Here are the November 2016 Portfolios, Sector Weights and Asset Mixes.
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McMurtry Investment Report – Portfolios (November 2016)
|Cash||EQ Bank – High Interest Savings (2.0% current rate)||EQ Bank – High Interest Savings (2.0% 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|
|Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||4.05||Royal Bank RY||4.05|
|TD Bank TD||3.68||TD Bank TD||3.68|
|Sun Life SLF||3.66||Sun Life SLF||3.66|
|Firm Capital FC||6.88||Visa V US||0.82|
|JP Morgan JPM US||2.83||JP Morgan JPM US||2.83|
|First Data FD US||0.00|
|Citibank C US||1.33|
|Energy||Freehold FRU||3.97||Freehold FRU||3.97|
|Whitecap WCP||2.63||Whitecap WCP||2.63|
|Inter Pipeline IPL||5.87|
|Materials||Agnico Eagle AEM||0.77||Goldcorp G||0.53|
|HudBay Minerals HBM||0.34|
|Industrials||WSP Global WSP||3.66||WSP Global WSP||3.66|
|Stella Jones SJ||0.84||Stella Jones SJ||0.84|
|ZCL Composites ZCL||2.94|
|Consumer Discretionary||Home Depot HD US||2.28||Home Depot HD US||2.28|
|Time Warner TWX US||1.86||Time Warner TWX US||1.86|
|Pepsico PEP US||2.84||Pepsico PEP US||2.84|
|Gentex GNTX US||2.18||Gentex GNTX US||2.18|
|Telecom||BCE BCE||4.61||BCE BCE||4.61|
|Verizon VZ US||4.91|
|Consumer Staples||Alimentation Couche Tard ATD.b||0.47||Alimentation Couche Tard ATD.b||0.47|
|Mondelez MDLZ US||1.78|
|Technology||Apple AAPL US||2.09||Apple AAPL US||2.09|
|Cisco CSCO US||3.44||Shopify SH||0.00|
|Microsoft MSFT US||2.66||Microsoft MSFT US||2.66|
|Facebook FB US||0.00|
|Alphabet GOOGL US||0.00|
|Utilities||Fortis FTS||3.69||Fortis FTS||3.69|
|Emera EMA||4.51||Emera EMA||4.51|
|Healthcare||Johnson & Johnson JNJ US||2.78||Johnson & Johnson JNJ US||2.78|
|Walgreen Boots WBA US||1.87||Walgreen Boots WBA US||1.87|
|Zimmer Biomet ZBH US||0.93||Zimmer Biomet ZBH US||0.93|
|Bristol-Myers Squibb BMY US||2.70||Bristol-Myers Squibb BMY US||2.70|
|IBB Biotech ETF IBB US||0.17|
|Real Estate||Cdn Apt. REIT CAR.un||4.31||Cdn. Apt. REIT CAR.un||4.31|
|Chartwell REIT CSH.un||3.82||Chartwell REIT CSH.un||3.82|
|Pure Industrial PUR.un||5.80||Pure Industrial PUR.un||5.80|
November 2016 – Explanation of Changes to the McMurtry Investment Report Portfolios
I am recommending the raising of 15% cash for both the Income and Growth portfolios to levels of 40% and 30% respectively.
The combination of lofty equity market valuations, tepid earnings growth, rising US interest rates and the uncertainty created by the Trump victory make me much more cautious.
My sector weights remain overweight financials, industrials, technology, consumer discretionary and underweight energy, materials, consumer staples, utilities and telecommunications. I am market weight Real Estate. Lastly as a result of the sharp correction in the healthcare sector combined with the increased probability of less price control regulation from the new Trump government, I am advising an increase in exposure in this sector to market weight.
The outlook for the energy sector has gyrated up and down sharply this past month with the early and mid-month crude inventories falling sharply, only to finish the month on a very sour note with dramatically higher inventories, drilling rigs and the probability of the OPEC members coming to an agreement on production cuts becoming more and more unlikely.
Financials are expected to benefit from rising interest rates, both the banks and insurance companies in particular. I added another New York City bank, Citigroup, to my Growth portfolio as it trades at a lower valuation than its peers, while its dividend growth prospects will start to improve shortly.
I also added First Data to the US Growth portfolio as it is directly involved in the fast growing electronic payments area in the US and trades at an attractive valuation. I removed Element Financial after it split into two companies as the shares have climbed up recently quite a bit and its balance sheet remains overleveraged.
In the Materials sector I have added HudBay, both a base and precious metal producer that offers strong production and cash flow growth.
In the Industrial area I added Stella Jones to both portfolios. It is a very stable earnings grower and has a strong balance sheet. Its principal business is the manufacture of telephone poles and railway ties.
In the consumer discretionary area, I added the fast growing ladies’ retailer Aritzia that only recently went public. In addition, I added Gentex, a US manufacturer of electronic car rear view mirrors. It is a very solid company with a strong balance sheet and positive earnings and cash flow growth. I am removing Magna from the list as the probability of an increase in US trade protectionist policies under Trump will hurt profitability.
In the high tech area, I added Microsoft to both portfolios. The company has transitioned well from old mature high tech to the faster growing tech companies with its large and growing cloud business.
The healthcare sector has also had a terrible year and month in terms of share price underperformance vs the overall market. However the new Trump government is not expected to be as vigilant regarding drug price controls and this combined with the current attractive valuations from the recent price declines has encouraged me to upgrade the sector to market weight. The one area to stay away from with the new government is hospital management companies with Trump’s objective to get rid of Obamacare in its present form.
I have removed CVS from my recommendations as at least one half its business comes from pharmacy benefits area that is experiencing severe pricing and margin pressure. I have added Walgreens Boots that has no exposure to the pharmacy benefits area and is in the final stages of its takeover of Rite Aid. I have also added Johnson & Johnson, a highly diversified healthcare company. The stock has declined recently as a result of health concerns from its talcum powder business. Its recent share weakness provides an attractive buying opportunity. Finally, I am adding Bristol Myers to both portfolios with its strong drug pipeline and more attractive valuation after its recent price decline.
Lastly I am adding Pure Industrial REIT to both portfolios. It is a Canadian industrial REIT with exposure to both Canada and the US. Its dividend payout is relatively low under 45% and it has strong growth prospects.
McMurtry Investment Report – Sector Weights (November 2016)
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||50/50|
McMurtry Investment Report – Asset Mix (November 2016)
|Asset Mix – Income and Growth Portfolios|