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McMurtry Investment Report – Portfolios (August 2017)
|Cash||Alterna Bank – High Interest Savings (1.9% current rate)||Alterna Bank – High Interest Savings (1.9% 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||4.22||Enbridge Pfd V Enb.pr.V US||4.22|
|Horizons Active Mgt. Pfd HPR||3.95||Horizons Active Mgt. Pfd HPR||3.95|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.74||Royal Bank RY||3.74|
|TD TD||3.73||TD TD||3.73|
|Sun Life SLF||3.64||Sun Life SLF||3.64|
|JP Morgan JPM US||2.18||JP Morgan JPM US||2.18|
|Bank of America BAC US||1.99||Bank of America BAC US||1.99|
|Citibank C||1.17||Citibank C||1.17|
|Manulife MFC||3.19||Manulife MFC||3.19|
|T. Rowe Price TROW US||2.76||T. Rowe Price TROW US||2.76|
|iUnits US Regional Banks IAT US||1.46||iUnits US Regional Banks IAT US||1.46|
|Keycorp KEY US||1.94||Keycorp KEY US||1.94|
|Blackrock BLK US||2.34||Blackrock BLK US||2.34|
|Visa V US||0.66|
|First Data FD US||0.00|
|Energy||Suncor SU||3.15||Suncor SU||3.15|
|Freehold FRU||4.22||Freehold FRU||4.22|
|Whitecap WCP||3.04||Whitecap WCP||3.04|
|Torc TOG||4.28||Torc TOG||4.28|
|Pembina Pipe Lines PPL||4.80||Pembina Pipe Lines PPL||4.80|
|Enbridge ENB||4.72||Enbridge ENB||4.72|
|Inter Pipeline IPL||6.38||Centennial Resources CDEV US||0.00|
|Materials||Agnico Eagle AEM||0.86||Agnico Eagle AEM||0.86|
|Franco Nevada FN||1.33||Franco Nevada FN||1.33|
|Trevali Mining TV||0.00|
|Industrials||New Flyer Ind NFI||2.56||New Flyer Ind NFI||2.56|
|WSP Global WSP||2.96||WSP Global WSP||2.96|
|Canadian Pacific CP||1.15||Canadian Pacific CP||1.15|
|General Dynamics GD US||1.71||General Dynamics GD US||1.71|
|SNC Lavalin SNC||1.99||SNC Lavalin SNC||1.99|
|Apogee APOG US||1.08||Apogee APOG US||1.08|
|Consumer Discretionary||Home Depot HD US||2.38||Home Depot HD US||2.38|
|Sleep Canada ZZZ||1.74||Sleep Canada ZZZ||1.74|
|Stanley Black and Decker SWK US||1.79||Stanley Black and Decker SWK US||1.79|
|Canadian Tire CTC.A||1.83||Canadian Tire CTC.A||1.83|
|Telecom||BCE BCE||4.90||BCE BCE||4.90|
|Rogers B RCI.B||2.96||Rogers B RCI.B||2.96|
|Consumer Staples||Alimentation Couche Tard ATD.b||0.61||Alimentation Couche Tard ATD.b||0.61|
|Loblaws L||1.59||Loblaws L||1.59|
|Pepsico PEP US||2.76||Pepsico PEP US||2.76|
|Kraft Heinz KHC US||2.74||Kraft Heinz KHC US||2.74|
|Technology||Apple AAPL US||1.69||Apple AAPL US||1.69|
|Microsoft MSFT US||2.15||Microsoft MSFT US||2.15|
|Amazon AMZN US||0.00|
|Facebook FB US||0.00|
|Nvidia NVDA US||0.34|
|Alphabet GOOGL US||0.00|
|Utilities||Emera EMA||4.50||Emera EMA||4.50|
|Fortis FTS||3.52||Fortis FTS||3.52|
|Healthcare||Johnson & Johnson JNJ US||2.53||Johnson & Johnson JNJ US||2.53|
|Merck MRK||2.94||Merck MRK||2.94|
|US Healthcare iShares ETF IYH US||1.13||US Healthcare iShares ETF IYH US||1.13|
|Thermo Fisher Scientific TMO US||0.34|
|Knight Therapeutics GUD||0.00|
|IBB Biotech ETF IBB US||0.20|
|Real Estate||Cdn Apt. REIT CAR.un||3.95||Cdn. Apt. REIT CAR.un||3.95|
|Chartwell REIT CSH.un||3.76||Chartwell REIT CSH.un||3.76|
|Pure Multi-family RUF.un||5.53||Pure Multi-family RUF.un||5.53|
|Pure Industrial AAR.un||4.90||Pure Industrial AAR.un||4.90|
|European Equity||BMO European ETF ZEQ||1.93||BMO European ETF ZEQ||1.93|
|Emerging Markets||iShares MSCI Emer. Mkts XEC||1.55||iShares MSCI Emer. Mkts XEC||1.55|
Investment Commentary August 2017
I am maintaining the same total equity exposure for both portfolios as last month.
However I am reducing my North American equity weight by 2% and increasing the European equity exposure by 2%. European markets are cheaper than either Canadian or US equities.
Despite none of Trump’s proposed pro growth policies likely to pass both Houses of Government anytime soon, US equity markets have continued to rally. US corporate profit growth for the second quarter is reaching a 10% year over year improvement with more of the same expected for the third quarter.
Canadian equity markets have not fared nearly as well this year as other global equity markets, possibly a result of the strong loonie and continuing weak crude oil markets. The whole debacle with Home Capital also did not help Canadian financial stocks. Historically Canadian equity markets have followed their US counterparts when economic growth starts to accelerate and I expect this to happen once again.
World economies are currently experiencing a synchronized economic rebound which is positive for equity valuations.
Bank of America Merrill Lynch’s Bull and Bear Sentiment indicator indicates that the US equity market is very overbought short term and is due for a market correction of anywhere up to 15-20%.
As I have mentioned in previous newsletters, any type of equity correction without any signs of an impending recession should be viewed as a buying opportunity and not the beginning of a long term bear market.
I remain overweight the 50 / 50 benchmark weight the following equity sectors:
- High Tech
- Consumer Discretionary
I remain underweight:
- Materials – remain underweight but have increased my weight materially from last month.
- Real Estate
- Consumer staples – remain underweight but have increased my weight materially from last month.
I remain market weight:
In the energy sector I have added Enbridge to both portfolios. The stock is off considerably from its recent high and is just starting to reap the benefits of its major US acquisition of Spectra Energy that will both better diversify the consolidated company’s products and provide more growth opportunities.
In the Consumer Discretionary area I am adding Amazon to the Growth portfolio. Although the stock is not cheap on a PE basis, sales growth remains very solid and the company continues to expand its footprint in new areas like Artificial Intelligence, video and film content, medical database management, online drug and grocery retailing. I recommend a small exposure initially with the intention of adding to my position upon any material share price pullbacks.
In the Materials sector, I remain underweight but have materially lowered my underweight. The weak US dollar is helping both base metal and precious metal prices. In addition at some point inflationary pressures will start to rise once again and this sector will be a beneficiary. I continue to like both Lundin and Trevali Mining for the base metal exposure.
In the Financials area, I am adding Keycorp, a Cleveland Midwestern regional bank that has just acquired First Niagara in 2016. The bank is expected to benefit by over $340 million in operating cost savings from the merger.
In the healthcare sector, I am recommending the most changes from last month.
I am removing Walgreens, CVS and AmerisourceBergen as a result of an industry wide problem with generic drug pricing. The pharmacy benefit managers, that include both CVS and AmerisourceBergen, are faced with more regulations regarding generic drug pricing and this is very negative for overall profitability. While most of Walgreens pharmacy benefit business is handled by AmerisourceBergen, the drug retailer along with CVS’s drug dispensing business will both be negatively affected by Amazon’s recent decision to sell drugs online at lower prices than their competitors.
I recommend using the proceeds from the sales of these above mentioned healthcare stocks to buy more Johnson & Johnson and Merck that both offer solid dividends and good growth prospects.
I am adding Thermal Fisher Scientific to the healthcare sector of the Growth Portfolio. The company is the maker of scientific instrument and laboratory supplies. The company recently reported their second quarter earnings and beat both the top and bottom line estimates and raised their outlook for the remainder of this year. The company is expected to grow its revenues, cash flow and earnings at double digit rates for the next five years.
I remain underweight Consumer Staples, but have materially reduced my underweight. Kraft Heinz just reported a strong bottom line as a result of its massive ongoing cost cutting efforts. Revenues continued to decline but were better than expected.
I have not made any other changes to Real Estate, Utilities, Telcos, Industrials and Technology.
Finally I am replacing Horizons Active Emerging Market ETF HAJ with iShares MSCI Emerging market ETF XEC. The performance of the Horizons ETF has been disappointing relative to the iShares Emerging Market ETF and this is my rational for the change.
McMurtry Investment Report – Sector Weights (August 2017)
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||50/50|
McMurtry Investment Report Asset Mix (August 2017)
|Asset Mix – Income and Growth Portfolios|