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McMurtry Investment Report – Portfolios (September 2017)
Income | Growth | |||
Cash | Alterna Bank – High Interest Savings (1.9% current rate) | Alterna Bank – High Interest Savings (1.9% 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 | 4.28 | Enbridge Pfd V Enb.pr.V US | 4.28 | |
Horizons Active Mgt. Pfd HPR | 4.00 | Horizons Active Mgt. Pfd HPR | 4.00 | |
Common Stocks | Security | Dividend Yield % | Security | Dividend Yield % |
Financials | Royal Bank RY | 3.95 | Royal Bank RY | 3.95 |
TD TD | 3.56 | TD TD | 3.56 | |
CIBC CM | 4.87 | CIBC CM | 4.87 | |
Sun Life SLF | 3.61 | Sun Life SLF | 3.61 | |
JP Morgan JPM US | 2.18 | JP Morgan JPM US | 2.18 | |
Bank of America BAC US | 2.01 | Bank of America BAC US | 2.01 | |
Citibank C | 2.01 | Citibank C | 2.01 | |
Manulife MFC | 3.33 | Manulife MFC | 3.33 | |
T. Rowe Price TROW US | 2.71 | T. Rowe Price TROW US | 2.71 | |
iUnits US Regional Banks IAT US | 1.51 | iUnits US Regional Banks IAT US | 1.51 | |
Keycorp KEY US | 2.19 | Keycorp KEY US | 2.19 | |
Blackrock BLK US | 2.37 | Blackrock BLK US | 2.37 | |
Visa V US | 0.64 | |||
First Data FD US | 0.00 | |||
Energy | Suncor SU | 3.29 | Suncor SU | 3.29 |
Freehold FRU | 4.27 | Freehold FRU | 4.27 | |
Whitecap WCP | 2.90 | Whitecap WCP | 2.90 | |
Torc TOG | 4.65 | Torc TOG | 4.65 | |
Pembina Pipe Lines PPL | 5.04 | Pembina Pipe Lines PPL | 5.04 | |
Enbridge ENB | 4.87 | Enbridge ENB | 4.87 | |
Centennial Resources CDEV US | 0.00 | |||
Spartan SPE | 0.00 | |||
Materials | Agnico Eagle AEM | 0.80 | Agnico Eagle AEM | 0.80 |
Franco Nevada FN | 1.15 | Franco Nevada FN | 1.15 | |
Lundin LUN | 1.23 | |||
Trevali Mining TV | 0.00 | |||
Roxgold ROXG | 0.00 | |||
Industrials | New Flyer Ind NFI | 2.54 | New Flyer Ind NFI | 2.54 |
WSP Global WSP | 2.90 | WSP Global WSP | 2.90 | |
Canadian Pacific CP | 1.16 | Canadian Pacific CP | 1.16 | |
General Dynamics GD US | 1.68 | General Dynamics GD US | 1.68 | |
SNC Lavalin SNC | 2.02 | SNC Lavalin SNC | 2.02 | |
Winpak WPK | 0.23 | |||
Consumer Discretionary | Home Depot HD US | 2.36 | Home Depot HD US | 2.36 |
Sleep Canada ZZZ | 1.97 | Sleep Canada ZZZ | 1.97 | |
Stanley Black and Decker SWK US | 1.77 | Stanley Black and Decker SWK US | 1.77 | |
Canadian Tire CTC.A | 1.79 | Canadian Tire CTC.A | 1.79 | |
Amazon AMZN US | Amazon AMZN US | 0.00 | ||
Kohl’s KSS US | 5.00 | Kohl’s KSS US | 5.00 | |
Telecom | Rogers B RCI.B | 2.97 | Rogers B RCI.B | 2.97 |
Consumer Staples | Alimentation Couche Tard ATD.b | 0.60 | Alimentation Couche Tard ATD.b | 0.60 |
Loblaws L | 1.65 | Loblaws L | 1.65 | |
Pepsico PEP US | 2.78 | Pepsico PEP US | 2.78 | |
Kraft Heinz KHC US | 3.09 | Kraft Heinz KHC US | 3.09 | |
Technology | Apple AAPL US | 1.54 | Apple AAPL US | 1.54 |
Microsoft MSFT US | 2.11 | Microsoft MSFT US | 2.11 | |
Facebook FB US | 0.00 | |||
Nvidia NVDA US | 0.33 | |||
Alphabet GOOGL US | 0.00 | |||
Utilities | Emera EMA | 4.37 | Emera EMA | 4.37 |
Fortis FTS | 3.50 | Fortis FTS | 3.50 | |
Healthcare | Johnson & Johnson JNJ US | 2.56 | Johnson & Johnson JNJ US | 2.56 |
Merck MRK | 2.95 | Merck MRK | 2.95 | |
US Healthcare iShares ETF IYH US | 1.11 | US Healthcare iShares ETF IYH US | 1.11 | |
Celgene CELG US | 0.00 | |||
Thermo Fisher Scientific TMO US | 0.32 | |||
Aphria APH | 0.00 | |||
Knight Therapeutics GUD | 0.00 | |||
IBB Biotech ETF IBB US | 0.19 | |||
Real Estate | Cdn Apt. REIT CAR.un | 3.74 | Cdn. Apt. REIT CAR.un | 3.74 |
Chartwell REIT CSH.un | 3.93 | Chartwell REIT CSH.un | 3.93 | |
Pure Industrial AAR.un | 4.71 | Pure Industrial AAR.un | 4.71 | |
European Equity | BMO European ETF ZEQ | 1.92 | BMO European ETF ZEQ | 1.92 |
Emerging Markets | iShares MSCI Emer. Mkts XEC | 1.54 | iShares MSCI Emer. Mkts XEC | 1.54 |
Investment Commentary September 2017
The equity markets continue to climb despite the mounting wall of worry from the following:
- North Korea Nuclear threats
- US Congress and Senate difficulties passing any pro growth policies
- US Annual Budget Issues
- Possible US trade war with China and the EU
- NAFTA negotiations not going smoothly
- Interest rates rising, albeit more gradually currently in the US than in Canada
- Equity markets due for a market valuation correction
I am maintaining my relatively high cash levels in both my Income and Growth portfolios as a result of these risks above.
There is no advantage in extending average term in the fixed income market with rates still very low historically.
While the Canadian economy is one of the fastest growing global economies in 2017 and is far outpacing its US counterpart, the Canadian stock market is one of the worst performers this year. Historically when this happened in the past the Canadian equity market caught up by outperforming the US. This is quite likely to happen once again as long as the probability of a global recession is low, which remains the case currently.
My equity sector weights are as follows:
- Remain overweight Financials, Industrials, Consumer Discretionary, Technology
- Remain underweight Energy, Materials, Telcos, Consumer Staples, Utilities and Real Estate
- Market Weight Healthcare
In Financial services, I am adding CIBC to both the Income and Growth portfolios. The stock is yielding almost 5% and is the most domestically focused of the Big 5 Canadian banks. Its recent acquisition of a US wealth management company will be immediately accretive and help to diversify their overall business mix.
In the REIT sector, I am removing Pure Multi-Family with its weakening operating cash flow and very high dividend payout.
In the healthcare sector I am adding Celgene, a fast growing US biotechnology company that is trading at an attractive valuation. The company has a strong drug pipeline. The only risk is that the company derives over 60% of its revenues from one product, Revlimid used to treat multiple myeloma. However Celgene does not face any patent expiration on this drug until 2020 at the earliest and has little competition from other companies.
In the Consumer Discretionary sector, I am removing Dollarama after its parabolic share price climb recently based on its strong earnings. The stock is now trading over thirty times 2017 EPS and it is time to take some profits. Personally I sold my Dollarama and rotated into Canadian Tire which is much cheaper. I am adding Kohl’s to both my Income and Growth portfolios. It offers an attractive 5% dividend that is sustainable. The company is an off-price retailer whose stores are not in shopping malls, but in strip malls that are less affected by the decline in mall traffic. Recently the stores signed an agreement with both Under Armour and Amazon to sell their products in their stores. In the case of Amazon, Kohl’s is dedicating a large space offering Amazon’s home product offerings in a select group of stores in Chicago and Los Angeles. This is a real confidence booster for Kohl’s taking into account the decimation of shopping mall retailers like Macy’s and Target.
In the technology sector I am recommending the sale of Shopify. The stock has been one of the best performers on the TSX in addition to the NASDAQ index which is heavily tech weighted. I am still a believer in the company long term, but my conservative instincts are encouraging me to take profits.
I am removing BCE from my Telecommunications sector. Its earnings growth is low and this will not help in a rising interest rate environment.
In the Industrial Sector I am removing Apogee Enterprises from both the Income and Growth Portfolios. The company’s projected EPS has recently decreased by 9% as a result of problems integrating its last acquisition. While most of the bad news has probably already been discounted by the share price’s recent weakness, there are many other Industrial companies such as WSP Global and SNC that have stronger earnings growth prospects.
Finally in the Energy sector I am removing IPL from my Income Portfolio. The company is not growing its earnings, cash flows and dividends nearly as fast as Pembina Pipe and Enbridge. As a result of US shale production slowing and crude inventories sharply declining, I am significantly reducing my Energy sector underweight.
McMurtry Investment Report – Sector Weights (September 2017)
Equity Sector Weights (%) | ||||
Sector | My Weight | TSX Comp | S&P 500 | 50/50 |
Financials | 27.75 | 34.50 | 14.20 | 24.35 |
Energy | 10.75 | 19.60 | 5.70 | 12.65 |
Materials | 6.00 | 12.30 | 2.90 | 7.60 |
Industrials | 13.00 | 9.50 | 10.10 | 9.80 |
Consumer Disc. | 10.00 | 5.30 | 12.10 | 8.70 |
Telecom | 1.50 | 5.00 | 2.10 | 3.55 |
Consumer Staples | 3.50 | 3.70 | 8.50 | 6.10 |
Technology | 15.85 | 3.30 | 23.50 | 13.40 |
Utilities | 2.00 | 3.30 | 3.40 | 3.30 |
Real Estate | 2.00 | 3.00 | 3.00 | 3.00 |
Healthcare | 7.65 | 0.60 | 14.70 | 7.65 |
Totals | 100.00 | 100.10 | 100.20 | 100.10 |
McMurtry Investment Report Asset Mix (September 2017)
Asset Mix – Income and Growth Portfolios | ||
% | Income | Growth |
Cash | 32.50 | 22.50 |
Bonds | 10.00 | 5.00 |
Preferreds | 10.00 | 10.00 |
Equities | 47.50 | 62.50 |
CDN | 20.75 | 28.25 |
US | 20.75 | 28.25 |
Europe | 4.00 | 4.00 |
Emerging Markets | 2.00 | 2.00 |
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