Also available in PDF: MIR Portfolios August 2019
Investment Commentary August 2019
Asset Mix Changes resulting from an Escalation in the Trade War between the US and China
As a result of the ongoing trade war between the US and China reaching a higher level, I am recommending an increase of 5% in cash for both portfolios with a corresponding reduction of the same amount for equities. The combination of Trump’s announcement of an additional 10% tariff on all the remaining largely consumer goods that were not under the original 25% tariff plan, plus the retaliation by China in the form of currency devaluation are not to be taken lightly.
Equity markets have only corrected up to 5%, with a possible 10% additional decline to come. A total 10-15% correction is entirely possible under the current circumstances without an imminent economic recession within the next twelve months.
Global economic growth remains challenged with both Germany and Japan having negative interest rates.
Inflationary expectations continue to remain historically low causing a great deal of uncertainty at the Federal Reserve Bank.
Probability of an Impending US Recession
The yield cure in the US remains either inverted or at very flat levels depending on the maturities reviewed. As I mentioned previously, this does not automatically indicate that a recession is imminent.
Us Corporate spreads over Treasuries remain relatively low implying that the threat of an impending recession is low at this time.
Slow global economic growth, especially in industrial production, does not mean that we are heading into a recession. The US consumer remains healthy with low unemployment and plenty of job opportunities available in most industries.
Prospects of lower rates
Global interest rates continue to decline in this environment of slowing economic growth and low inflation.
I remain overweight Industrials, Consumer Staples, Technology, Utilities and REIT’s.
I remain market weight Financials, Energy, Healthcare and Communication Services.
I remain underweight Materials and Consumer Discretionary.
I continue to have a barbell approach in regards to equity sectors by remaining overweight the cyclical sectors Technology and Industrials, while also keeping my overweight in the interest sensitive sectors Reits, Utilities and Consumer Staples.
Interest sensitive stocks continue to perform well in this period of flat to falling interest rates.
Financial stocks continue to have difficulty with the combination of an inverted yield curve, falling net interest margins and rising non performing loans.
Energy stocks took a hit this week with the escalation of the trade war. The problem with crude prices has flipped somewhat to the demand side with concerns that the slowing Chinese economy will result in lower demand for crude oil. I remain neutral on energy stocks with very cheap market valuations offset by political and economic risks.
Common Equity Changes
In the Consumer Discretionary area, I am adding Magna International to both portfolios. The stock has a dividend yield of over 3% and is trading at a price / book value of 1.35 times. The shares offer a free cash yield of 12.5%. Its cash dividend is sustainable with a cash dividend payout of under 22%. While the auto cycle is peaking and is a cyclical industry, Magna shares are very cheap and are largely discounting a slower economy as long as an economic recession is not on the immediate horizon.
In the Materials sector I am adding VanEck Vectors Gold US ETF to both portfolios. This ETF offers exposure to all the world’s largest gold producers and the fund is denominated in US dollars.
Peter McMurtry, B.Com, CFA
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|McMurtry Investment Report – Portfolios (August 2019)|
|Cash||Alterna Bank – High Interest Savings (2.05% current )||Alterna Bank – High Interest Savings (2.05% current)|
|EQ Bank – High Interest Savings ( 2.30% current)||EQ Bank – High Interest Savings ( 2.30% current)|
|Bonds -Regular||iShares XSB Short Term||iShares XSB Short Term|
|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|
|Bonds – High Yield CORP||iShares XHY US High Yield CDN$||iShares XHY US High Yield CDN $|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.99||Royal Bank RY||3.99|
|Bank of Montreal BMO||4.26||Bank of Montreal BMO||4.26|
|Intact Financial IFC||2.45||Intact Financial IFC||2.45|
|TD TD||3.93||TD TD||3.93|
|Sun Life SLF||4.01||Sun Life SLF||4.01|
|JP Morgan JPM US||3.29||JP Morgan JPM US||3.29|
|Bank of America BAC US||2.56||Bank of America BAC US||2.56|
|Citibank C US||3.13||Citibank C US||3.13|
|Morgan Stanley MS US||3.46||Morgan Stanley MS US||3.46|
|T. Rowe Price TROW US||2.88||T. Rowe Price TROW US||2.88|
|PNC Fin’l PNC US||3.46||PNC Fin’l PNC US||3.46|
|Energy||Suncor SU||4.47||Suncor SU||4.47|
|Canadian Natural Resources CNQ||4.76||Canadian Natural Resources CNQ||4.76|
|Freehold FRU||7.78||Freehold FRU||7.78|
|Pembina Pipe Lines PPL||4.89||Pembina Pipe Lines PPL||4.89|
|Enbridge ENB||6.67||Enbridge ENB||6.67|
|Trans Canada TRP||4.67||Trans Canada TRP||4.67|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||0.94||Agnico Eagle AEM||0.94|
|Franco Nevada FNV||1.11||Franco Nevada FNV||1.11|
|VanEck Vectors Gold ETF GDX US||0.37||VanEck Vectors Gold ETF GDX US||0.37|
|Osisko Metals OM.V||0.00|
|iShares Global Gold ETF XGD||0.00|
|Industrials||Toromont TIH||1.66||Toromont TIH||1.66|
|NFI Group NFI||6.05||NFI Group NFI||6.05|
|Air Products APD US||2.11||Air Products APD US||2.11|
|WSP Global WSP||2.06||WSP Global WSP||2.06|
|Canadian Pacific CP||1.08||Canadian Pacific CP||1.08|
|Raytheon RTN US||2.09||Raytheon RTN US||2.09|
|Aecon Group ARE||2.97||Aecon Group ARE||2.97|
|Invesco Eq WT IND RGI US||1.45||Invesco Eq Wt IND RGI US||1.45|
|Honeywell HON US||2.02||Honeywell HON US||2.02|
|TFI Int’l TFII||2.42||TFI Int’l TFII||2.42|
|Consumer Discretionary||Home Depot HD US||2.65||Home Depot HD US||2.65|
|Magna Int’l MG||3.05||Magna Int’l MG||3.05|
|Amazon AMZN US||0.00|
|Canadian Tire CTC.A||2.89||Canadian Tire CTC.A||2.89|
|Lowes LOW US||2.27||Lowes LOW US||2.27|
|Communication Services||Rogers B RCI.B||2.90||Rogers B RCI.B||2.90|
|Facebook FB US||0.00|
|Alphabet GOOGL US||0.00|
|Consumer Staples||Alimentation Couche- Tard ATD.B||0.62||Alimentation Couche Tard ATD.b||0.62|
|Loblaws L||1.83||Loblaws L||1.83|
|Constellation Brands STZ US||1.61||Constellation Brands STZ US||1.61|
|Sysco SYY US||2.32||Sysco SYY US||2.32|
|Unilever PLC UL US||3.12||Unilever PLC UL US||3.12|
|Technology||Apple AAPL US||1.59||Apple AAPL US||1.59|
|Microsoft MSFT US||1.39||Microsoft MSFT US||1.39|
|Open Text OTEX||1.80||Open Text OTEX||1.80|
|Paychex PAYX US||3.07||Paychex PAYX US||3.07|
|Cisco CSCO US||2.73||Cisco CSCO US||2.73|
|Logitech Int’l LOGI US ADR||1.79||Logitech Int’l LOGI US ADR||1.79|
|ETFMG Prime Cyber Sec. HACK US||0.22|
|Visa V US||0.59|
|Utilities||Algonquin Power AQN||4.36||Algonquin Power AQN||4.36|
|Northland Power NPI||4.71||Northland Power NPI||4.71|
|Fortis FTS||3.44||Fortis FTS||3.44|
|Healthcare||Abbott Labs ABT US||1.54||Abbott Labs ABT US||1.54|
|Becton Dickinson BDX US||1.30||Becton Dickinson BDX US||1.30|
|Merck MRK US||2.65||Merck MRK US||2.65|
|US Healthcare iShares ETF IYH US||1.90||US Healthcare iShares ETF IYH US||1.90|
|United Healthcare UNH US||1.76||United Healthcare UNH US||1.76|
|Danaher DHR US||0.50|
|Thermo Fisher Scientific TMO US||0.28|
|Straumann ADR SAUHY US *||0.67|
|IBB Biotech ETF IBB US||0.11|
|Real Estate||Cdn Apt. REIT CAR.un||2.80||Cdn. Apt. REIT CAR.un||2.80|
|US Real Estate SPDR XLRE US||3.30||US Real Estate SPDR XLRE US||3.30|
|InterRent REIT IIP.un||1.97||InterRent REIT IIP.un||1.97|
|Dream Industrial DIR.un||5.74||Dream Industrial DIR.un||5.74|
|Summit REIT SMU.un||4.11||Summit REIT SMU.un||4.11|
|European Equity||iShares MSCI Europe XEU||3.57||iShares MSCI Europe XEU||3.57|
* Be careful purchasing and selling Straumann ADR’s as it is very illiquid. Always use a limit order.
|McMurtry Investment Report – Sector Weights (August 2019)|
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||55 % US /45% CDN|
|McMurtry Investment Report Asset Mix (August 2019)|
|Asset Mix – Income and Growth Portfolios|
|Bonds – Regular||20.00||10.00|
|Bonds – High Yield||5.00||5.00|