Also available in PDF: MIR Portfolios January 2019
Investment Commentary (January 2019)
Since year end equity markets have experienced a nice rebound. At year end the market was technically oversold as investors panicked in December over rising interest rates, ongoing trade wars and a possible global economic slowdown.
In January the Federal Reserve Chairman has appeared much less hawkish indicating that interest rates will rise more gradually than originally thought. The combination of stable inflationary expectations with improvement in employment productivity led to his more modest stance on rates.
Secondly it is looking more likely that some sort of trade deal will be done between the US and China. Trump’s popularity has been declining sharply and he needs some type of resolution on the trade front to improve his chances of being re-elected in two years.
Resulting from the market decline, S&P 500 PE multiples on 2019 EPS have come down sharply to 14.4 times, considerably lower than historical average of 16-17 times.
The 10 year US Treasury yields have also come down materially in the last thirty days. The yield curve continues to flatten, but remains positively sloped with 10 year rates still above 2 year ones.
US corporate bond spreads have increased from their recent lows but still remain far from levels experienced right before the last recession of 2007-2008.
US corporate profit growth rates are expected to come down to 10% year over year in 2019, compared to last year’s 20% plus.
Many US multinationals like Apple and Federal Express are experiencing headwinds from the ongoing trade war with China.
Global economies continue to struggle, especially the European Union and China. The latter is now expected to stimulate their weakening domestic economy to avoid a major economic collapse.
While the probability of a US recession within the next 2 years is in the range of 25-30%, the less hawkish Federal Reserve combined with a possible trade war compromise should delay a major economic slowdown for a few more years.
Taking all this into consideration, I am reducing my cash weight by 7.5% for both portfolios and redeploying the proceeds back into common equities.
I am maintaining my overweight in the Financials. However I am advising a switch from Goldman Sachs into Morgan Stanley for both portfolios. While Goldman is a very cheap stock, its ongoing issues in Malaysia may continue to haunt the shares. On the other hand Morgan Stanley does not have these issues and the company now derives almost half their earnings from wealth management, a more stable business than investment banking and trading.
I remain overweight the Technology sector and am adding Nokia to both portfolios. The stock offers an attractive dividend, is undergoing a major cost reduction initiative and will significantly benefit from the new 5G implementation over the next few years. The company is also expected to be a beneficiary of the global unpopularity of the Chinese company Huawei.
I remain overweight the REIT sector. It continues to perform well and a more gradual increase in interest rates also helps.
I continue to remain underweight the Materials sector, but am reducing my underweight.
Gold bullion should perform well when the US dollar begins to ease off globally making commodity prices stronger.
I am remaining market weight Healthcare, Communication Services, Energy, Utilities and Industrials.
In the Consumer Discretionary sector I am going from market weight to a slight underweight. I am deleting Magna International from both portfolios with a possible peaking in US domestic car sales.
I am increasing my weight to overweight from market weight for the Consumer Staples sector.
McMurtry Investment Report – Portfolios (January 2019)
|Cash||Alterna Bank – High Interest Savings (2.05% current rate)||Alterna Bank – High Interest Savings (2.05% current rate)|
|EQ Bank – High Interest Savings ( 2.30% current rate)||EQ Bank – High Interest Savings ( 2.30% 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|
|Preferreds||Security||Dividend Yield %||Security||Dividend Yield %|
|Trans Canada TRP.PR.B||4.04||TransCanada TRP.PR.B||4.04|
|Enbridge ENB.PR.Y||5.93||Enbridge ENB.PR.Y||5.93|
|Royal Bank RY.PR.J||4.12||Royal Bank RY.PR.J||4.12|
|Industrial Alliance IAF.PR.G||4.39||Industrial Alliance IAF.PR.G||4.39|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||4.06||Royal Bank RY||4.06|
|Bank of Nova Scotia BNS||4.76||Bank of Nova Scotia||4.76|
|National Bank||4.37||National Bank||4.37|
|TD TD||3.89||TD TD||3.89|
|CIBC CM||5.10||CIBC CM||5.10|
|Sun Life SLF||4.25||Sun Life SLF||4.25|
|JP Morgan JPM US||3.20||JP Morgan JPM US||3.20|
|Bank of America BAC US||2.31||Bank of America BAC US||2.31|
|Citibank C US||3.18||Citibank C US||3.18|
|Morgan Stanley MS US||2.87||Morgan Stanley MS US||2.87|
|T. Rowe Price TROW US||3.10||T. Rowe Price TROW US||3.10|
|Keycorp KEY US||4.26||Keycorp KEY US||4.26|
|Paychex PAYX US||3.33||Paychex PAYX US||3.33|
|PNC Fin’l PNC US||3.17||PNC Fin’l PNC US||3.17|
|Energy||Suncor SU||3.57||Suncor SU||3.57|
|Freehold FRU||7.39||Freehold FRU||7.39|
|Torc TOG||5.63||Torc TOG||5.63|
|Pembina Pipe Lines PPL||5.21||Pembina Pipe Lines PPL||5.21|
|Enbridge ENB||6.43||Enbridge ENB||6.43|
|Trans Canada TRP||5.12||Trans Canada TRP||5.12|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||1.11||Agnico Eagle AEM||1.11|
|Franco Nevada FNV||1.39||Franco Nevada FNV||1.39|
|BMO Global Base Metal ETF ZMT||1.97||BMO Global Base Metal ETF ZMT||1.97|
|iShares Global Gold ETF XGD||0.22|
|Industrials||Toromont TIH||1.63||Toromont TIH||1.63|
|WSP Global WSP||2.42||WSP Global WSP||2.42|
|Canadian Pacific CP||1.04||Canadian Pacific CP||1.04|
|Raytheon RTN US||2.18||Raytheon RTN US||2.18|
|Aecon Group ARE||2.80||Aecon Group ARE||2.80|
|Guggenheim Eq WT IND RGI US||1.41||Guggenheim Eq Wt IND RGI US||1.41|
|Honeywell HON US||2.39||Honeywell HON US||2.39|
|Finning FTT||3.19||Finning FTT||3.19|
|TFI Int’l TFII||2.55||TFI Int’l TFII||2.55|
|Consumer Discretionary||Home Depot HD US||2.30||Home Depot HD US||2.30|
|Sleep Canada ZZZ||3.53||Sleep Canada ZZZ||3.53|
|Canadian Tire CTC.A||2.88||Canadian Tire CTC.A||2.88|
|Amazon AMZN US||0.00||Amazon AMZN US||0.00|
|Lowes LOW US||1.97||Lowes LOW US||1.97|
|Communication Services||Rogers B RCI.B||2.65||Rogers B RCI.B||2.65|
|Alphabet GOOGL US||0.00|
|Consumer Staples||Alimentation Couche- Tard ATD.B||0.56||Alimentation Couche Tard ATD.b||0.56|
|Loblaws L||1.85||Loblaws L||1.85|
|Constellation Brands STZ US||1.86||Constellation Brands STZ US||1.86|
|Unilever PLC UL US||3.43||Unilever PLC UL US||3.43|
|Technology||Apple AAPL US||1.92||Apple AAPL US||1.92|
|Microsoft MSFT US||1.69||Microsoft MSFT US||1.69|
|Open Text OTEX||1.79||Open Text OTEX||1.79|
|Nokia NOK US ADR||3.70||Nokia NOK US ADR||3.70|
|Nvidia NVDA US||0.43|
|ETFMG Prime Cyber Sec. HACK US||0.18|
|Visa V US||0.72|
|Utilities||Algonquin Power AQN||5.08||Algonquin Power AQN||5.08|
|Fortis FTS||3.96||Fortis FTS||3.96|
|Healthcare||Abbott Labs ABT US||1.85||Abbott Labs ABT US||1.85|
|Johnson & Johnson JNJ US||2.77||Johnson & Johnson JNJ US||2.77|
|Merck MRK US||2.94||Merck MRK US||2.94|
|US Healthcare iShares ETF IYH US||1.93||US Healthcare iShares ETF IYH US||1.93|
|United Healthcare UNH US||1.45||United Healthcare UNH US||1.45|
|Eli Lilly LLY US||1.94||Eli Lilly LLY US||1.94|
|CVS US||3.04||CVS US||3.04|
|Danaher DHR US||0.61|
|Thermo Fisher Scientific TMO US||0.28|
|IBB Biotech ETF IBB US||0.29|
|Real Estate||Cdn Apt. REIT CAR.un||2.97||Cdn. Apt. REIT CAR.un||2.97|
|InterRent REIT IIP.un||2.20||InterRent REIT IIP.un||2.20|
|Summit REIT SMU.un||5.21||Summit REIT SMU.un||5.21|
|European Equity||iShares MSCI Europe XEU||3.27||iShares MSCI Europe XEU||3.27|
McMurtry Investment Report – Sector Weights (January 2019)
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||55 % US /45% CDN|
McMurtry Investment Report Asset Mix (January 2019)
|Asset Mix – Income and Growth Portfolios|