Also available in PDF: MIR Portfolios November 2020
Investment Commentary November 2020
US Yield Curve
The ten year minus 2-year US Treasury yield curve jumped sharply this month from under 60 basis points to the current 80 basis points. This level is relatively significant taking intro account how low interest rates have been this year. This is a positive development for financial stocks.
US Corporate Debt Spreads
The spread has narrowed from 274 basis points to the current 200%. This is a positive sign of economic recovery.
US / China Trade Issues
Despite Trump’s ongoing resistance to the election results and a possible divided Government, it is expected that Joe Biden has defeated Trump in the presidential race. Mr. Biden is a much more diplomatic type and the ongoing trade war with China should ease off somewhat. This also applies to Europe, India and Canada.
Covid – 19 Health Stats
The colder weather combined with a return to school is causing the global daily number of cases to spike once again, especially in Europe and Canada. The US stats have continued to remain high.
Equity Market Valuations
Taking into account the sharp rebound in the equity market since the US election, the Forward PE multiple of the S&P 500 remains historically high at well over 21 times.
US Domestic Economic Growth
The recent rebound in economic growth from the lows recorded during the height of the lockdowns is now levelling out somewhat. This is principally a result of the recent spike of new daily cases of the virus both in the US and globally.
US Federal Election
Hopefully the US has finally got rid of Trump as President, but his refusal to concede to Biden is creating some discomfort. However, despite Trump’s refusal to quit, there is clearly no evidence of voter tampering in any way. The equity markets have responded very positively for two principal reasons. Biden is expected to be much less confrontational in the trade wars with China and other countries throughout the world. Secondly the possibility of a divided government makes the extreme policies of Bernie Saunders and Elizabeth Warren much less likely to pass both houses. However, the current stalemate in the Senate could possibly change in the Democrats favour in two runoff bi-elections in January. If this comes to pass equity markets may not respond as favourably as they have recently.
Central Bank Monetary Policy
Global central bank policies continue to be very accommodating.
Asset Mix
I am reducing my cash weight by 5% for both portfolios with the monies redirected back into equities. These changes will increase the equity weight to 55% and 65% for the Income and Growth portfolios respectively.
Equity Sector Weights
I am making three equity sector changes from last month. I am increasing the Financial sector to overweight from market weight as a result of interest rates gradually creeping up and the possibility of a vaccine next year that will improve the economic outlook in the latter part of next year. Secondly, I am reducing the Consumer Staples sector from market weight to underweight as a result of an expected cyclical pickup in the economy next year that will benefit economically sensitive sectors more than the defensive consumer staples area. Lastly, I am increasing the REIT sector to overweight from market weight. As I highlighted in last month’s newsletter, this sector has been decimated by the pandemic and any improvement in the economy next year will surely help this sector even though a small increase in rates will create some headwinds.
I remain overweight Industrials, Consumer Discretionary and Utilities from last month. I continue my underweight exposure in Energy, while I remain at the same market weight position as last month for Healthcare, Communications, Materials and Technology.
Individual Equity Changes
In a portfolio blog on October 16th, I added Martinrea International, the Canadian auto parts producer to both portfolios. The company is trading at a very reasonable valuation and is expected to benefit from the projected cyclical pickup in auto demand for both the remainder of this year and into next year.
In another blog dated October 28th, I added 3M Co, the US industrial to both portfolios. This stock is also expected to benefit from a stronger economy next year. The company showed strong organic revenue growth in three of its four divisions during the 3rd quarter.
Lastly, I am adding Activision Blizzard, the US online gaming company, to both portfolios. While the company reported a strong third quarter, its share price has dropped over 13% from its recent highs. The shares trade at a forward PE of a little over 22 times, reasonable given the company’s strong projected EPS growth rates over the next several years. In addition, the company has a solid balance sheet as well.
Peter McMurtry, B.Com, CFA
Financial Writer
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Please see our disclaimer at mcmurtryinvestmentreport.ca. Copyright ©2019 McMurtry Investment Report™. All rights reserved.
McMurtry Investment Report – Portfolios (November 2020) | ||||
Income | Growth | |||
Cash | Alterna Bank – High Interest Savings (1.20% current ) | Alterna Bank – High Interest Savings (1.20% current) | ||
EQ Bank – Savings Plus ( 1.50% current) | EQ Bank – Savings Plus ( 1.50% 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 | iShares XHY.TO US High Yield Cdn. $ | iShares XHY.To US High Yield Cdn $ | ||
Common Stocks | Security | Dividend Yield % | Security | Dividend Yield % |
Financials | Royal Bank RY | 4.47 | Royal Bank RY | 4.47 |
Intact Financial IFC | 2.29 | Intact Financial IFC | 2.29 | |
Brookfield Asset MGT. BAM.A | 1.49 | Brookfield Asset MGT. BAM.A | 1.49 | |
TD TD | 5.31 | TD TD | 5.31 | |
Sun Life SLF | 3.90 | Sun Life SLF | 3.90 | |
JP Morgan JPM US | 3.50 | JP Morgan JPM US | 3.50 | |
Manulife Fin’l MFC | 5.95 | Manulife Fin’l MFC | 5.95 | |
Bank of America BAC US | 2.96 | Bank of America BAC US | 2.96 | |
Morgan Stanley MS US | 2.71 | Morgan Stanley MS US | 2.71 | |
T. Rowe Price TROW US | 2.69 | T. Rowe Price TROW US | 2.69 | |
Allstate ALL US | 2.37 | Allstate ALL US | 2.37 | |
Energy | Suncor SU | 5.50 | Suncor SU | 5.50 |
Canadian Natural Resources CNQ | 7.96 | Canadian Natural Resources CNQ | 7.96 | |
Freehold FRU | 4.71 | Freehold FRU | 4.71 | |
Enbridge ENB | 9.05 | Enbridge ENB | 9.05 | |
TC Energy TRP | 6.40 | TC Energy TRP | 6.40 | |
Whitecap Resources WCP | 6.87 | Whitecap Resources WXP | 6.87 | |
Parex Resources PXT | 0.00 | |||
Materials | Agnico Eagle AEM | 1.71 | Agnico Eagle AEM | 1.71 |
Barrick Gold ABX | 1.26 | Barrick Gold ABX | 1.26 | |
Franco Nevada FNV | 0.69 | Franco Nevada FNV | 0.69 | |
VanEck Vectors Gold ETF GDX US | 0.49 | VanEck Vectors Gold ETF GDX US | 0.49 | |
SPDR Gold Bullion GLD US | 0.00 | |||
BMO Global Base Metals ETF ZMT | 2.50 | BMO Global Base Metals ETF ZMT | 2.50 | |
Osisko Metals OM.V | 0.00 | |||
iShares Global Gold ETF XGD | 0.17 | |||
Industrials | Toromont TIH | 1.41 | Toromont TIH | 1.41 |
3M Co MMM US | 3.61 | 3M Co MMM US | 3.61 | |
Air Products APD US | 1.75 | Air Products APD US | 1.75 | |
WSP Global WSP | 1.70 | WSP Global WSP | 1.70 | |
CNR | 1.68 | CNR | 1.68 | |
Canadian Pacific CP | 0.91 | Canadian Pacific CP | 0.91 | |
Raytheon Technologies RTX US | 3.24 | Raytheon Technologies RTX US | 3.24 | |
Stantec STN | 1.64 | Stantec STN | 1.64 | |
Aecon Group ARE | 4.31 | Aecon Group ARE | 4.31 | |
Honeywell HON US | 2.02 | Honeywell HON US | 2.02 | |
TFI Int’l TFII | 1.68 | TFI Int’l TFII | 1.68 | |
Consumer Discretionary | Home Depot HD US | 2.11 | Home Depot HD US | 2.11 |
Martinrea International MRE | 1.87 | Martinrea International MRE | 1.87 | |
Target TGT US | 1.68 | Target TGT US | 1.68 | |
Dollarama DOL | 0.36 | Dollarama DOL | 0.36 | |
Amazon AMZN US | 0.00 | |||
Lowes LOW US | 1.42 | Lowes LOW US | 1.42 | |
Communication Services | Rogers B RCI.B | 3.61 | Rogers B RCI.B | 3.61 |
Activision Blizzard ATVI US | 0.52 | Activision Blizzard ATVI US | 0.52 | |
Comcast CMCSA US | 2.01 | Comcast CMCSA US | 2.01 | |
Telus T | 5.34 | Telus T | 5.34 | |
Shaw Commications SJR.B | 5.27 | Shaw Communications SJR.B | 5.27 | |
Facebook FB US | 0.00 | |||
Alphabet GOOGL US | 0.00 | |||
Consumer Staples | Alimentation Couche- Tard ATD.B | 0.62 | Alimentation Couche Tard ATD.b | 0.62 |
Loblaws L | 1.89 | Loblaws L | 1.89 | |
Sysco SYY US | 2.96 | Sysco SYY US | 2.96 | |
General Mills GIS US | 3.34 | General Mills GIS US | 3.34 | |
Unilever PLC UL US | 3.15 | Unilever PLC UL US | 3.15 | |
Technology | Apple AAPL US | 0.69 | Apple AAPL US | 0.69 |
Microsoft MSFT US | 1.00 | Microsoft MSFT US | 1.00 | |
Open Text OTEX | 1.95 | Open Text OTEX | 1.95 | |
Paychex PAYX US | 2.82 | Paychex PAYX US | 2.82 | |
Qualcomm QCOM US | 1.79 | Qualcomm QCOM US | 1.79 | |
SPDR S&P Semi. ETF XSD US | 0.34 | SPDR S&P Semi ETF XSD US | 0.34 | |
CGI Inc. GIB.A | 0.00 | |||
ETFMG Prime Cyber Sec. HACK US | 1.33 | |||
Visa V US | 0.64 | |||
Keysight KEYS US | 0.00 | |||
Utilities | Algonquin Power AQN | 3.91 | Algonquin Power AQN | 3.91 |
Capital Power CPX | 6.58 | Capital Power CPX | 6.58 | |
Northland Power NPI | 2.68 | Northland Power NPI | 2.68 | |
NextEra Energy NEE US | 1.85 | NextEra Energy NEE US | 1.85 | |
Fortis FTS | 3.71 | Fortis FTS | 3.71 | |
Healthcare | AbbVie ABBV US | 5.60 | AbbVie ABBV US | 5.60 |
Merck MRK US | 3.04 | Merck MRK US | 3.04 | |
United Healthcare UNH US | 1.44 | United Healthcare UNH US | 1.44 | |
CVS Healthcare CVS US | 3.08 | CVS Healthcare CVS US | 3.08 | |
Bristol Myers BMY US | 2.82 | Bristol Myers BMY US | 2.82 | |
Danaher DHR US | 0.29 | |||
Thermo Fisher Scientific TMO US | 0.22 | |||
Perkin Elmer PKI US | 0.20 | |||
Real Estate | Cdn Apt. REIT CAR.un | 3.10 | Cdn. Apt. REIT CAR.un | 3.10 |
CT Reit CRT.un | 5.65 | CT Reit CRT.un | 5.65 | |
Minto Apartment Reit MI.un | 2.70 | Minto Apartment Reit MI.un | 2.70 | |
Dream Industrial DIR.un | 5.68 | Dream Industrial DIR.un | 5.68 | |
Granite REIT GRT.un | 3.74 | Granite REIT GRT.un | 3.74 | |
Summit Industrial REIT SMU.un | 3.85 | Summit Industrial REIT SMU.un | 3.85 | |
European Equity | iShares MSCI Europe XEU | 2.40 | iShares MSCI Europe XEU | 2.40 |
Emerging Markets | BMO Emerging Markets ZEM | 2.21 | BMO Emerging Markets ZEM | 2.21 |
McMurtry Investment Report – Sector Weights (November 2020) | ||||
Equity Sector Weights (%) | ||||
Sector | My Weight | TSX Comp | S&P 500 | 55 % US /45% CDN |
Financials | 19.00 | 28.70 | 9.90 | 18.36 |
Energy | 5.28 | 10.60 | 2.00 | 5.87 |
Materials | 8.55 | 15.70 | 2.70 | 8.55 |
Industrials | 10.35 | 12.50 | 8.40 | 10.25 |
Consumer Disc. | 8.25 | 3.60 | 11.60 | 8.00 |
Comm. Services | 8.50 | 5.20 | 11.20 | 8.50 |
Consumer Staples | 5.18 | 4.20 | 7.00 | 5.74 |
Technology | 19.44 | 9.70 | 27.40 | 19.44 |
Utilities | 4.30 | 5.40 | 3.20 | 4.19 |
Real Estate | 2.95 | 3.20 | 2.60 | 2.87 |
Healthcare | 8.21 | 1.00 | 14.10 | 8.21 |
Totals | 100.00 | 99.80 | 100.10 | 99.97 |
McMurtry Invest. Report Asset Mix November 2020) | ||
Asset Mix – Income and Growth Portfolios | ||
% | Income | Growth |
Cash | 20.00 | 20.00 |
Bonds – Reg. Bonds | 20.00 | 10.00 |
Bonds – High Yield | 5.00 | 5.00 |
Bonds – Tips | 0.00 | 0.00 |
Preferreds | 0.00 | 0.00 |
Equities | 55.00 | 65.00 |
CDN | 22.05 | 26.55 |
US | 26.95 | 32.45 |
Europe | 3.00 | 3.00 |
Emerging Markets | 3.00 | 3.00 |