Canada's main stock index notched its biggest quarterly gain in more than four years and could gain more this year as higher oil prices boost energy shares and legalization of pot leads to deal making among cannabis companies, investors said. In the second quarter, the TSX was led by a 16 percent jump for the energy sector, which accounts for about one-fifth of the weight of the index. Smaller, growth-orientated sectors, such as technology and healthcare also contributed, with the latter boosted by the strong performance of cannabis stocks.
Steve Belisle, senior portfolio manager at Manulife Asset Management, expects energy stocks to benefit from higher oil prices that boost cash flows and from improved prospects for Canada getting its oil to market. His holdings include shares of Canadian Natural Resources Ltd and Suncor Energy Inc. The price of US oil has rallied to a 3-1/2-year high above $74 a barrel, helping drive a 5.9 percent rise in Toronto Stock Exchange's S&P/TSX composite index in the second quarter, its biggest advance since the final quarter of 2013. The S&P 500 index gained 2.9 percent.
One of Belisle's biggest positions is in technology services company CGI. "I would call it a defensive growth company, which is exactly what you want at this stage of the cycle," Belisle said. While the technology sector rose an impressive 10 percent in the second quarter, it was outdone by healthcare, which climbed 16 percent, led by cannabis stocks.
Canada's government plans to legalize recreational marijuana in October.
"As we get close to the launch I think you are going to see a lot of M&A and joint ventures coming into the space," said Greg Taylor, portfolio manager at Purpose Investments. "You are going to get hints of companies that are going to be able to meet some of their targets and those that are going to fail."
At HollisWealth Inc, portfolio manager Elvis Picardo likes Canadian insurance companies, such as Manulife Financial Corp which has lost ground since the start of the year but could benefit from a rising interest rate environment.