5Q: Garey Aitken, CIO of Franklin Bissett Investment Management

If market seers are right, Canada's stock market could inch higher in 2014 as the global economy slowly improves and the heavily-weighted resource sector stages a small comeback after a terrible performance last year.

The S&P/TSX composite index was considered a laggard in 2013, capping off the year up nearly 10 per cent but well below its main U.S. counterparts, which logged rises of at least 25 per cent. Going forward, the economic health of the United States, Europe, China and, to a lesser degree, Japan will remain in focus. Of course, to what extend the U.S. Federal Reserve winds down its stimulus, widely referred to as tapering, will also be a key feature.

How all that affects export-focused Canada will be key, says Garey Aitken, chief investment officer of Franklin Bissett Investment Management, which manages some $19 billion worth of assets. All the while, Canada faces its own sets of issues: an ultra-low interest rate climate, high consumer debt loads, debate over oil exports and a subdued housing market.

This year will likely be a stock pickers' market -- with interesting opportunities in energy and materials stocks -- rather than a market in which "some rising tide lifts all boats," says Aitken, who generally favours select names in financials, energy and industrials sectors.

How would you characterize the current investment climate?

Global economic indicators positive. If we think back to the Great Financial Crisis 2008-09 it was a sluggish recovery. There was still considerable concern about the strength of the global economy and financial systems. In 2013, we saw probably the best year yet in terms of economic growth in the important regions such as the U.S., Europe. Japan was better as well.

What should investors be watching for in 2014?

How the interest rate environment shakes out now with the likely implementation of Fed tapering. That was a big story in 2013 and will continue to be in 2014. Another thing to watch is what happens with resource and commodity stocks.

Why will investors like commodities?
To be constructive on commodities you have to have a reasonable amount of optimism about emerging markets. But there's ultimately very distinct supply and demand factors associated with each commodity--coal versus copper versus uranium versus natural gas versus lumber, etc.

Are there any bright spots?
I would come back to the resource part of the market. Energy and materials. They've generally been laggards. There are lot of stocks that have been very poor performers in the last few years. We're kind of sifting through that rubble. We think there are some very good businesses there.

Are equities currently undervalued?
Yes. I think we can still see pretty decent equity performance out of Canada and the U.S. and some of the other market. We think companies will increase their value in the future, but valuations aren't as attractive as they once were.

As for the economy, are we somewhat back to normal?
I wouldn't say we're necessarily even seeing normalized growth rates, but certainly better than we have in the past. Let's check the box beside the economy. Sometimes it's not just positive news, it's the absence of negative developments.

How will Fed tapering impact Canadian equities?
So much of 2013 was centred around what are they going to do with this program. Are they going to continue, increase it, scale it back? Effectively, what tapering means is the slowing down of the ongoing pace at which they're still buying instruments.  I think the $64,000 question in 2014 is where do interest rates go from here as they implement tapering and what's the effect on the equity market.

With financials, is there much concern about consumer debt loads and housing?
We're not burying our heads in the sand. We see those risks. I guess we look through those and we try to factor those kinds of risks with all of our businesses. Ultimately, they aren't very consequential. Banks can manage that effectively. Most importantly, we think those types of risks are priced into stocks.

What are some of the biggest mistakes investors make?
I think there's still far too much focus on the short term. I'm not sure if it's gotten worst now. There's so much information available and people can monitor things on a real time basis. I think equity markets are still a terrific place to not only preserve wealth, but grow capital in real terms provided that there's an appropriate strategy and time horizon.

What's that?
I don't think anybody should be invested in equities if they're not really able to stay with it for multiple years. Ideally, the longer the better. I don't know what a minimum would be. Maybe five years. I think people get way too caught up on how did the market do in 2013. Then today's headline will be how did 2014 start. In the grand scheme of things people have to stay with it.

**This interview has been edited and condensed