Also available in PDF: MIR Portfolios April 2018
McMurtry Investment Report – Portfolios (April 2018)
|Cash||Alterna Bank – High Interest Savings (2.05% current rate)||Alterna Bank – High Interest Savings (2.05% current rate)|
|EQ Bank – High Interest Savings ( 2.30% current rate)||EQ Bank – High Interest Savings ( 2.30% current rate)|
|Bonds||iShares XSB Short Term||iShares XSB Short Term|
|iShares XFR Floating Rate||iShares XFR Floating Rate|
|iShares CBO 1-5 Ladder Corp||iShares CBO 1-5 Ladder Corp|
|iShares CLF 1-5 Ladder Gov’t||iShares CLF 1-5 Ladder Gov’t|
|Preferreds||Security||Dividend Yield %||Security||Dividend Yield %|
|Enbridge Pfd V Enb.pr.V US||4.20||Enbridge Pfd V Enb.pr.V US||4.20|
|Horizons Active Mgt. Pfd HPR||3.86||Horizons Active Mgt. Pfd HPR||3.86|
|Industrial Alliance IAG.PR.G||4.06||Industrial Alliance IAG.PR.G||4.06|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.78||Royal Bank RY||3.78|
|National Bank||3.96||National Bank||3.96|
|TD TD||3.67||TD TD||3.67|
|CIBC CM||4.57||CIBC CM||4.57|
|Sun Life SLF||3.44||Sun Life SLF||3.44|
|JP Morgan JPM US||2.04||JP Morgan JPM US||2.04|
|Bank of America BAC US||1.60||Bank of America BAC US||1.60|
|Citibank C US||1.90||Citibank C US||1.90|
|Manulife MFC||3.68||Manulife MFC||3.68|
|T. Rowe Price TROW US||2.59||T. Rowe Price TROW US||2.59|
|iUnits US Regional Banks IAT US||2.40||iUnits US Regional Banks IAT US||2.40|
|Keycorp KEY US||2.15||Keycorp KEY US||2.15|
|Blackrock BLK US||2.13||Blackrock BLK US||2.13|
|Paychex PAYX US||3.25||Paychex PAYX US||3.25|
|PNC Fin’l PNC US||1.98||PNC Fin’l PNC US||1.98|
|Visa V US||0.70|
|Energy||Suncor SU||3.24||Suncor SU||3.24|
|Freehold FRU||5.10||Freehold FRU||5.10|
|Whitecap WCP||3.91||Whitecap WCP||3.91|
|Torc TOG||3.64||Torc TOG||3.64|
|Pembina Pipe Lines PPL||5.37||Pembina Pipe Lines PPL||5.37|
|Enbridge ENB||6.62||Enbridge ENB||6.62|
|Centennial Resources CDEV US||0.00|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||1.01||Agnico Eagle AEM||1.01|
|Franco Nevada FNV||1.35||Franco Nevada FNV||1.35|
|BMO Global Base Metal ETF ZMT||1.42||BMO Global Base Metal ETF ZMT||1.42|
|Trevali Mining TV||0.00|
|Hudbay Minerals HBM||0.22|
|Industrials||DowDuPont DWDP US||2.39||DowDuPont DWDP US||2.39|
|Applied Materials AMAT US||0.72||Applied Materials AMAT US||0.72|
|Toromont TIH||1.72||Toromont TIH||1.72|
|WSP Global WSP||2.53||WSP Global WSP||2.53|
|Canadian Pacific CP||0.99||Canadian Pacific CP||0.99|
|General Dynamics GD US||1.68||General Dynamics GD US||1.68|
|SNC Lavalin SNC||2.03||SNC Lavalin SNC||2.03|
|Guggenheim Eq WT IND RGI US||1.19||Guggenheim Eq Wt IND RGI US||1.19|
|Honeywell HON US||2.06||Honeywell HON US||2.06|
|Fedex FDX US||0.85|
|Consumer Discretionary||Home Depot HD US||2.31||Home Depot HD US||2.31|
|Sleep Canada ZZZ||1.93||Sleep Canada ZZZ||1.93|
|Stanley Black and Decker SWK US||1.64||Stanley Black and Decker SWK US||1.64|
|Canadian Tire CTC.A||2.13||Canadian Tire CTC.A||2.13|
|Amazon AMZN US||0.00||Amazon AMZN US||0.00|
|Kohl’s KSS US||3.72||Kohl’s KSS US||3.72|
|Magna MG||2.35||Magna MG||2.35|
|Lowes LOW US||1.87||Lowes LOW US||1.87|
|Alibaba BABA US||0.00|
|JD.com JD US||0.00|
|Telecom||Rogers B RCI.B||3.34||Rogers B RCI.B||3.34|
|Consumer Staples||Alimentation Couche Tard ATD.b||0.62||Alimentation Couche Tard ATD.b||0.62|
|Loblaws L||1.66||Loblaws L||1.66|
|Pepsico PEP US||2.95||Pepsico PEP US||2.95|
|Unilever PLC UL US||3.21||Unilever PLC UL US||3.21|
|Technology||Apple AAPL US||1.50||Apple AAPL US||1.50|
|Microsoft MSFT US||1.84||Microsoft MSFT US||1.84|
|Open Text OTEX||1.52||Open Text OTEX||1.52|
|Facebook FB US||0.00|
|Nvidia NVDA US||0.26|
|ETFMG Prime Cyber Sec. HACK US||0.01|
|Alphabet GOOGL US||0.00|
|Utilities||Emera EMA||5.54||Emera EMA||5.54|
|Fortis FTS||3.91||Fortis FTS||3.91|
|Healthcare||Abbott Labs ABT US||1.87||Abbott Labs ABT US||1.87|
|Bristol Myers BMY US||2.53||Bristol Myers BMY US||2.53|
|Johnson & Johnson JNJ US||2.62||Johnson & Johnson JNJ US||2.62|
|Merck MRK US||3.52||Merck MRK US||3.52|
|US Healthcare iShares ETF IYH US||1.46||US Healthcare iShares ETF IYH US||1.46|
|United Healthcare UNH US||1.40||United Healthcare UNH US||1.40|
|Thermo Fisher Scientific TMO US||0.30|
|IBB Biotech ETF IBB US||0.42|
|Real Estate||Cdn Apt. REIT CAR.un||3.45||Cdn. Apt. REIT CAR.un||3.45|
|InterRent REIT IIP.un||2.67||InterRent REIT IIP.un||2.67|
|Sienna Senior Living SIA||5.06||Sienna Senior Living||5.06|
|Chartwell REIT CSH.un||3.76||Chartwell REIT CSH.un||3.76|
|European Equity||iShares MSCI Europe XEU||2.24||iShares MSCI Europe XEU||2.24|
|Emerging Markets||iShares MSCI Emer. Mkts XEC||2.02||iShares MSCI Emer. Mkts XEC||2.02|
Investment Commentary April 2018
Global growth continues but is now faced with the threat of a possible trade war between the US and China that could derail a lot of the positive economic outlook that we are currently experiencing.
Currently there are a lot of announcements of additional tariffs between both countries. These are only threats and have not yet been put into actual policy.
However over the next 4-6 weeks this bantering back and forth will most likely escalate before anything is resolved. Markets do not like uncertainty and clearly do not like these recent developments.
It is possible that Trump is only using these tactics as a bargaining ploy, but he is not dealing with the unsophisticated. He is dealing with a Communist country with a leader that can remain in power for the remainder of his life.
Robert Shiller, the Yale economist and Nobel laureate, firmly believes that global economic chaos will result if these current trade protectionist threats escalate into an all out trade war.
The US did impose massive import tariffs in 1929 and this strategy extended the Great Depression by 10 years.
Donald Trump reminds me of a kid in elementary school who wants to get back at one of his classmates who got the better of him. His sole purpose seems to be revenge. It is frightening that he is in such a position of power taking into account his personality. In addition it astonishes me how little he understands basic economics. Trade wars rarely work and have historically hurt global growth.
As a result of these recent developments I have lost confidence in the strength of the economic recovery, but am still not prepared to throw in the towel just yet.
Consequently I am only recommending raising an additional 5% in cash for both portfolios. This will result in cash levels reaching 24.5% for the Income portfolio and 19.5% for the Growth one and provide sufficient buying power should markets correct further from current levels. I will not hesitate to raise more cash if these trade wars escalate.
Another headwind is the Federal Reserve is becoming more hawkish and will continue to increase interest rates to ensure that inflation is kept under control.
In regards to the ongoing NAFTA talks, it is starting to look a little more promising for Canada. However Trump is very unpredictable and no one really knows for sure what will happen at this time.
I am advising a reduction of 2% for Canadian equities and a 3% decrease in US equities, while keeping the European and Emerging market weights the same as last month.
I am leaving both the fixed income and preferred equity weight the same as last month.
In regards to my equity sector bets, I am leaving the overweights, underweights and market weights the same as last month.
I remain overweight the benchmark weight for Financials, Industrials, Technology and Consumer Discretionary.
I remain market weight Healthcare and Materials.
I remain underweight Energy, Utilities, REIT’s, Telcos and Consumer Staples
Please note that I have reduced my underweight somewhat for the Energy and REIT sectors.
There are several Canadian REIT’s performing very well, namely retirement homes and apartment ones. They have the ability to increase dividends with growth in their operating cash flows. I am adding Sienna Senior Living to both portfolios. The dividend yield is over 5% and the growing cash flows and reasonable valuation make it a solid investment choice.
The long term outlook for Energy is looking more promising with the supply glut gradually improving. However US rig counts continue to rise and this does not help the price of the commodity over the short term. The differential between Canadian Western select crude prices and the US WTI has shrunk quite a bit recently as a result of some new Canadian refinery capacity coming on stream shortly. Canadian energy stocks offer good value at current prices, but their share prices will remain volatile until the long term outlook for crude oil materially improves.
In the technology sector, I am adding a US cyber security ETF with the symbol HACK to the Growth portfolio. Taking into account all the data breach issues affecting the social media companies, the demand for cyber security will continue to grow.
I am keeping both Facebook and Alphabet in my Growth portfolio despite all the negative publicity about data breaches. These two platforms continue to offer the only viable way to advertise online for small businesses. It is likely that additional regulation will result in their growth rates slowing somewhat but they still represent solid investments.
In the Industrial sector, I am replacing New Flyer with Toromont. The earnings growth rate of New Flyer is declining over the next few years, while the growth outlook for Toromont is increasing with the recent addition of Hewitt that expands its territory into Quebec and the Maritimes. Toromont is one of the largest Caterpillar dealerships and also a market leader in the fabrication and servicing of refrigeration systems for the recreational and industrial markets.
I am also adding Fedex to the Growth portfolio. This is one of the largest logistics companies whose clients include Amazon. The company is exhibiting solid growth and trades at a reasonable valuation.
Despite all of Trump’s unfounded tirades against Amazon, the company remains in a very solid position both in online retailing and in cloud computing, its main profit contributor. Trump is totally misinformed about Amazon and does not realize that the company does pay its fair share of state taxes. Trump’s arguments against Amazon taking advantage of the post office are ridiculous as the company is one of the post office’s largest customers. Trump‘s views on Amazon are largely political. Jeff Bezos, Amazon’s President and founder, personally owns The Washington Post whose articles continuously criticize Trump.
McMurtry Investment Report – Sector Weights (April 2018)
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||60 % US / 40 % CDN|
McMurtry Investment Report Asset Mix (April 2018)
|Asset Mix – Income and Growth Portfolios|