{{r.fundCode}} {{r.fundName}} {{r.series}} {{r.assetClass}}

Welcome to the new RBC iShares digital experience.

Find all things ETFs here: investment strategies, products, insights and more.

About this podcast

COVID-19 has boosted business for some companies. It has also had a severe and negative impact on others. For businesses landing somewhere in the middle, adaptability is key. Stu Kedwell, Co-Head of North American Equities, joins Dave to reflect on what investors can take away from an exceptional earnings season. (Recorded August 6, 2020)

Transcript

Hello and welcome to the Download. I’m your host, Dave Richardson, and we are here with Stu’s Days. Although you might notice it is not Tuesday today. For many of us in Canada, for those of you internationally or in provinces other than Ontario who don’t know, this was a long weekend. Most of us who live and work here in the Toronto area had Monday off. And that usually pushes our garbage pickup a day or two back. So we’ve done the same thing with the podcast. But I also found out that Stu’s middle name is Thurston. So it’s Thurston’s Thursday, here on the Download podcast. Thurston Stewart Kedwell, the third. Welcome to today’s edition.

Great. Thanks for having me, Dave. A couple of days late, but better late than never, right?

Absolutely. Now what it’s given us is a chance to really get all the way through earnings season. We always take a look forward at earnings season on Stu’s Days. But, [we have] a chance now to look back at a couple of things that we were talking about. One is the way companies are reporting, and surprising to the upside. And yet, some thoughts around expenses, and just the way stocks are reacting when earnings are announced. So why don’t you take it from here with some of your observations?

Great. Thanks, Dave, and thanks to everyone listening. Some of the things that we’ve talked about in the past are how management teams adapt their business for the environment that sits in front of them. We’ve seen time and time again the things that we’re worried about, and what our investors are worried about. That maybe causing a delay in investment, because you think things might get worse. You go and have those discussions with the management teams, and they are on the same list as you are. They are worried about it, and they’re adapting their business. And that’s what we call a “positive option” that comes to shareholders. The idea that management will adapt their business for the environment at hand. What we’ve seen through this reporting season has been interesting. We’ve seen the large companies - the Apples, the Facebooks, the Microsofts - do extremely well. Strong revenue, strong earnings. Very much expected, very much needed to keep their share prices at these elevated levels. Then, we’ve seen other businesses that might be very impacted by COVID-19. And they’re trying things. These are more like the hospitality businesses and what have you. Direct impacts. They are adjusting their business, but it’s still been tough. But there’s this wide swath of businesses whose revenues have been challenged by the broader slowdown, although not specific to COVID-19. And as they’ve reported, it’s not that their revenues haven’t been pressured, it’s just that they’ve surprised people on the expense side. Just as we would have imagined, they manage their business for this environment. It’s meant maybe less marketing spending, maybe a little bit more efficiency on some things. And those businesses have come through with somewhat surprising earnings. These are quite pedestrian companies, the types of things that grow a little bit better than the economy over time. But as the efficiencies come through, people say, “Boy, this balance sheet is going to make it through and these earning streams are going to make it through.” Sometimes you see businesses that would never have gone up seven, eight, nine percent in the day. They’re doing it in this environment because they’re allowing investors to look at these companies and say, “Hey, they’re going to make it to the other side. Now I can go value them on a more normalized type business environment.” That’s been a pleasant surprise in the last week because, while we have exposure to the likes of Apple, Microsoft, Facebook and the big US funds, we also have plenty of these other businesses. It’s been nice to see them rewarded in the stock market as they’ve presented the fruits of a lot of hard work from these management teams on our behalf.

Yes, it’s incredible. It all rolls up. If we’re looking at perhaps the most widely followed index around the world, particularly by professionals: the S&P 500. It’s sitting now less than 2% below its all-time high in February from the depths of being 35% below that. It is absolutely remarkable. And I think what you’re suggesting here is the incredible adaptability of businesses around the world to whatever environment, whatever challenges you throw at them. Of course, we prefer it not to work out this way, but it is quite remarkable as you start to see these earnings come through. The way companies adapt and the way their stocks perform out of the announcements.

Dave, in my office I have all these things pinned to the wall I like to look at to remind myself of different environments. One of them is a story from one of my dad’s favourite movies, Butch Cassidy and the Sundance Kid. There is a period in the movie when Sundance Kid is asked to shoot a piece of glass and he’s standing and he shoots… and he misses. And the guy says, “Well, obviously you’re no good. And he says do you mind if I move? Go ahead.” He moves, and he shoots it, and he just bangs it three or four times in a row. And he says, “I shoot better when I’m moving.” And that’s something that always reminds me of company management. They are always adapting the business on your behalf.

Yes, and I think from everyone’s perspective, we’re always happy when things bounce back. People who maintain that long-term focus are rewarded for their discipline around investing, and perhaps this cycle has been a better reminder of that than any. So Stu, we’ll be back to talk about the banks in Canada. And thank you as always. And a great story Thurston!

Thanks for listening and thanks for everyone’s time. Have a good weekend.

Disclosure

Recorded August 6, 2020

Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers in Canada.

This report has been provided by RBC Global Asset Management Inc. (RBC GAM Inc.) for informational purposes as of the date noted only and may not be reproduced, distributed or published without the written consent of RBC GAM Inc. Additional information about RBC GAM Inc. may be found at www.rbcgam.com. This report is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM Inc. takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information contained in this document.

Any investment and economic outlook information contained in this report has been compiled by RBC GAM Inc. from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM Inc., its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM Inc. and its affiliates assume no responsibility for any errors or omissions.

All opinions and estimates contained in this report constitute RBC GAM Inc.'s judgment as of the indicated date of the information, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates and market conditions are subject to change. Return estimates are for illustrative purposes only and are not a prediction of returns. Actual returns may be higher or lower than those shown and may vary substantially over shorter time periods. It is not possible to invest directly in an unmanaged index.

A note on forward-looking statements:

This report may contain forward-looking statements about future performance, strategies or prospects, and possible future action. The words "may," "could," "should," "would," "suspect," "outlook," "believe," "plan," "anticipate," "estimate," "expect," "intend," "forecast," "objective" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties about general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.

® / TM Trademark(s) of Royal Bank of Canada. Used under licence.

© RBC Global Asset Management Inc., 2020