To improve my fitness and performance, I bought a running smartwatch. It recommends alternating between three training intensity levels:
Low aerobic: a low-intensity workout aimed at building basic endurance.
High aerobic: a demanding workout at sustained intensity that increases the ability to maintain fast paces over long distances.
Anaerobic: a very high-intensity workout, such as sprints, designed to develop power, speed, and lactic acid tolerance.
My watch offers various charts and guides to help alternate between these three types of training. The reason is simple: a runner who trains only at low intensity will develop excellent endurance but may lack speed. Conversely, a runner who focuses only on anaerobic training will be fast over short distances but lack endurance. The key is balance.
This concept of balance reminds me of the approach we take in portfolio management at COTE 100. Not every stock in a portfolio serves the same purpose. To illustrate this, I’ve mapped these three levels of training intensity to Canadian stocks you’re likely familiar with. Of course, this classification is not scientific and remains subjective.
Low aerobic: These are stocks in defensive, non-cyclical sectors where earnings growth is generally steady and moderate. Metro, Fortis, Alimentation Couche-Tard, and Hydro One are good examples. These are lower-risk stocks that typically decline less when markets drop.
High aerobic: These stocks operate in more cyclical sectors and see more earnings volatility but still have solid business models. Canadian National, Royal Bank, Brookfield Corporation, and Intact are good examples. The main risk with these stocks is related to the broader economic cycle or specific sector trends.
Anaerobic: These are stocks that typically experience strong earnings growth. As a result, they often trade at high price-to-earnings ratios. I’ll admit there are probably more of these types of stocks in the U.S., but Shopify, Dollarama, and Waste Connections are examples that fit this profile. The main risk lies in their high valuation multiples, which can quickly contract if growth expectations fall short. These stocks are tied to more company-specific risks.
Our job is to maximize portfolio returns based on the level of risk taken. This last part is crucial. Of course, stock valuation is essential to managing risk across each of the above categories. Still, we believe that diversifying sources of risk is a fundamental approach.
A runner who focuses only on sprinting—solely developing their anaerobic capacity—would increase their risk of injury and struggle to keep pace in a marathon. To me, investing isn’t a sprint, but a marathon. The goal is to achieve solid returns over the long run. While I’m no expert in running, I imagine that balancing all three training types is a smart strategy. It certainly is for investing.
Another important aspect, in my view, is the ability to adapt to changing conditions. A tired runner might spend more time on low-aerobic workouts. If they’re feeling strong, they might do more intervals and sprints. Similarly, an investor who believes the market is expensive and speculative should adjust their portfolio by adding or overweighting more defensive, low-aerobic stocks. On the other hand, if the market is deeply depressed, the allocation should tilt toward high-aerobic or even anaerobic stocks. The goal is to build a solid, well-balanced portfolio that can adjust to the environment.
In closing, if you ever see me running through the streets of Saint-Bruno, you might think I’m in a low-aerobic workout. I’m probably pushing myself through a high-aerobic—or even anaerobic—session. What can I say? I’m just not that fast!
Jean-Philippe Legault, CFA
Portfolio Manager at COTE 100
_______
This article is also published on 
(in French)
