity indices. Do you believe that with Canada's increasing self-sufficiency, this might loosen?

Greg Eckel: Although it takes time, Prime Minister Carney is spearheading the effort to lessen Canada's reliance on the United States. Disentangling supply chains will be difficult because it took decades for them to become as integrated as they are.

But now that we've witnessed the disruption one individual can cause, the initiative is obviously present. Of course, there is still room for improvement, as 75% of exports still go to the United States. Additionally, keep in mind that before an automobile part is installed in a finished vehicle, it can pass through the US-Canada or US-Mexico borders seven times.

Terry Tanaka: IT is your second-largest industry. This is mostly due to your ownership of Celestica, your top stock position, and Nvidia, which you are dipping into the US market for as your second-largest holding. Does Celestica come from Canada?

Greg Eckel: Certainly. In 2024, we purchased Celestica. We were extremely fortunate to discover it early on. It is referred to as an electronics-manufacturing services (EMS) company. Up until recently, the company produced components for companies like Cisco and Nokia.

However, it turns out that the company's products are very beneficial for data centers. As a result, Celestica's networking switches and related products have become increasingly popular with Big Tech hyperscalers. The stock made up around 1% of the portfolio when we purchased it. Over the last two years, its value has fluctuated between five percent. We've made money off of it.

Terry Tanaka: Industrials are your largest industry. The transportation behemoths, like the railroads, will be the main players in this. Are you experimenting with anything else?

Greg Eckel: We founded MDA Space, a space robotics and infrastructure group, in 2024. Aerospace and defense is a subsector of the industrial sector. that has benefited from the enthusiasm surrounding the space economy.

Additionally, we recently started working for a big construction company called Aecon Group. The company constructs nuclear reactors, bridges, and water treatment facilities, among many other things. Aecon stands to gain a great deal from the efforts to build or reconstruct nuclear reactors.

Another business profiting from the nuclear revival is AtkinsRalis. The intellectual property pertaining to the design and production of nuclear reactors in Canada, known as CANDU technology, belongs to this engineering group.

Stantec, an engineering firm with a presence in energy, water, and transportation, has also long impressed us. It is therefore well-positioned to benefit from the push to improve infrastructure throughout North America.