Also available in PDF: MIR Portfolios December 2019
Investment Commentary December 2019
Fund Flows into Capital Markets
There remains a considerable amount of cash on the sidelines, albeit diminished somewhat over the last few months. This will provide support for equities in any future market drop.
US Yield Curve
The US Treasury yield curve remains positively sloped, implying the probability of an imminent recession is not high.
US Corporate Debt Spreads
Spreads remain at low levels relative to US Treasuries implying the threat of an impending recession in the US is low.
US/ China Trade War
This issue is ongoing but there is some progress being made in regards to an initial agreement. However, nothing is certain and things can change pretty quickly from positive to negative and vice versa.
US Corporate Profit Growth
Corporate profit growth remains a concern.
Central Bank Monetary Policy
Global central bank policy remains very accommodative with any potential interest rate increases being put on the back burner for now.
Asset Mix
I am maintaining the same asset mix as last month. Having some cash on the sidelines will provide a nice buffer if markets turn ugly from any negative trade rhetoric.
Equity Sector Weights
There continues to be a fair amount of equity sector rotation out of groups that have performed well into some that have not. For example, growth into value stocks has been a recent theme and defensive high yielding stocks into value is another example. Whether this current trend continues well into 2020 will depend on the resolution of a trade deal between the US and China and the global economy not going into a recession next year. It never hurts taking a profit in a group that has performed well, but it is essential to maintain some exposure in these favourable groups. If you do not you risk getting whip sawed.
While I am maintaining my Financial sector exposure at market weight, I am deleting Bank of Montreal from both portfolios. I would like you to concentrate your purchases on both US Financials and Canadian insurance companies that have better immediate risk / reward characteristics than the Canadian banks.
I am increasing my Energy exposure from market weight to overweight with the current attractive valuations in this sector.
I am maintaining my market weight exposure for the Materials, Consumer Staples, Utilities and Healthcare.
I am increasing my weight in Consumer Discretionary from market to over weight.
I am also increasing my sector weight in Communications from under weight to market weight.
I am keeping the overweight for both Industrials and Technology.
Lastly, I am reducing my sector weight in Reits from over weight to market weight, based on the market rotation currently going on.
Individual Positions
I added EOG, the US energy producer, to both portfolios in a blog. In addition, I am adding Baytex Energy to the Growth portfolio with its very attractive valuation, improving cash flow and improving balance sheet.
In the Financials sector, I deleted Bank of Montreal from both portfolios.
In the Technology area, I am removing Kinaxis from the Growth portfolio purely as a result of overvaluation. Both on a Year to Date and one year basis, the share price of Kinaxis has risen by 59% and 52% respectively.
Peter McMurtry, B.Com, CFA
Financial Writer
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McMurtry Investment Report – Portfolios (December 2019) | ||||
Income | Growth | |||
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 | 4.04 | Royal Bank RY | 4.04 |
Intact Financial IFC | 2.24 | Intact Financial IFC | 2.24 | |
TD TD | 4.06 | TD TD | 4.06 | |
Sun Life SLF | 3.71 | Sun Life SLF | 3.71 | |
JP Morgan JPM US | 2.68 | JP Morgan JPM US | 2.68 | |
Manulife Fin’l MFC | 3.92 | Manulife Fin’l MFC | 3.92 | |
Bank of America BAC US | 2.15 | Bank of America BAC US | 2.15 | |
Morgan Stanley MS US | 2.82 | Morgan Stanley MS US | 2.82 | |
T. Rowe Price TROW US | 2.48 | T. Rowe Price TROW US | 2.48 | |
PNC Fin’l PNC US | 2.96 | PNC Fin’l PNC US | 2.96 | |
Energy | EOG Resources EOG US | 1.54 | EOG Resources EOG US | 1.54 |
Baytex BTE | 0.00 | |||
Suncor SU | 3.99 | Suncor SU | 3.99 | |
Canadian Natural Resources CNQ | 3.84 | Canadian Natural Resources CNQ | 3.84 | |
Freehold FRU | 8.94 | Freehold FRU | 8.94 | |
Pembina Pipe Lines PPL | 5.12 | Pembina Pipe Lines PPL | 5.12 | |
Enbridge ENB | 5.77 | Enbridge ENB | 5.77 | |
Trans Canada TRP | 4.40 | Trans Canada TRP | 4.40 | |
Whitecap Resources WCP | 7.42 | Whitecap Resources WXP | 7.42 | |
Parex Resources PXT | 0.00 | |||
Materials | Agnico Eagle AEM | 1.19 | Agnico Eagle AEM | 1.19 |
Franco Nevada FNV | 1.01 | Franco Nevada FNV | 1.01 | |
VanEck Vectors Gold ETF GDX US | 0.38 | VanEck Vectors Gold ETF GDX US | 0.38 | |
BMO Global Base Metals ETF ZMT | 3.45 | BMO Global Base Metals ETF ZMT | 3.45 | |
Osisko Metals OM.V | 0.00 | |||
iShares Global Gold ETF XGD | 0.58 | |||
Industrials | Toromont TIH | 1.62 | Toromont TIH | 1.62 |
NFI Group NFI | 6.60 | NFI Group NFI | 6.60 | |
Air Products APD US | 2.02 | Air Products APD US | 2.02 | |
WSP Global WSP | 1.73 | WSP Global WSP | 1.73 | |
CNR | 1.81 | CNR | 1.81 | |
United Technologies UTX US | 2.02 | United Technologies UTX US | 2.02 | |
United Rentals URI US | 0.00 | |||
Aecon Group ARE | 3.37 | Aecon Group ARE | 3.37 | |
Honeywell HON US | 2.07 | Honeywell HON US | 2.07 | |
TFI Int’l TFII | 2.22 | TFI Int’l TFII | 2.22 | |
Consumer Discretionary | Home Depot HD US | 2.52 | Home Depot HD US | 2.52 |
Target TGT US | 2.10 | Target TGT US | 2.10 | |
Amazon AMZN US | 0.00 | |||
Lowes LOW US | 1.89 | Lowes LOW US | 1.89 | |
Communication Services | Rogers B RCI.B | 3.17 | Rogers B RCI.B | 3.17 |
Alphabet GOOGL US | 0.00 | |||
Consumer Staples | Alimentation Couche- Tard ATD.B | 0.57 | Alimentation Couche Tard ATD.b | 0.57 |
Loblaws L | 1.75 | Loblaws L | 1.75 | |
Constellation Brands STZ US | 1.65 | Constellation Brands STZ US | 1.65 | |
Sysco SYY US | 2.18 | Sysco SYY US | 2.18 | |
Unilever PLC UL US | 3.01 | Unilever PLC UL US | 3.01 | |
Technology | Apple AAPL US | 1.15 | Apple AAPL US | 1.15 |
Microsoft MSFT US | 1.35 | Microsoft MSFT US | 1.35 | |
Open Text OTEX | 1.65 | Open Text OTEX | 1.65 | |
Paychex PAYX US | 2.93 | Paychex PAYX US | 2.93 | |
Cisco CSCO US | 3.17 | Cisco CSCO US | 3.17 | |
Logitech Int’l LOGI US ADR | 1.70 | Logitech Int’l LOGI US ADR | 1.70 | |
ETFMG Prime Cyber Sec. HACK US | 0.20 | |||
Visa V US | 0.66 | |||
Utilities | Algonquin Power AQN | 3.93 | Algonquin Power AQN | 3.93 |
Northland Power NPI | 4.30 | Northland Power NPI | 4.30 | |
Fortis FTS | 3.59 | Fortis FTS | 3.59 | |
Healthcare | Abbott Labs ABT US | 1.51 | Abbott Labs ABT US | 1.51 |
Becton Dickinson BDX US | 1.23 | Becton Dickinson BDX US | 1.23 | |
Merck MRK US | 2.74 | Merck MRK US | 2.74 | |
United Healthcare UNH US | 1.55 | United Healthcare UNH US | 1.55 | |
CVS Healthcare CVS US | 2.73 | CVS Healthcare CVS US | 2.73 | |
Danaher DHR US | 0.46 | |||
Thermo Fisher Scientific TMO US | 0.24 | |||
Straumann ADR SAUHY US * | 0.54 | |||
Real Estate | Cdn Apt. REIT CAR.un | 2.47 | Cdn. Apt. REIT CAR.un | 2.47 |
CT Reit CRT.un | 4.85 | CT Reit CRT.un | 4.85 | |
US Real Estate SPDR XLRE US | 2.99 | US Real Estate SPDR XLRE US | 2.99 | |
InterRent REIT IIP.un | 1.91 | InterRent REIT IIP.un | 1.91 | |
Dream Industrial DIR.un | 5.08 | Dream Industrial DIR.un | 5.08 | |
Summit REIT SMU.un | 4.23 | Summit REIT SMU.un | 4.23 | |
European Equity | iShares MSCI Europe XEU | 3.30 | iShares MSCI Europe XEU | 3.30 |
Emerging Markets | iShares MSCI Emering Markets XEC | 2.63 | iShares MSCI Emerging Markets XEC | 2.63 |
* Be careful purchasing and selling Straumann ADR’s as it is very illiquid. Always use a limit order.
McMurtry Investment Report – Sector Weights (December 2019) | ||||
Equity Sector Weights (%) | ||||
Sector | My Weight | TSX Comp | S&P 500 | 55 % US /45% CDN |
Financials | 22.06 | 33.00 | 13.10 | 22.06 |
Energy | 9.71 | 16.20 | 4.20 | 9.60 |
Materials | 6.39 | 10.90 | 2.70 | 6.39 |
Industrials | 10.24 | 11.20 | 9.30 | 10.16 |
Consumer Disc. | 6.90 | 4.30 | 9.80 | 6.84 |
Comm. Services | 8.30 | 5.60 | 10.50 | 8.30 |
Consumer Staples | 5.76 | 4.00 | 7.20 | 5.76 |
Technology | 15.10 | 5.40 | 22.80 | 14.97 |
Utilities | 3.93 | 4.70 | 3.30 | 3.93 |
Real Estate | 3.27 | 3.60 | 3.00 | 3.27 |
Healthcare | 8.34 | 1.30 | 14.10 | 8.34 |
Totals | 100.00 | 100.20 | 100.00 | 99.60 |
McMurtry Investment Report Asset Mix (Dec. 2019) | ||
Asset Mix – Income and Growth Portfolios | ||
% | Income | Growth |
Cash | 30.00 | 25.00 |
Bonds – Regular | 20.00 | 10.00 |
Bonds – High Yield | 5.00 | 5.00 |
Preferreds | 0.00 | 0.00 |
Equities | 45.00 | 60.00 |
CDN | 16.88 | 23.62 |
US | 20.62 | 28.88 |
Europe | 5.00 | 5.00 |
Emerging Markets | 2.50 | 2.50 |