McMurtry Investment Report & Model Portfolios

McMurtry Investment Report Portfolios January 2022

Also available in PDF: McMurtry Investment Report Portfolio – January 2022

Investment Commentary January 2022

US Yield Curve

The ten minus two- year US Treasury yield curve rose by 11 basis points to 0.89%. This was caused principally by the ten- year yield rising to 1.73% as of January 7th, compared to the November 30th level of 1.43%. This widening of the curve should be viewed as positive for the economy and indicates the probability of an imminent recession remains low.

US Corporate Debt Spreads

 As of January 7, 2022, Baa rated US corporate bond spreads relative to 10-year US Treasuries actually declined modestly by three basis points from November 30th to the current level of 1.78%. Once again this is a positive sign for economic growth.

Covid – 19 Health Stats

The Omicron variant is proving to be much more transmissible than either the basic Covid-19 strain or the Delta variant. Globally there are more than 2.5 million new cases daily. This is one of the highest levels since the pandemic began. The global daily death rate is around 7500 which remains stubbornly high, but not at record levels compared to the daily new cases. In the US daily new cases are 800,000 plus with daily new deaths coming in around 2300 plus. Hospitalizations in the US are also climbing rapidly.

Currently more than 59% of the world has received at least one dosage, but only 8.9% of people in low- income countries have received their first dosage. More than 77% of Canadians have received at least two dosages compared to 62% in the US.

Taking into account all the above trends, more lockdowns are occurring throughout the world. Looking at all the stats, it still looks like this new variant is less severe than the others and for many people results in flu like symptoms. However, the very high level of transmissibility keeps everyone on their guard.

Equity Market Valuations

The forward PE multiple of the S&P 500 index rose to 21.4 as of January 7th. This compares to the long -term median of 19.6 times.

Central Bank Monetary Policy

 Faced with rising inflationary pressures, the US Federal Reserve Bank has become even more hawkish from last month. This will probably result in more interest rate increases than originally expected and the rate increases starting earlier than anticipated.

Asset Mix

As a result of a more hawkish Federal Reserve and a highly transmissible new variant, Omicron, I am increasing my cash weight for both portfolios by 3% to 20%. I am reducing the overall equity weight for both portfolios by 2.5%, while increasing the preferred exposure by 1% to 4%. In the Income portfolio I am reducing the 1-5 year Canada bond ladder ETF by 1.5%, while reducing it by 1.75% for the Growth portfolio.

Equity prices in 2022 are expected to be much more volatile in this period of rising rates and increasing pandemic concerns. Currently the monthly stats do not point to any economic recession anytime soon, but a stock market correction in the midst of a bull market is not out of the question. Last year we only saw a small correction of less than 5%, but 2022 may see several corrections of this magnitude. As I have highlighted many times in past newsletters, predicting a short- term correction in an ongoing bull market is very difficult if not impossible. However, it is much easier to predict an imminent recession where equity markets could fall up to 50% before recovering. Having a cash reserve will act as a risk reducer for your portfolios and provide you with an opportunity to purchase more equities on short term market dips. But I want to reiterate that I do not expect a major market correction based on an upcoming recession anytime soon. Do not get tempted to increase your cash weight beyond 20% at this time or you may end up missing a lot of potential upside.

Equity Sector Weights

I remain overweight my North American benchmark Financials, Energy, Materials, Industrials, Consumer Discretionary and Real Estate. I remain underweight Consumer Staples, Healthcare, Technology, Utilities and Communications.  I continue to favour cyclical industries over both growth and defensive ones with their pricing power helping them to pass on their raw material cost increases to their clients.  Given the high probability of rising rates this year, growth sectors like Technology and US Communication stocks will have difficulty performing as well as they have performed with PE multiple contractions widely expected for these groups. Once again, I would maintain exposure to all groups but reduce and increase sector weights as highlighted.


Individual Equity Changes

In a portfolio blog dated December 15th, I reduced my precious metal exposure by deleting Pan American Silver, Barrick Gold, Kirkland Lake and the US GDX ETF.

In a portfolio blog dated December 30th, I added InterRent Reit to both portfolios in the REIT sector. The current dividend yield is 2.05% that is well covered by cash flow. The Reit’s net operating income is spread between Ontario and Quebec at 52% and 18.5% respectively. The 3rd quarter saw a 7.7% increase year over year in total suites and a 5% increase in average rents. Adjusted funds from operations rose by 13.2% year over year. EBITDA is expected to grow by 21% this year.

In a portfolio blog dated January 3rd, 2022, I added the US mid cap equity First Trust ETF, FNX US to both portfolios. Its distribution yield is currently 0.95% and its weighted average PE is much lower than the S&P 500 index at only 13.31 times.

I am deleting both Capital Power and Boralex from both portfolios in the Utility sector. While Capital Power is cheaper than many of its peers on a Price / TTM Funds from Operations basis, both its 2021 performance and its projected growth in EBITDA for 2022 is very low. Boralex is one of the most expensive stocks in the Utility sector, yet its projected growth this year in EBITDA is on the low side.

I am adding Northland power to both portfolios. While the fundamentals slowed sharply in 2021, its projected growth in both revenues and EBITDA this year is very favourable.

Lastly, I am adding Brookfield Renewable Partners BEP.UN to both portfolios in the Utilities sector. Its current dividend yield is 3.59%. Last year the renewable energy companies did not perform very well. However, at current prices Brookfield Renewable Partners is trading at a Price to Trailing 12 months Funds from Operations of only 6.93 times, much cheaper than most of the domestic utilities. In addition, its projected growth in Funds from Operations is in the range of 8-10% for 2022. While its balance sheet is more levered than other utilities, this is solely how the parent, Brookfield Asset Management, accounts for its subsidiaries’ debt. The parent calls their debt non recourse, implying that the parent is not responsible in the case of bankruptcy. At first this appears very unfavourable for the subsidiaries. However, after closely studying the Brookfield empire of companies, I have come to a more favourable conclusion for the subsidiaries. Last year one of the parent companies’ real estate subsidiaries was in some financial difficulty and the parent company bailed them out even though their debt arrangement indicates non recourse.


Please see our disclaimer at

Copyright Ó2022 McMurtry Investment Report. All rights reserved.

Strategies for do-it-yourself investors


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.