Also available in PDF: MIR Portfolios February 2020
Investment Commentary February 2020
Fund Flows into Capital Markets
As a result of the excess cash levels, institutional portfolio managers are playing catch up by redeploying their high cash positions into equities. This is at a time when you would expect them to refrain from panic buying in the midst of the coronavirus concerns.
US Yield Curve
The US Treasury yield curve has flattened from last month, not a good sign.
US Corporate Debt Spreads
Despite the flattening of the US yield curve, corporate bond spreads remain at low levels relative to US Treasuries implying the threat of an impending recession in the US remains low.
US / China Trade Issues
Tensions are easing with China recently substantially reducing their import tariffs.
China’s Coronavirus Implications
The last major virus, Sars, saw equity markets fall at least 15%. So far this has not materialized.
This recent coronavirus differs from Sars in that it is less deadly but tends to spread much faster.
The world learned some valuable lessons from Sars, but unfortunately, we are all much more interconnected globally today.
While most strategists believe that this current pandemic will be short term in nature. However, they also feel that the projected global economic improvement that was expected later this year will be deferred till later next year when the virus has stabilized somewhat.
Equity Market Valuations
Despite the increased risk from the coronavirus, equity market valuations continue to climb to high levels reaching 19 times this year’s earnings in the US.
US Corporate Profit Growth
Year over Year corporate profit growth remains low in the 3-6% range in the US.
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. This week’s reported economic statistics indicated that wage growth is picking up in the US and Canada. In the past this was normally viewed as a sign that interest rates would start rising, but currently with all the uncertainty from the coronavirus and continued weak global growth Central Banks are very unlikely to increase interest rates at this time.
I am increasing my cash levels by 5% for the Growth portfolio and reducing overall equity weights accordingly. After this change both the Income and Growth portfolios will have 30% cash.
Please note that both EQ and Alterna Banks have increased their rates on their High Interest Savings Accounts to 2.45% and 2.25% respectively.
In addition to the above change, I am deleting the iShares Emerging Market ETF, XEC, with all the disruption in this region from the coronavirus.
Equity Sector Weights
My equity sector revisions reflect my more defensive posture in light of the economic repercussions from the coronavirus combined with the high market valuations and weak global growth.
For both the defensive Reit and Utility sectors, I am increasing my exposure to overweight the benchmark weight from market weight last month.
I am reducing the cyclical sector weight by doing the following:
Reduce Financials, Energy and Materials from overweight to market weight.
For the other groups I am leaving status quo.
In the Communications sector, I am adding Telus to both portfolios. The company offers an attractive dividend yield of 4.27% and is expected to grow earnings per share by over 9% this year. In addition, the company has a long history of increasing dividends at a consistent rate.
I added Comcast in a recent blog to both portfolios in the Communications sector as well. The company is trading at an attractive valuation and recently has come up with a new streaming service called Peacock.
I am also adding an ETF- ESPO, the US Vaneck Vectors Video Gaming and Esport one to the Growth Portfolio only in the Communications sector. This ETF gives investors a lower risk way of participating in the high growth video gaming and esport area.
In the healthcare sector, I deleted Abbott Labs in a recent blog after its nice runup and before any problems that may transpire from some product recalls.
Lastly, I added WPT Industrial, WIR.un to both portfolios in the Reit sector in a recent blog. This Reit offers investors exposure to the US industrial / logistics space. While you can purchase this Reit in either Canada or the US, I recommend the Canadian one with the symbol as indicated.
Peter McMurtry, B.Com, CFA
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|McMurtry Investment Report – Portfolios (February 2020)|
|Cash||Alterna Bank – High Interest Savings (2.25% current )||Alterna Bank – High Interest Savings (2.25% current)|
|EQ Bank – High Interest Savings ( 2.45% current)||EQ Bank – High Interest Savings ( 2.45% 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||3.92||Royal Bank RY||3.92|
|Intact Financial IFC||2.17||Intact Financial IFC||2.17|
|TD TD||3.91||TD TD||3.91|
|Sun Life SLF||3.43||Sun Life SLF||3.43|
|JP Morgan JPM US||2.62||JP Morgan JPM US||2.62|
|Manulife Fin’l MFC||3.77||Manulife Fin’l MFC||3.77|
|Bank of America BAC US||2.08||Bank of America BAC US||2.08|
|Morgan Stanley MS US||2.54||Morgan Stanley MS US||2.54|
|T. Rowe Price TROW US||2.20||T. Rowe Price TROW US||2.20|
|PNC Fin’l PNC US||3.00||PNC Fin’l PNC US||3.00|
|Suncor SU||4.81||Suncor SU||4.71|
|Canadian Natural Resources CNQ||3.89||Canadian Natural Resources CNQ||3.89|
|Freehold FRU||8.73||Freehold FRU||8.73|
|Pembina Pipe Lines PPL||4.82||Pembina Pipe Lines PPL||4.82|
|Enbridge ENB||5.77||Enbridge ENB||5.77|
|Trans Canada TRP||4.10||Trans Canada TRP||4.10|
|Whitecap Resources WCP||7.25||Whitecap Resources WXP||7.25|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||1.19||Agnico Eagle AEM||1.19|
|Franco Nevada FNV||0.87||Franco Nevada FNV||0.87|
|VanEck Vectors Gold ETF GDX US||0.68||VanEck Vectors Gold ETF GDX US||0.68|
|BMO Global Base Metals ETF ZMT||2.62||BMO Global Base Metals ETF ZMT||2.62|
|Osisko Metals OM.V||0.00|
|iShares Global Gold ETF XGD||0.55|
|Industrials||Toromont TIH||1.54||Toromont TIH||1.54|
|NFI Group NFI||5.15||NFI Group NFI||5.15|
|Air Products APD US||2.14||Air Products APD US||2.14|
|WSP Global WSP||1.53||WSP Global WSP||1.53|
|United Technologies UTX US||1.87||United Technologies UTX US||1.87|
|Stantec STN||1.40||Stantec STN||1.40|
|Aecon Group ARE||3.27||Aecon Group ARE||3.27|
|Honeywell HON US||2.05||Honeywell HON US||2.05|
|TFI Int’l TFII||2.36||TFI Int’l TFII||2.36|
|Consumer Discretionary||Home Depot HD US||2.29||Home Depot HD US||2.29|
|Target TGT US||2.28||Target TGT US||2.28|
|Restaurant Brands Int’l QSR||3.07||Restaurant Brands Int’l QSR||3.07|
|Amazon AMZN US||0.00|
|Lowes LOW US||1.81||Lowes LOW US||1.81|
|Communication Services||Rogers B RCI.B||3.00||Rogers B RCI.B||3.00|
|Comcast CMCSA US||2.06||Comcast CMCSA US||2.06|
|Telus T||4.27||Telus T||4.27|
|VanEck Video Gaming ESPO US||0.21|
|Alphabet GOOGL US||0.00|
|Consumer Staples||Alimentation Couche- Tard ATD.B||0.55||Alimentation Couche Tard ATD.b||0.55|
|Loblaws L||1.79||Loblaws L||1.79|
|Constellation Brands STZ US||1.50||Constellation Brands STZ US||1.50|
|Sysco SYY US||2.33||Sysco SYY US||2.33|
|Unilever PLC UL US||2.98||Unilever PLC UL US||2.98|
|Technology||Apple AAPL US||0.96||Apple AAPL US||0.96|
|Microsoft MSFT US||1.03||Microsoft MSFT US||1.03|
|Open Text OTEX||1.49||Open Text OTEX||1.49|
|Paychex PAYX US||2.82||Paychex PAYX US||2.82|
|Cisco CSCO US||2.92||Cisco CSCO US||2.92|
|Logitech Int’l LOGI US ADR||1.64||Logitech Int’l LOGI US ADR||1.64|
|ETFMG Prime Cyber Sec. HACK US||0.14|
|Visa V US||0.59|
|Utilities||Algonquin Power AQN||3.56||Algonquin Power AQN||3.56|
|Northland Power NPI||3.95||Northland Power NPI||3.95|
|Fortis FTS||3.32||Fortis FTS||3.32|
|Healthcare||Becton Dickinson BDX US||1.28||Becton Dickinson BDX US||1.28|
|Merck MRK US||2.87||Merck MRK US||2.87|
|United Healthcare UNH US||1.49||United Healthcare UNH US||1.49|
|CVS Healthcare CVS US||2.79||CVS Healthcare CVS US||2.79|
|Bristol Myers BMY US||2.72||Bristol Myers BMY US||2.72|
|Danaher DHR US||0.42|
|Thermo Fisher Scientific TMO US||0.23|
|Straumann ADR SAUHY US *||0.52|
|Real Estate||Cdn Apt. REIT CAR.un||2.38||Cdn. Apt. REIT CAR.un||2.38|
|CT Reit CRT.un||4.78||CT Reit CRT.un||4.78|
|US Real Estate SPDR XLRE US||2.96||US Real Estate SPDR XLRE US||2.96|
|InterRent REIT IIP.un||1.81||InterRent REIT IIP.un||1.81|
|Dream Industrial DIR.un||5.04||Dream Industrial DIR.un||5.04|
|WPT Ind. WIR.un||5.24||WPT Ind. WIR.un||5.24|
|Summit REIT SMU.un||4.04||Summit REIT SMU.un||4.04|
|European Equity||iShares MSCI Europe XEU||3.52||iShares MSCI Europe XEU||3.52|
* Be careful purchasing and selling Straumann ADR’s as it is very illiquid. Always use a limit order.
|McMurtry Investment Report – Sector Weights (February 2020)|
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||55 % US /45% CDN|
|McMurtry Investment Report Asset Mix Feb. 2020)|
|Asset Mix – Income and Growth Portfolios|
|Bonds – Regular||20.00||10.00|
|Bonds – High Yield||5.00||5.00|