McMurtry Investment Report & Model Portfolios

McMurtry Investment Report Portfolios – December 2020

Also available in PDF: MIR Portfolios December 2020

Investment Commentary December 2020

US Yield Curve

Over the last month as of December 4th the ten year minus 2-year US Treasury yield curve jumped sharply from 64 basis points to the current 81 basis points. This level is relatively significant taking into account how low interest rates have been this year. This is a positive development for financial stocks and for the US economy.

US Corporate Debt Spreads

Moody’s Baa US corporate bond spread over 10 year US Treasuries narrowed to 2.23% on December 3rd from 2.58% last month and a high of 4.31% on March 23rd of this year. This is a positive sign of economic recovery.

US / China Trade Issues

Joe Biden and the Democrats are expected to be more conciliatory with China, although it is too early to tell at this point.

Covid – 19 Health Stats

The recent global spike with the colder weather is accelerating resulting in record daily new cases and deaths both in the US and globally. However, there is very good news on the horizon with two new vaccines about to receive approval and to be distributed throughout the world. Pfizer and Moderna are the two companies with vaccines that have very high rates of efficacy in excess of 90%. Most of the medical experts expect that these vaccines will be completely distributed to the world by the middle of next year or by the fall at the latest. There will obviously be some logistical problems getting everyone vaccinated, but hopefully the world is on its way to recovering from this terrible pandemic.

Equity Market Valuations

Taking into account the sharp rebound in the equity market since the US election and the positive vaccine announcements by Pfizer and Moderna, the Forward PE multiple of the S&P 500 remains historically high at 22.5 times.

US Domestic Economic Growth

The recent rebound in economic growth from the lows recorded during the height of the lockdowns is most definitely now levelling out as evidenced by the weaker than expected US November employment numbers. Edward Yardeni, a prominent US economist, expects 3rd quarter US GDP to rise by 15% but only by 5% in the 4th quarter. This is principally a result of the recent spike of new daily cases of the virus both in the US and globally.

US Federal Election

Despite all of Trump’s unsuccessful lawsuits alleging voter fraud, it is becoming clearer by the day that Joe Biden will become the next President of the US.

Central Bank Monetary Policy

Global central bank policies continue to be very accommodating.

Asset Mix

I am maintaining the same asset mix as last month. Before the vaccines are widely distributed there will be additional localized lockdowns that will have a short term negative economic effect. However, I continue to recommend that any equity market weakness over the short term should be used as a buying opportunity. The bond market looks more vulnerable to me with rates unlikely to fall much further from current levels.

Equity Sector Weights

Equity markets are in the middle of an equity sector rotation out of defensive stocks into more cyclical ones. This makes sense with the economy rebounding and with positive news on the vaccine front. While I continue to favour a barbell approach having exposure to all sectors, you will notice my recent purchase recommendations are principally in the cyclical areas. When considering cyclical sectors and companies, it is still very important that you focus on companies that have strong balance sheets and encouraging earnings, revenues and cash flow prospects. As an example, my preference is for auto parts companies that have solid current prospects as opposed to blindly investing in airline and cruise ships at this point that have limited positive outlooks until the vaccines are widely distributed.

Taking into account the improving Chinese economy, I am becoming more favourably inclined towards the base metal industry, in particular copper. In this month’s newsletter, I am keeping the Materials sector at the same equity sector market weight exposure as last month. However, I am significantly increasing my exposure to both silver and base metals while simultaneously reducing my gold weight. In addition, you will notice a change in my 55% US 45% US/ Canada North American benchmark weight to an even 50% for each country. This change is as a result of the global economic rebound that is expected commencing the middle of next year.

I am increasing my Energy exposure to market weight. OPEC’s recent 500,000 barrels per day increase in production was not nearly as bad as what could have resulted from these talks. A rebounding economy will surely help crude oil demand, but it is still critical to closely monitor US shale production. Recently it has fallen sharply but the recent spike in crude prices may reverse this trend somewhat.

I am reducing the Utility exposure to market weight from overweight last month.

I am also reducing the Communications sector weight from market to underweight.

For all the other groups I am maintaining the same weights as last month.

Individual Equity Changes

In a portfolio blog on November 16th, I added Fiserv, the US fintech company to the Growth portfolio. Last year’s acquisition of First Data has made Fiserv into one of the largest operators of both debit and credit payment devices to merchants. This business combined with its other electronic payments and loan processing businesses for US banks provides the company with strong growth prospects.

In a portfolio blog on November 27th I added Bank of Nova Scotia to both portfolios. The bank has lagged its domestic peers over the last few years and will likely play catchup with a global economic rebound and stronger commodity prices. Scotia has a large international presence especially in Latin America. Higher commodity prices will most definitely help this region.

In a portfolio blog on November 23rd I added Gentex, the US auto parts company that specializes in auto dimming technology for both rear and side view mirrors. Gentex is expected to be a beneficiary from the improving global auto industry that is underway at this moment.

In this month’s newsletter, I added Capstone Mining to the Growth portfolio. This company has strong growth prospects in the production of copper and is attractively priced compared to many of its peers.

I also added Pan American Silver to both portfolios. This Canadian mining company is one of the largest silver producers globally and is expected to be a beneficiary from the increase in silver demand from both solar panels, new 5G networks and the electrification of autos.
I deleted the Canadian gold company ETF, XGD from the Growth portfolio while keeping the US GDX ETF that has many of the same holdings.

Lastly, I deleted the US GLD gold bullion ETF from the Growth portfolio as I prefer exposure to the actual gold mining companies rather than to gold commodity itself.

Peter McMurtry, B.Com, CFA
Financial Writer
Objective Investment Advice for Everyone
Monthly Investment Newsletter and Sample Portfolios
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Please see our disclaimer at Copyright ©2019 McMurtry Investment Report™. All rights reserved.

McMurtry Investment Report – Portfolios (December 2020)
  Income Growth
Cash Alterna Bank – High Interest Savings (1.20% current ) Alterna Bank – High Interest Savings (1.20% current)
  EQ Bank – Savings Plus ( 1.50% current) EQ Bank – Savings Plus ( 1.50% 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 iShares XHY.TO US High Yield Cdn. $ iShares XHY.To US High Yield Cdn $  
Common Stocks Security Dividend Yield % Security Dividend Yield %
Financials Royal Bank RY 4.11 Royal Bank RY 4.11
  Intact Financial IFC 2.12 Intact Financial IFC 2.12
  Bank of Nova Scotia BNS 5.33 Bank of Nova Scotia BNS 5.33
  Brookfield Asset MGT. BAM.A 1.15 Brookfield Asset MGT. BAM.A 1.15
  TD TD 4.46 TD TD 4.46
      Fiserv FISV US 0.00
  Sun Life SLF 3.85 Sun Life SLF 3.85
  JP Morgan JPM US 2.94 JP Morgan JPM US 2.94
  Manulife Fin’l MFC 4.81 Manulife Fin’l MFC 4.81
  Bank of America BAC US 2.46 Bank of America BAC US 2.46
  Morgan Stanley MS US 2.15 Morgan Stanley MS US 2.15
  T. Rowe Price TROW US 2.36 T. Rowe Price TROW US 2.36
  Allstate ALL US 2.07 Allstate ALL US 2.07
Energy Suncor SU 3.66 Suncor SU 3.66
  Canadian Natural Resources CNQ 5.29 Canadian Natural Resources CNQ 5.29
  Freehold FRU 4.62 Freehold FRU 4.62
  Enbridge ENB 7.60 Enbridge ENB 7.60
  TC Energy TRP 5.50 TC Energy TRP 5.50
  Whitecap Resources WCP 4.04 Whitecap Resources WXP 4.04
      Parex Resources PXT 0.00
Materials Agnico Eagle AEM 2.07 Agnico Eagle AEM 2.07
  Air Products APD US 1.96 Air Products APD US 1.96
  Pan American Silver PAAS 0.93 Pan American Silver PAAS 0.93
      Capstone Mining CS 0.00
  Barrick Gold ABX 1.56 Barrick Gold ABX 1.56
  Franco Nevada FNV 0.81 Franco Nevada FNV 0.81
  VanEck Vectors Gold ETF GDX US 0.54 VanEck Vectors Gold ETF GDX US 0.54
  BMO Global Base Metals ETF ZMT 2.07 BMO Global Base Metals ETF ZMT 2.07
      Osisko Metals OM.V 0.00
Industrials Toromont TIH 1.36 Toromont TIH 1.36
  3M Co MMM US 3.41 3M Co MMM US 3.41
  WSP Global WSP 1.31 WSP Global WSP 1.31
  CNR 1.65 CNR 1.65
  Canadian Pacific CP 0.89 Canadian Pacific CP 0.89
  Raytheon Technologies RTX US 2.57 Raytheon Technologies RTX US 2.57
  Stantec STN 1.51 Stantec STN 1.51
  Aecon Group ARE 3.85 Aecon Group ARE 3.85
  Honeywell HON US 1.75 Honeywell HON US 1.75
  TFI Int’l TFII 1.56 TFI Int’l TFII 1.56
Consumer Discretionary Home Depot HD US 2.27 Home Depot HD US 2.27
  Martinrea International MRE 1.29 Martinrea International MRE 1.29
  Gentex GNTX US 1.42 Gentex GNTX US 1.42
  Target TGT US 1.55 Target TGT US 1.55
  Dollarama DOL 0.33 Dollarama DOL 0.33
      Amazon AMZN US 0.00
  Lowes LOW US 1.60 Lowes LOW US 1.60
Communication Services Rogers B RCI.B 3.27 Rogers B RCI.B 3.27
  Activision Blizzard ATVI US 0.51 Activision Blizzard ATVI US 0.51
  Comcast CMCSA US 1.78 Comcast CMCSA US 1.78
  Telus T 4.89 Telus T 4.89
  Shaw Commications SJR.B 5.12 Shaw Communications SJR.B 5.12
      Facebook FB US 0.00
      Alphabet GOOGL US 0.00
Consumer Staples Alimentation Couche- Tard ATD.B 0.79 Alimentation Couche Tard ATD.b 0.79
  Loblaws L 2.11 Loblaws L 2.11
  Sysco SYY US 2.30 Sysco SYY US 2.30
  General Mills GIS US 3.38 General Mills GIS US 3.38
  Unilever PLC UL US 3.31 Unilever PLC UL US 3.31
Technology Apple AAPL US 0.67 Apple AAPL US 0.67
  Microsoft MSFT US 1.04 Microsoft MSFT US 1.04
  Open Text OTEX 1.77 Open Text OTEX 1.77
  Paychex PAYX US 2.63 Paychex PAYX US 2.63
  Qualcomm QCOM US 1.65 Qualcomm QCOM US 1.65
  SPDR S&P Semi. ETF XSD US 0.30 SPDR S&P Semi ETF XSD US 0.30
      CGI Inc. GIB.A 0.00
      ETFMG Prime Cyber Sec. HACK US 1.22
      Visa V US 0.60
      Keysight KEYS US 0.00
Utilities Algonquin Power AQN 3.95 Algonquin Power AQN 3.95
  Capital Power CPX 5.78 Capital Power CPX 5.78
  Northland Power NPI 2.73 Northland Power NPI 2.73
  NextEra Energy NEE US 1.93 NextEra Energy NEE US 1.93
  Fortis FTS 3.86 Fortis FTS 3.86
Healthcare AbbVie ABBV US 4.85 AbbVie ABBV US 4.85
  Merck MRK US 3.17 Merck MRK US 3.17
  United Healthcare UNH US 1.43 United Healthcare UNH US 1.43
  CVS Healthcare CVS US 2.68 CVS Healthcare CVS US 2.68
  Bristol Myers BMY US 2.89 Bristol Myers BMY US 2.89
      Danaher DHR US 0.32
      Thermo Fisher Scientific TMO US 0.19
      Perkin Elmer PKI US 0.20
Real Estate Cdn Apt. REIT CAR.un 2.74 Cdn. Apt. REIT CAR.un 2.74
  CT Reit CRT.un 5.30 CT Reit CRT.un 5.30
  Minto Apartment Reit MI.un 2.37 Minto Apartment Reit MI.un 2.37
  Dream Industrial DIR.un 5.44 Dream Industrial DIR.un 5.44
  Granite REIT GRT.un 3.86 Granite REIT GRT.un 3.86
  Summit Industrial REIT SMU.un 4.14 Summit Industrial REIT SMU.un 4.14
European Equity iShares MSCI Europe XEU 2.27 iShares MSCI Europe XEU 2.27
Emerging Markets BMO Emerging Markets ZEM 2.14 BMO Emerging Markets ZEM 2.14


McMurtry Investment Report – Sector Weights (December 2020)
Equity Sector Weights (%)
Sector My Weight TSX Comp S&P 500 50% US /50% CDN
Financials 21.25 30.30 10.40 20.35
Energy 6.85 11.40 2.30 6.85
Materials 8.15 13.60 2.70 8.15
Industrials 10.65 12.20 8.70 10.45
Consumer Disc. 7.75 3.80 11.30 7.55
Comm. Services 7.50 5.10 11.00 8.05
Consumer Staples 4.50 3.90 6.80 5.35
Technology 18.85 10.10 27.60 18.85
Utilities 4.05 5.20 2.90 4.05
Real Estate 2.95 3.20 2.50 2.85
Healthcare 7.50 1.30 13.70 7.50
Totals 100.00 100.10 99.90 100.00


McMurtry Invest. Report Asset Mix December 2020)
Asset Mix – Income and Growth Portfolios
% Income Growth
Cash 20.00 20.00
Bonds – Reg. Bonds 20.00 10.00
Bonds – High Yield 5.00 5.00
Bonds – Tips 0.00 0.00
Preferreds 0.00 0.00
Equities 55.00 65.00
CDN 24.50 29.50
US 24.50 29.50
Europe 3.00 3.00
Emerging Markets 3.00 3.00

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
Objective Investment Advice for Everyone
Monthly Investment Newsletter and Sample Portfolios
Personalized Portfolio Reviews

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

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.