McMurtry Investment Report and Model Portfolios™

McMurtry Investment Report Portfolios – December 2016

Here are the December 2016 Portfolios, Sector Weights and Asset Mixes.

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McMurtry Investment Report Portfolios (December 2016)



Cash EQ Bank – High Interest Savings (2.0% current rate) EQ Bank – High Interest Savings (2.0% 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
Stocks Security Dividend Yield % Security Dividend Yield %
Financials Royal Bank     RY 3.78 Royal Bank     RY 3.78
  TD Bank         TD 3.47 TD Bank        TD 3.47
  Sun Life         SLF 3.24 Sun Life         SLF 3.24
  Firm Capital   FC 6.72 Visa V US 0.87
  JP Morgan   JPM   US 2.35 JP Morgan   JPM   US 2.35
  Bank of America BAC US 1.41 First Data   FD US 0.00
  Bank of America BAC   US 1.41
  Citibank C     US 1.14
Energy Freehold   FRU 3.48 Freehold FRU 3.48
  Whitecap WCP 2.36 Whitecap WCP 2.36
  Crescent Point   CPG 2.09 Crescent Point CPG 2.09
  Inter Pipeline IPL 5.84
Materials Agnico Eagle   AEM 1.01 Aphria APH 0.00
  Roxgold   ROG.V 0.00
  HudBay Minerals HBM 0.22
Industrials WSP Global   WSP 3.17 WSP Global WSP 3.17
  Stella Jones       SJ 0.89 Stella Jones       SJ 0.89
  ZCL Composites   ZCL 2.62
Consumer Discretionary Home Depot     HD   US 2.13 Home Depot     HD   US 2.13
  Time Warner   TWX US 1.72 Time Warner   TWX US 1.72
  Pepsico         PEP US 2.99 Pepsico             PEP US 2.99
  Gentex       GNTX   US 1.93 Gentex           GNTX US 1.93
  Stanley Black and Decker SWK US 1.96 Aritzia               ATZ 0.00
  Stanley Black and Decker SWK US 1.96
Telecom BCE   BCE 4.61 BCE   BCE 4.61
Consumer Staples Alimentation Couche Tard   ATD.b 0.59 Alimentation Couche Tard   ATD.b 0.59
  Mondelez   MDLZ   US 1.85
Technology Apple   AAPL   US 2.07 Apple AAPL US 2.07
  Cisco   CSCO   US 3.56 Shopify SH 0.00
  Microsoft MSFT US 2.63 Microsoft MSFT US 2.63
  CGI   GIB.a 0.00
  Facebook FB US 0.00
  Alphabet   GOOGL US 0.00
Utilities Fortis   FTS 3.99 Fortis FTS 3.99
Healthcare Johnson & Johnson JNJ   US 2.86 Johnson & Johnson JNJ   US 2.86
  Walgreen Boots WBA   US 1.76 Walgreen Boots WBA   US 1.76
  Anthem ANTM   US 1.80 Anthem ANTM US 1.80
  Bristol-Myers Squibb BMY   US 2.72 Bristol-Myers Squibb BMY   US 2.72
  IBB Biotech ETF     IBB US 0.16
Real Estate Cdn Apt. REIT   CAR.un 4.11 Cdn. Apt. REIT CAR.un 4.11
  Chartwell REIT CSH.un 3.89 Chartwell REIT CSH.un 3.89
  Pure Industrial   PUR.un 5.85 Pure Industrial   PUR.un 5.85

December 2016 Sample Portfolio Recommendations

Security markets have been moving all over the place since the Trump victory. The bond market in the US experienced the largest price decline as rising interest rates have caused massive bond selling in the range of $70 billion.

On the other hand, equity prices have jumped dramatically on the expectation of improving economic growth prospects and rising corporate earnings.

To sum it up, the experts got in wrong both on the Trump victory and on the expectation that equity markets would fall if Trump was elected.

Based on the long term benefits of a pro-growth economic platform, I am increasing my equity exposure by 7.5% for both the Income and Growth portfolios to 52.5% and 67.5% respectively. Please note that I am keeping a higher than average cash content in both portfolios – 32.5% cash in the Income portfolio and 22.5% cash in the Growth portfolio as there remains a great deal of uncertainty regarding Trump’s controversial policies in regards to trade.

Interest rates are definitely going up and this is not great for bond prices and high dividend paying stocks in the utilities, REIT and telecommunications sectors.

In this regard, I am removing Verizon, Emera and Telus from my model portfolios as they are very interest sensitive and will not benefit from a rising rate environment. I have significantly reduced my equity exposure to these sectors in my model portfolios.

In the Financial Services area, I added Bank of America that is expected to be a prime beneficiary from rising interest rates and less banking regulation. I have also materially increased my financial services weight to account for this improvement in profitability.

Gold bullion and gold shares are being negatively affected from rising rates as well. Thus I am removing Goldcorp from my model portfolios.

I am adding a small position in Aphria, a new Canadian pot producer based in Leamington, Ontario to my Materials exposure. This company is the lowest cost pot producer in Canada and has an exclusive supply agreement with Tokyo Smoke, a Toronto upscale pot retailer. This is clearly not the type of company that I would recommend without any real earnings or cash flow combined with a high valuation. However the industry is still in its infancy and the expectation that the federal government will approve recreational use in 2017 makes a small investment quite appealing. The key here is a small holding to limit any portfolio volatility.

In the energy area, I am adding Crescent Point Energy. The stock has sharply underperformed its peers as a result of its decision to continue to acquire companies using its shares. However its balance sheet is quite strong and it will be a long term beneficiary from any uptick in crude oil prices. Based on the recent OPEC agreement to cut production I have increased my energy exposure but still remain underweight. What the OPEC members do and say frequently differ and the probability of individual countries cheating by overproducing their quotas remains a real threat.

I added Stanley Black and Decker to my recommended portfolios in the Consumer Discretionary sector. Profit growth is improving based on better volumes and pricing, more than offsetting the negative implications from a stronger dollar.

In the highly volatile Healthcare sector, the expected revisions to Obamacare will hopefully improve the profitability of the hospital management and insurance companies. I have added Anthem to my recommended list as it is a relatively cheap stock relative to its peers yet offers good upside potential from an earnings basis. I did remove Zimmer Biomet as the specific industry they are operating in is experiencing severe pricing and margin pressure as evidenced by Medtronic’s poor recent quarter.

McMurtry Investment Report – Sector Weights (December 2016)

Equity Sector Weights (%)


My Weight TSX Comp S&P 500


Financials 28.00 34.50 14.60 24.60
Energy 13.00 21.40 7.50 14.50
Materials 6.50 12.00 2.90 7.50
Industrials 12.50 9.10 10.50 9.80
Consumer Disc. 10.70 5.10 12.30 8.70
Telecom 1.00 4.90 2.50 3.70
Consumer Staples 5.00 3.90 9.30 6.60
Technology 13.00 2.80 20.80 11.80
Utilities 1.00 2.80 3.10 2.90
Real Estate 2.00 3.00 2.80 2.90
Healthcare 7.30 0.60 13.70 7.10
Totals 100.00 100.10 100.00 100.10

McMurtry Investment Report – Asset Mix (December 2016)

Asset Mix – Income and Growth Portfolios

% Income


Cash 32.5 22.5
Bonds 15 10
Equities 52.5 67.5
    CDN 26.25 33.75
    US 26.25 33.75

Also available in PDF: MIR Portfolios April 2019

Investment Commentary (April 2019)

Asset Mix Changes

Last week both the Canadian and US yield curve inverted where short rates exceeded longer maturities. For most of the past economic recessions, an inverted yield curve occurred 6-18 months before the onslaught of an economic slowdown. Consequently, this signal should not be taken lightly and brushed off as is frequently the case with economists stating that things are different this time.

This week the inversion of the curve went away in both Canada and the US with longer rates now slightly exceeding shorter maturities. However, the negative yield curve is still present in Europe where their economy continues to suffer.

US corporate bond spreads for both investment and High Yield securities had been creeping up in late December. However, year to date corporate spreads over US Treasuries have been coming down once again. Historically when corporate spreads widen this is a danger signal for an economic slowdown. The recent reduction is spreads is a positive sign that the economy may not be as weak as many pundits are saying.

Overall economic activity is definitely slowing globally. This is also true in the US but their economy is still growing on a relative basis much faster than Europe and Canada. Economic growth in the Chinese economy had been coming down sharply, but this week an announcement came out stating that their domestic industrial production started to revive after nearly nine months of decline. Several months ago the Chinese authorities began stimulating their domestic economy by lowering corporate taxes and increasing government spending. Once again this is a positive development.

The Federal Reserve has stopped increasing rates by emphatically stating that there will be no more rate increases for the remainder of the year.

US corporate profit growth has slowed dramatically from last year, while equity prices have rebounded sharply year to date. Equity valuations are no longer cheap as they were in late December.

This week the US / China trade talks have taken a more positive tone which is good for markets.

Taking all these factors into consideration, I have decided to leave the asset mix for both portfolios the same as last month. The jury is still out if an economic recession is imminent or only years away.

McMurtry Investment Report Asset Mix (April 2019)
Asset Mix – Income and Growth Portfolios
%Income Growth
Bonds – Regular20.0010.00
Bonds – High Yield5.005.00
Emerging Markets0.000.00

Equity Sectors

The main change to my equity sector recommendations is to reduce the Financial equity exposure from overweight to market weight the 55% US 45% Canada benchmark. This works out to a new weight of 21.25% of my North American equity exposure.

The reason for my reduction in weight for the Financial sector is all to do with interest rates and the slope of the yield curve. Lower rates combined with either a flat or inverted yield curve is not positive for the bank’s net interest margins. A slowing economy normally results in an increase in loan losses, another possible headwind.

For the other groups I remain market weight Energy, Utilities and Healthcare.

I remain overweight Technology, Industrials, Real Estate, Communication Services and Consumer Staples

I remain underweight Materials and Consumer Discretionary.

McMurtry Investment Report – Sector Weights (April 2019)
Equity Sector Weights (%)
SectorMy WeightTSX CompS&P 50055 % US /45% CDN
Consumer Disc.6.404.1010.107.40
Comm. Services8.505.8010.108.17
Consumer Staples6.253.907.305.77
Real Estate3.753.503.103.28

Common Equity Changes

In the Financial Services sector, I am replacing National Bank with Intact Financial for both portfolios. Intact is the largest property / casualty company in Canada and will benefit from the recent departure of AIG, a large US competitor from the Canadian market. Intact is raising insurance rates in Ontario and this will help to increase operating margins. Differing from life insurance companies, property and casualty insurance companies have much shorter term liabilities and are consequently not as negatively affected from flat to falling interest rates as the life companies are.

In the Technology sector, I am deleting Nokia from both portfolios. Huawei, the Chinese company and major competitor to Nokia has been continuously lobbying the global wireless providers to encourage them to continue buying their products. It is only in the US that the Chinese company has been banned with its alleged cybersecurity activities. Thus, Nokia has not been as much of a beneficiary from the 5G wireless ramp up as originally expected. In addition, a law firm has recently alleged that Nokia’s Alcatel – Lucent division has some very serious potential claims for security law violations. This creates a lot of uncertainty. My recommendation is to sell your Nokia shares and use the proceeds to purchase more Cisco, which will be a major beneficiary from the upcoming 5G implementation.

In the healthcare sector I am adding the Swiss dental implant company, Straumann Holdings ADR to my Growth portfolio. This American Depositary Receipt is not very liquid in the US market, so please always use limit orders when buying and selling this security. Despite this shortfall, this is a good quality company and one of the global leaders in the dental implant industry. The company is experiencing strong annual revenue and gross profit growth in addition to record EBITDA margins. The company has strong organic growth and operates in 100 countries globally. The global dental implant market is expected to grow at 4-5% globally this year and Straumann’s organic growth is sharply outperforming its competitors.

Lastly in the Materials sector, I am adding Osisko Metals to my Growth portfolio. The company is a small cap zinc exploration company that operates in both the Far North and in New Brunswick. The company has no long term debt and the level of insider buying is unusually high. Normally I do not even discuss insider buying, but the level of insider buying for this company is extraordinary. The supply / demand situation for zinc is the most favourable for all the base metals with inventory stockpiles at very low levels. Should the Chinese economy rebound the demand for zinc will increase accordingly.

Peter McMurtry, B.Com, CFA
Financial Writer
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McMurtry Investment Report – Portfolios (April 2019)
CashAlterna Bank – High Interest Savings (2.35% current rate)Alterna Bank – High Interest Savings (2.35% current rate)
 EQ Bank – High Interest Savings ( 2.30% current rate)EQ Bank – High Interest Savings ( 2.30% current rate)
Bonds -RegulariShares XSB Short TermiShares XSB Short Term
 iShares CBO 1-5 Ladder CorpiShares CBO 1-5 Ladder Corp
 iShares CLF 1-5 Ladder Gov’tiShares CLF 1-5 Ladder Gov’t
Bonds – High Yield CORPiShares XHY US High Yield CDN$  iShares XHY US High Yield CDN $ 
Common StocksSecurityDividend Yield %SecurityDividend Yield %
FinancialsRoyal Bank RY4.05Royal Bank RY4.05
 Bank of Montreal BMO4.00Bank of Montreal BMO4.00
 Bank of Nova Scotia BNS4.89Bank of Nova Scotia BNS4.89
 Intact Financial IFC2.69Intact Financial IFC2.69
 TD TD4.08TD TD4.08
 Sun Life SLF3.90Sun Life SLF3.90
 JP Morgan JPM US3.16JP Morgan JPM US3.16
 Bank of America BAC US2.17Bank of America BAC US2.17
 Citibank C US2.89Citibank C US2.89
 Morgan Stanley MS US2.84Morgan Stanley MS US2.84
 T. Rowe Price TROW US3.04T. Rowe Price TROW US3.04
 Keycorp KEY US4.32Keycorp KEY US4.32
 PNC Fin’l PNC US3.10PNC Fin’l PNC US3.10
EnergySuncor SU3.85Suncor SU3.85
 Freehold FRU7.43Freehold FRU7.43
 Torc TOG5.62Torc TOG5.62
 Pembina Pipe Lines PPL4.55Pembina Pipe Lines PPL4.55
 Enbridge ENB6.04Enbridge ENB6.04
 Trans Canada TRP4.91Trans Canada TRP4.91
   Parex Resources PXT0.00
MaterialsAgnico Eagle AEM1.15Agnico Eagle AEM1.15
 Franco Nevada FNV1.29Franco Nevada FNV1.29
   Osisko Metals OM.V0.00
   iShares Global Gold ETF XGD0.20
IndustrialsToromont TIH1.55Toromont TIH1.55
 Air Products APD US2.44Air Products APD US2.44
 WSP Global WSP2.06WSP Global WSP2.06
 Canadian Pacific CP0.94Canadian Pacific CP0.94
 CNR 1.79CNR1.79
 Raytheon RTN US2.03Raytheon RTN US2.03
 Aecon Group ARE3.33Aecon Group ARE3.33
 Guggenheim Eq WT IND RGI US1.35Guggenheim Eq Wt IND RGI US1.35
 Honeywell HON US2.07Honeywell HON US2.07
 TFI Int’l TFII2.45TFI Int’l TFII2.45
Consumer DiscretionaryHome Depot HD US2.80Home Depot HD US2.80
 Sleep Canada ZZZ3.77Sleep Canada ZZZ3.77
 Canadian Tire CTC.A2.88Canadian Tire CTC.A2.88
 Amazon AMZN US0.00Amazon AMZN US0.00
 Lowes LOW US1.75Lowes LOW US1.75
Communication ServicesRogers B RCI.B2.78Rogers B RCI.B2.78
   Facebook FB US0.00
   Alphabet GOOGL US0.00
Consumer StaplesAlimentation Couche- Tard ATD.B0.64Alimentation Couche Tard ATD.b0.64
 Loblaws L1.79Loblaws L1.79
 Constellation Brands STZ US1.69Constellation Brands STZ US1.69
 Unilever PLC UL US3.06Unilever PLC UL US3.06
TechnologyApple AAPL US1.54Apple AAPL US1.54
 Microsoft MSFT US1.56Microsoft MSFT US1.56
 Open Text OTEX1.58Open Text OTEX1.58
 Paychex PAYX US2.79Paychex PAYX US2.79
 Cisco CSCO US2.59Cisco CSCO US2.59
   Kinaxis KXS0.00
   ETFMG Prime Cyber Sec. HACK US0.15
   Visa V US0.64
UtilitiesAlgonquin Power AQN4.58Algonquin Power AQN4.58
 Northland Power NPI5.12Northland Power NPI5.12
 Fortis FTS3.64Fortis FTS3.64
HealthcareAbbott Labs ABT US1.60Abbott Labs ABT US1.60
 Becton Dickinson BDX US1.23Becton Dickinson BDX US1.23
 Merck MRK US2.65Merck MRK US2.65
 US Healthcare iShares ETF IYH US1.84US Healthcare iShares ETF IYH US1.84
 United Healthcare UNH US1.46United Healthcare UNH US1.46
   Danaher DHR US0.52
   Thermo Fisher Scientific TMO US0.28
   Straumann ADR SAUHY US *0.63
   IBB Biotech ETF IBB US 0.28
Real EstateCdn Apt. REIT CAR.un2.76Cdn. Apt. REIT CAR.un2.76
 InterRent REIT IIP.un2.03InterRent REIT IIP.un2.03
 Dream Industrial DIR.un5.83Dream Industrial DIR.un5.83
 Summit REIT SMU.un4.35Summit REIT SMU.un4.35
European EquityiShares MSCI Europe XEU2.96iShares MSCI Europe XEU2.96

* Be careful purchasing and selling Straumann ADR’s as it is very illiquid. Always use a limit order.

Peter McMurtry, B.Com, CFA

Please see our disclaimer at disclaimer ©2019 McMurtry Investment Report™. All rights reserved.