Also available in PDF: MIR Portfolios March 2018
McMurtry Investment Report – Portfolios (March 2018)
Income | Growth | |||
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 % |
Enbridge Pfd V Enb.pr.V US | 4.08 | Enbridge Pfd V Enb.pr.V US | 4.08 | |
Horizons Active Mgt. Pfd HPR | 3.83 | Horizons Active Mgt. Pfd HPR | 3.83 | |
Industrial Alliance IAG.PR.G | 3.97 | Industrial Alliance IAG.PR.G | 3.97 | |
Common Stocks | Security | Dividend Yield % | Security | Dividend Yield % |
Financials | Royal Bank RY | 3.82 | Royal Bank RY | 3.82 |
National Bank | 3.85 | National Bank | 3.85 | |
TD TD | 3.24 | TD TD | 3.24 | |
CIBC CM | 4.36 | CIBC CM | 4.36 | |
Sun Life SLF | 3.44 | Sun Life SLF | 3.44 | |
JP Morgan JPM US | 1.94 | JP Morgan JPM US | 1.94 | |
Bank of America BAC US | 1.50 | Bank of America BAC US | 1.50 | |
Citibank C US | 1.70 | Citibank C US | 1.70 | |
Manulife MFC | 3.60 | Manulife MFC | 3.60 | |
T. Rowe Price TROW US | 2.50 | T. Rowe Price TROW US | 2.50 | |
iUnits US Regional Banks IAT US | 1.97 | iUnits US Regional Banks IAT US | 1.97 | |
Keycorp KEY US | 1.99 | Keycorp KEY US | 1.99 | |
Blackrock BLK US | 2.10 | Blackrock BLK US | 2.10 | |
Paychex PAYX US | 3.07 | Paychex PAYX US | 3.07 | |
PNC Fin’l PNC US | 1.90 | PNC Fin’l PNC US | 1.90 | |
Visa V US | 0.68 | |||
Energy | Suncor SU | 3.41 | Suncor SU | 3.41 |
Freehold FRU | 5.04 | Freehold FRU | 5.04 | |
Whitecap WCP | 4.08 | Whitecap WCP | 4.08 | |
Torc TOG | 3.93 | Torc TOG | 3.93 | |
Pembina Pipe Lines PPL | 5.24 | Pembina Pipe Lines PPL | 5.24 | |
Enbridge ENB | 6.58 | Enbridge ENB | 6.58 | |
Centennial Resources CDEV US | 0.00 | |||
Parex Resources PXT | 0.00 | |||
Materials | Agnico Eagle AEM | 1.12 | Agnico Eagle AEM | 1.12 |
Franco Nevada FNV | 1.29 | Franco Nevada FNV | 1.29 | |
BMO Global Base Metal ETF ZMT | 1.33 | BMO Global Base Metal ETF ZMT | 1.33 | |
Lundin LUN | 1.44 | |||
Trevali Mining TV | 0.00 | |||
Hudbay Minerals HBM | 0.20 | |||
Roxgold ROXG | 0.00 | |||
Industrials | DowDuPont DWDP US | 2.16 | DowDuPont DWDP US | 2.16 |
Applied Materials AMAT US | 0.66 | Applied Materials AMAT US | 0.66 | |
New Flyer Ind NFI | 2.28 | New Flyer Ind NFI | 2.28 | |
WSP Global WSP | 2.53 | WSP Global WSP | 2.53 | |
Canadian Pacific CP | 0.98 | Canadian Pacific CP | 0.98 | |
General Dynamics GD US | 1.51 | General Dynamics GD US | 1.51 | |
SNC Lavalin SNC | 2.06 | SNC Lavalin SNC | 2.06 | |
Guggenheim Eq WT IND RGI US | 1.11 | Guggenheim Eq Wt IND RGI US | 1.11 | |
Honeywell HON US | 1.97 | Honeywell HON US | 1.97 | |
Consumer Discretionary | Home Depot HD US | 2.26 | Home Depot HD US | 2.26 |
Sleep Canada ZZZ | 2.10 | Sleep Canada ZZZ | 2.10 | |
Stanley Black and Decker SWK US | 1.58 | Stanley Black and Decker SWK US | 1.58 | |
Canadian Tire CTC.A | 2.06 | Canadian Tire CTC.A | 2.06 | |
Amazon AMZN US | 0.00 | Amazon AMZN US | 0.00 | |
Kohl’s KSS US | 3.33 | Kohl’s KSS US | 3.33 | |
Magna MG | 2.37 | Magna MG | 2.37 | |
Lowes LOW US | 1.87 | Lowes LOW US | 1.87 | |
Dollarama DOL | 0.29 | |||
Alibaba BABA US | 0.00 | |||
JD.com JD US | 0.00 | |||
Telecom | Rogers B RCI.B | 3.32 | Rogers B RCI.B | 3.32 |
Consumer Staples | Alimentation Couche Tard ATD.b | 0.58 | Alimentation Couche Tard ATD.b | 0.58 |
Loblaws L | 1.64 | Loblaws L | 1.64 | |
Pepsico PEP US | 2.93 | Pepsico PEP US | 2.93 | |
Unilever PLC UL US | 3.45 | Unilever PLC UL US | 3.45 | |
Technology | Apple AAPL US | 1.41 | Apple AAPL US | 1.41 |
Microsoft MSFT US | 1.79 | Microsoft MSFT US | 1.79 | |
Open Text OTEX | 1.45 | Open Text OTEX | 1.45 | |
Facebook FB US | 0.00 | |||
Nvidia NVDA US | 0.25 | |||
Alphabet GOOGL US | 0.00 | |||
Utilities | Emera EMA | 5.46 | Emera EMA | 5.46 |
Fortis FTS | 4.05 | Fortis FTS | 4.05 | |
Healthcare | Abbott Labs ABT US | 1.86 | Abbott Labs ABT US | 1.86 |
Bristol Myers BMY US | 2.42 | Bristol Myers BMY US | 2.42 | |
Johnson & Johnson JNJ US | 2.59 | Johnson & Johnson JNJ US | 2.59 | |
Merck MRK US | 3.54 | Merck MRK US | 3.54 | |
US Healthcare iShares ETF IYH US | 1.38 | US Healthcare iShares ETF IYH US | 1.38 | |
United Healthcare UNH US | 1.33 | United Healthcare UNH US | 1.33 | |
Thermo Fisher Scientific TMO US | 0.29 | |||
IBB Biotech ETF IBB US | 0.41 | |||
Real Estate | Cdn Apt. REIT CAR.un | 3.64 | Cdn. Apt. REIT CAR.un | 3.64 |
InterRent REIT IIP.un | 2.81 | InterRent REIT IIP.un | 2.81 | |
Chartwell REIT CSH.un | 3.76 | Chartwell REIT CSH.un | 3.76 | |
European Equity | iShares MSCI Europe XEU | 2.20 | iShares MSCI Europe XEU | 2.20 |
Emerging Markets | iShares MSCI Emer. Mkts XEC | 2.04 | iShares MSCI Emer. Mkts XEC | 2.04 |
Investment Commentary (March 2018)
Synchronized global economic growth continues to gain momentum in 2018, spurred by US tax reform and fiscal stimulus in Germany.
The main headwind to this growth is US protectionist policies which reared its ugly head last week. If Trump continues to impose import tariffs for a multitude of products entering the US, this may lead to a global trade war that will mitigate some of the strong economic growth. During the Great Depression of 1929 the US implemented numerous import tariffs that extended the depression for a further ten years.
However the Republican Party is much divided on this issue and wants to ensure that any trade tariffs are directed mainly at China and not at countries like Canada and the EU countries. Tariffs will cause US domestic inflation to rise and this will need to be closely monitored.
In regards to the ongoing NAFTA negotiations, it is unclear if Trump would be able to unilaterally revoke it without the approval of Congress.
I am keeping the same asset mix as last month for both portfolios. While the equity market continues to face headwinds like rising interest rates and inflation and US trade protectionism, none of these issues will immediately derail the strong overall economic growth that we are experiencing. However I will continue to monitor these issues to ensure that the economic growth is not materially impacted.
I have completed a review of the Canadian rate reset preferred market. While rising interest rates benefit these securities, some preferreds will do much better than others. This is because some issues have a greater probability of being called at a price that is not attractive to the investor. All these rate reset securities will have their dividend rate reset five years after issuance. The initial par value of these issues is $25. Many issues now trade a lot higher than $25 making them vulnerable to a capital loss if called at $25. A company would only call these issues if it is cheaper for them to do so. Rate resets that have a high rate reset spread over Canada 5 year yields may be called by the company at maturity if comparable credit new issue rate resets offer a lower reset spread at that time. While interest rates are rising, the reset spreads are falling. If an issue has a high probability of being called but is trading at a discount to the $25 par value, the investor should not fear getting called with a potential capital gain.
I am recommending a switch out of Trans Canada preferred K rate reset into Industrial Alliance preferred G. Trans Canada is trading above par and is likely to be called at $25 in May 2022. The reset spread is high at 385 basis points compared to new comparable credit issues with reset spreads around 245 basis points.
Industrial Alliance reset preferred G currently trades at a discount to par value and offers a reset spread of 285 basis points. This issue has a credit rating of P1. New issue comparable credit reset spreads are lower than 245 basis points making this issue likely to be called at maturity on June 30, 2022. Taking the current yield of almost 4% with the potential capital gain if called at $25 makes this issue pretty attractive.
I am leaving the fixed income selections the same as short duration is critical in a rising rate environment.
I am leaving my equity sector bets the same:
- Overweight benchmark for financials, industrials, technology and consumer discretionary
- Underweight utilities, REIT’s, telcos, consumer staples and energy
- Market weight healthcare and materials
I am adding Applied Materials to the Industrial Sector. This US company produces materials for the semiconductor industry and is growing nicely.
I am removing Shopify from the technology group. The stock has performed incredibly well but its current valuation is far too rich for my liking.
Lastly I am recommending a switch out of BMO’s European ETF ZEQ into the iShares MSCI Europe. The performance of the BMO European ETF has materially lagged the iShares one. This is partially due to the fact that the BMO ETF is Canadian dollar hedged while the iShares one is not.
McMurtry Investment Report – Sector Weights (March 2018)
Equity Sector Weights (%) | ||||
Sector | My Weight | TSX Comp | S&P 500 | 60 % US / 40 % CDN |
Financials | 29.00 | 35.20 | 15.00 | 23.10 |
Energy | 8.00 | 18.30 | 5.50 | 10.60 |
Materials | 6.30 | 11.50 | 2.90 | 6.30 |
Industrials | 12.50 | 10.00 | 10.20 | 10.10 |
Consumer Disc. | 10.80 | 5.50 | 12.70 | 9.80 |
Telecom | 0.75 | 4.60 | 1.90 | 3.00 |
Consumer Staples | 2.50 | 3.70 | 7.50 | 6.00 |
Technology | 19.25 | 3.80 | 25.20 | 16.60 |
Utilities | 1.15 | 3.70 | 2.70 | 3.10 |
Real Estate | 1.15 | 3.00 | 2.60 | 2.80 |
Healthcare | 8.60 | 0.90 | 13.80 | 8.60 |
Totals | 100.00 | 100.20 | 100.00 | 100.00 |
McMurtry Investment Report Asset Mix (March 2018)
Asset Mix – Income and Growth Portfolios | ||
% | Income | Growth |
Cash | 19.50 | 14.50 |
Bonds | 10.00 | 5.00 |
Preferreds | 15.00 | 10.00 |
Equities | 55.50 | 70.50 |
CDN | 18.00 | 24.00 |
US | 27.00 | 36.00 |
Europe | 5.25 | 5.25 |
Emerging Markets | 5.25 | 5.25 |
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