Also available in PDF: MIR Portfolios February 2019
Investment Commentary (February 2019)
Equity markets have been on a sharp upward rise since year end propelled by a more accommodative Federal Reserve Chairman combined with some hope regarding the trade dispute between the US and China.
However last week the positive trade talk rhetoric was replaced by a realization that any resolution will most likely take more time than initially anticipated.
Global economies continue to weaken with China showing more evidence of slowing down. They have initiated an economic stimulus package to lessen the negative effects from a weakening domestic economy.
While fourth quarter 2018 US profit growth was generally quite strong, the outlook for 2019 is not nearly as favourable.
Taking into account the sharp rebound in equity prices since year end, it is never a bad thing to pause and reflect at this time. While a US economic recession is not imminent, we cannot ignore the fact that we are in the latter stages of an economic cycle.
Consequently I have decided to keep cash and common equity levels the same for both portfolios.
However I am reducing my preferred share weight for both portfolios to 5%. While the overall objective investing in rate reset preferreds is tax efficient income, the price volatility is much higher than it should be. I am not recommending selling all your preferreds, but simply reducing your overall exposure.
I am recommending exposure to a new asset class – US High Yield Corporate bonds for both portfolios. The iShares US High Yield ETF XHY is invested in US corporate bonds, but trades in Canadian dollars. Its current distribution yield is 5.53% with its weighted average yield to maturity being 6.56%. It has a weighted average maturity of 4.56 years.
In terms of equity sectors, I remain overweight Financials, Consumer Staples, Reits and Technology.
I am increasing my weight from market to overweight for both the Industrial and Communication Service Sectors.
I remain underweight Materials and Consumer Discretionary.
I remain market weight Healthcare, Utilities and Energy.
I am adding Northland Power in the Utilities sector to both portfolios. The company provides a solid dividend yield that is growing along with its cash flow.
In the Healthcare sector, I am making several changes. I am removing Johnson & Johnson and Eli Lilly and replacing them with Becton Dickinson. The growth rate of Eli Lilly is starting to slow somewhat and its market valuation was high given its strong share price performance last year. Johnson & Johnson continues to have problems in its Consumer Products segment while many of its competitors do not. Becton Dickinson acquired CR Bard last year in the medical devices area and the combined company offers strong cash flow and dividend growth.
In the technology sector, I am reducing the overall beta or market price volatility by removing both Nvidia and Shopify from my Growth portfolio. Nvidia had difficulty during their last quarter and expect their overall revenue growth rate to slow this year. Shopify continues to perform well. However its valuation is quite excessive and if the company disappoints on their revenue growth outlook the share price will not hesitate to correct sharply. I am not saying this is going to happen, but want to protect the portfolios from this possibility.
In the Materials sector I am removing BMO’s Global Base Metal ETF ZMT from the Growth portfolio. China accounts for over 50% of world copper demand and any slowdown in that country will see the negative effects on the base metal producers.
In the Communication Service sector, I am adding back Facebook to the Growth portfolio. While the negative news headlines continue for this company, its last quarter showed strong growth in advertising revenues and this is expected to continue.
Finally in the Industrials sector, I am adding Air Products to both portfolios. The company is one of only a few global players in industrial gases and offers strong cash flow and dividend growth.
Peter McMurtry, B.Com, CFA
Financial Writer for Do-It-Yourself Investors
Monthly Investment Newsletter
|McMurtry Investment Report – Portfolios (February 2019)|
|Cash||Alterna 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 -Regular||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|
|Bonds – High Yield CORP||iShares XHY US High Yield CDN$||iShares XHY US High Yield CDN $|
|Preferreds||Security||Dividend Yield %||Security||Dividend Yield %|
|Trans Canada TRP.PR.B||4.19||TransCanada TRP.PR.B||4.19|
|Enbridge ENB.PR.Y||6.10||Enbridge ENB.PR.Y||6.10|
|Royal Bank RY.PR.J||4.19||Royal Bank RY.PR.J||4.19|
|Industrial Alliance IAF.PR.G||4.80||Industrial Alliance IAF.PR.G||4.80|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.92||Royal Bank RY||3.92|
|Bank of Nova Scotia BNS||4.57||Bank of Nova Scotia||4.57|
|National Bank||4.22||National Bank||4.22|
|TD TD||3.63||TD TD||3.63|
|CIBC CM||4.89||CIBC CM||4.89|
|Sun Life SLF||4.22||Sun Life SLF||4.22|
|JP Morgan JPM US||3.06||JP Morgan JPM US||3.06|
|Bank of America BAC US||2.06||Bank of America BAC US||2.06|
|Citibank C US||2.80||Citibank C US||2.80|
|Morgan Stanley MS US||2.80||Morgan Stanley MS US||2.80|
|T. Rowe Price TROW US||3.14||T. Rowe Price TROW US||3.14|
|Keycorp KEY US||4.09||Keycorp KEY US||4.09|
|PNC Fin’l PNC US||3.07||PNC Fin’l PNC US||3.07|
|Energy||Suncor SU||3.39||Suncor SU||3.39|
|Freehold FRU||6.92||Freehold FRU||6.92|
|Torc TOG||5.55||Torc TOG||5.55|
|Pembina Pipe Lines PPL||4.84||Pembina Pipe Lines PPL||4.84|
|Enbridge ENB||6.16||Enbridge ENB||6.16|
|Trans Canada TRP||4.96||Trans Canada TRP||4.96|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||1.04||Agnico Eagle AEM||1.04|
|Franco Nevada FNV||1.29||Franco Nevada FNV||1.29|
|iShares Global Gold ETF XGD||0.20|
|Industrials||Toromont TIH||1.57||Toromont TIH||1.57|
|Air Products APD US||2.80||Air Products APD US||2.80|
|WSP Global WSP||2.22||WSP Global WSP||2.22|
|Canadian Pacific CP||0.98||Canadian Pacific CP||0.98|
|Raytheon RTN US||1.97||Raytheon RTN US||1.97|
|Aecon Group ARE||2.78||Aecon Group ARE||2.78|
|Guggenheim Eq WT IND RGI US||1.34||Guggenheim Eq Wt IND RGI US||1.34|
|Honeywell HON US||2.21||Honeywell HON US||2.21|
|Finning FTT||3.16||Finning FTT||3.16|
|TFI Int’l TFII||2.44||TFI Int’l TFII||2.44|
|Consumer Discretionary||Home Depot HD US||2.23||Home Depot HD US||2.23|
|Sleep Canada ZZZ||3.66||Sleep Canada ZZZ||3.66|
|Canadian Tire CTC.A||2.72||Canadian Tire CTC.A||2.72|
|Amazon AMZN US||0.00||Amazon AMZN US||0.00|
|Lowes LOW US||1.98||Lowes LOW US||1.98|
|Communication Services||Rogers B RCI.B||2.78||Rogers B RCI.B||2.78|
|Facebook FB US||0.00|
|Alphabet GOOGL US||0.00|
|Consumer Staples||Alimentation Couche- Tard ATD.B||0.57||Alimentation Couche Tard ATD.b||0.57|
|Loblaws L||1.87||Loblaws L||1.87|
|Constellation Brands STZ US||1.69||Constellation Brands STZ US||1.69|
|Unilever PLC UL US||3.26||Unilever PLC UL US||3.26|
|Technology||Apple AAPL US||1.71||Apple AAPL US||1.71|
|Microsoft MSFT US||1.74||Microsoft MSFT US||1.74|
|Open Text OTEX||1.63||Open Text OTEX||1.63|
|Nokia NOK US ADR||3.84||Nokia NOK US ADR||3.84|
|Paychex PAYX US||3.02||Paychex PAYX US||3.02|
|ETFMG Prime Cyber Sec. HACK US||0.16|
|Visa V US||0.71|
|Utilities||Algonquin Power AQN||4.63||Algonquin Power AQN||4.63|
|Northland Power NPI||4.84||Northland Power NPI||4.84|
|Fortis FTS||3.77||Fortis FTS||3.77|
|Healthcare||Abbott Labs ABT US||1.75||Abbott Labs ABT US||1.75|
|Becton Dickinson BDX US||1.27||Becton Dickinson BDX US||1.27|
|Merck MRK US||2.84||Merck MRK US||2.84|
|US Healthcare iShares ETF IYH US||1.87||US Healthcare iShares ETF IYH US||1.87|
|United Healthcare UNH US||1.37||United Healthcare UNH US||1.37|
|CVS Health CVS US||3.08||CVS Health CVS US||3.08|
|Danaher DHR US||0.59|
|Thermo Fisher Scientific TMO US||0.28|
|IBB Biotech ETF IBB US||0.29|
|Real Estate||Cdn Apt. REIT CAR.un||2.74||Cdn. Apt. REIT CAR.un||2.74|
|InterRent REIT IIP.un||2.05||InterRent REIT IIP.un||2.05|
|Summit REIT SMU.un||4.84||Summit REIT SMU.un||4.84|
|European Equity||iShares MSCI Europe XEU||3.20||iShares MSCI Europe XEU||3.20|
|McMurtry Investment Report – Sector Weights
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||55 % US /45% CDN|
|McMurtry Investment Report Asset Mix
|Asset Mix – Income and Growth Portfolios|
|Bonds – Regular||15.00||5.00|
|Bonds – High Yield||5.00||5.00|