McMurtry Investment Report & Model Portfolios

McMurtry Investment Report Portfolios April 2024

Also available in PDF: McMurtry Investment Report – April 2024

Investment Commentary April 2024


US Yield Curve


The 2-10 year US Treasury yield curve inversion decreased slightly to a minus 34 basis points as of April 5th, compared to a minus 41 basis points the previous month.


US Corporate Debt Spreads


Investment grade US corporate debt spreads declined by 6 basis points to a level of 1.51% as of April 4th. This is consistent with an improving US economy.  




Although remaining weak, there are signs of a gradual improvement in the Chinese economy.


Equity Market Valuations


The forward PE of the S&P 500 fell to 21 times as of April 5th, off marginally from the previous month’s 23 times.


US Corporate Earnings


Stronger US economic growth confirm a more positive earnings growth outlook for 2024.


Central Bank Monetary Policy


The stronger employment numbers combined with domestic inflation not falling as quickly as expected, has led to a reduction in the number of projected interest rate cuts from 3-4 times this year to 1-2 times in the second half of the year.


Asset Mix


Based on a stronger US economy evidenced by strong employment growth and rising consumer spending, I am reducing both fixed income and equity weights by 5% each and using the proceeds to increase cash by 10% to the new pro forma level of 15% for both portfolios.


I am also reducing Canada’s share of my North American’s equity benchmark from the current 55% Canada 45% US to the new level of 50% Canada 50% US. The US economy continues to surprise on the upside, but I also want to continue having a solid representation in Canada with its improving commodity prices and lower market valuations.


Pro forma equity weights go down by 5% to 45% and 55% respectively for both portfolios. Having a cash surplus after such a strong rise in equity prices is prudent at this time. The strength of the US economy has led to interest rates rising as well, causing bond prices to fall. In this regard I am reducing the fixed income term by taking 10% off the 5-10 year Investment Grade Corporate bonds and by adding 5% to the 1-5 year Investment Grade Corporate bonds. The other 5% is being added to the cash component.


A stronger US economy has led many strategists to reverse their projections of several interest rates cuts this year to only one or none at all. Equity market volatility is expected to rise with index valuations higher than long term averages. Taking major interest rate decreases off the table forces many strategists to rely much more on the economic growth and the improving growth in corporate earnings.


Despite the strength of the US dollar, commodity prices, namely crude oil, gold and copper are all rising. WTI crude at the current level of $87 per barrel, is up almost 11% for the month and almost 23% from the end of last year. The combination of increasing geopolitical risks, improving demand and ongoing supply production cuts by OPEC, are resulting in this improvement in prices. Gold is also benefitting from the increase in geopolitical tensions and by ongoing central bank buying. Copper future prices have jumped to $4.20 per pound, the highest level in 14 months. The combination of a slight improvement in Chinese growth prospects with more global copper supply issues from the droughts in Zambia and logistic problems in Congo.

Asset Mix- ETF Portfolios


Similar to the individual stock portfolios, I am increasing the cash surplus by 10% for both portfolios to a pro forma level of 15% for both portfolios. I am recommending an addition of 10% to the EQ Bank High Interest Savings account.


I am also decreasing the fixed income term by reducing the Vanguard Corporate bond ETF, VCB, by 5% for both portfolios to the pro forma level of 7% for both portfolios.


My equity weights goes down by 5% for both portfolios to 45% and 55% respectively.  

Equity Sector Recommendations


My 5% reduction in my North American benchmark weight for Canada automatically increases my Technology and Communications weights and reduces the cyclical/ value component accordingly.


I remain overweight Industrials, Materials, Consumer Discretionary and Reits. I remain underweight Consumer Staples, Utilities and Healthcare. I remain market weight Financials, Technology, Communications and Energy.


In this month’s newsletter, I reviewed the defensive equity sectors – namely Consumer Staples, Utilities, Healthcare and Telcos. As I mentioned previously, Telcos are not part of the defensive sectors as they are part of the Communications sector. The Communications sector is dominated by Google, Meta and Netflix, and all three are Growth companies.


As you all know, I am a real believer in equity sector diversification. Consequently, I recommend holding equity positions in all sectors even though the current outlook may not look favourable.

Individual Stock Changes


In a blog dated April 2nd, I deleted Elevance from both portfolios in the Healthcare sector. Ongoing reimbursement issues are facing all private medical insurers in the US in regards to their Medicate Advantahe patients.


In a blog dated March 24th, I added Bath and Body Works, BBWI-US, to both [portfolios in the Consumer Discretionary sector. The company is a global leader in specific fragrances for both the home and one’s body. The company’s new product innovations differentiate itself from its peers. The company recently initiated a customer loyalty program and already has 40 million in the program. Operating margins are expanding and this is leading to improving EPS growth prospects. The shares trade at a cheap 13.84 times FWD PE and offer a dividend yield of 1.76% that is well covered.


ON March 21st, I sent out a portfolio blog recommending the addition of Jacobs Solutions, J-US, to both portfolios in the Industrials sector. This global engineering and construction currently has an order backlog of $29.6 billion, which is up by 4.7% over the previous year. Consensus estimates call for a 7.5% improvement this year in EBITDA and a 6.7% rise in revenues. Currently the shares are trading at an Enterprise Value to forward EBITDA of 13.40 times and offers a dividend yield of 0.78% accompanied by a very low payout ratio of 13.63% on free cash flow.


In a blog dated March 17th, I added Manulife to both portfolios in the Financials sector. The company recently entered into an agreement with Global Atlantic to reinsure 4 in force blocks of legacy and low ROE businesses, including $6 billion of LTC insurance. This will result in a material reduction in overall risk in its insurance business and an expected improvement in ROE. The shares currently trade at a low forward PE of 8.925 times with a dividend yield of 4.83% that is well covered by free cash flow.


In a blog dated March 14th, I added Pfizer- PFE-US, to both portfolios in the Healthcare sector. The company recently made a $43 billion acquisition of Seagen, a global biotech firm that develops and distributes a wide assortment of cancer drugs. This acquisition has resulted in Pfizer’s pipeline of oncology drugs doubling in size. The company is trading at a cheap valuation of 12 times, especially attractive when one takes into account its 20% EPS projected growth rate in 2024’s earnings. The shares offer a dividend yield of 6.30%.


From this month’s newsletter, I have decided to delete Alimentation Couche- Tard from both portfolios in the Consumer Staples sector. EPS growth prospects are not looking favourable this year and new acquisitions are starting to have a smaller influence on the bottom line as a result of the company’s large size.

In the Utility sector, I am deleting Capital Power from both portfolios. While the company pays a good dividend, the company’s is expected to register declining year over year EPS growth.

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