Also available in PDF: MIR Portfolios September 2018
Investment Commentary (September 2018)
Equity markets continue to climb a wall of worry.
Rising interest rates and inflationary expectations combined with ongoing global trade wars continue unabated.
However US year over year quarterly profit growth remains at 20% plus. This is a result of a strong domestic economy plus the corporate tax cuts.
It is quite possible that US corporate profit growth may have peaked this year. Next year the year over year benefit from a lower corporate tax rate will be greatly reduced. Slowing global growth plus rising labour rates may well see operating margins start to subside somewhat.
Trump continues his global trade war with China, Canada and the European Union despite his recent photo op with a representative of the EU.
In terms of NAFTA, Trump continues to use his bullying tactics to force Canada to sign on his terms only. These negotiations are really like a poker game. Canada has called Trump’s bluff and awaits a more equitable agreement than was originally put forth.
Trump does have a lot to lose if he cannot sign Canada. The upcoming midterm elections will make the Republicans very vulnerable to losing the majority in the House without at least renegotiating NAFTA. Furthermore if they lose the House of Representatives the probability of Trump being impeached increases significantly.
I am betting that both countries will start compromising just a little in order to get the deal done. As long as neither country gives up too much, the equity markets will probably view this outcome as a win-win for both Canada and the US.
Taking all of these positive and negative factors into account, I am leaving the overall asset mix the same as last month.
However I am removing the Emerging Market XEC ETF exposure with the trade wars between China and the US getting a lot uglier with no resolution in sight.
In terms of equity sectors, I am increasing the REIT weight to market benchmark exposure, while materially increasing my underweight in the Materials sector. The Materials sector continues to get hurt from a rising US dollar and rising US interest rates, combined with negative repercussions from a slowing Chinese economy.
I remain overweight Financials, Energy, Industrials, Consumer Discretionary and Technology.
Despite ongoing domestic pipeline issues that are resulting in the discount between Western Canadian Select and WTI widening considerably once again, the global supply / demand outlook for crude oil is gradually improving. Secondly the Canadian mid cap energy producers are very cheap at current prices and offer solid growth opportunities. The weak loonie relative to the US greenback helps to offset somewhat any price decline from the domestic Western Canadian Select prices.
I remain market weight Healthcare and am going to market weight in the REIT sector.
I remain underweight Utilities, Telcos, Consumer Staples and Materials.
I am not adding any companies or ETF’s at this time.
However I am making several deletions as follows:
I am removing Applied Materials from the Industrials / Technology sector. Apple is a major client and has indicated its desire to develop in house new semiconductor chips.
I am deleting Alibaba from the Consumer Discretionary sector. The ongoing trade wars and a slowing Chinese economy will continue to offer a very difficult environment.
I am deleting the Emerging Market ETF XEC with the ongoing issues with Emerging markets continuing.
Lastly as per this month’s newsletter on Canadian Financials, I am removing Manulife. Sun Life is better positioned and a lower risk way of participating in the domestic lifeco space.
McMurtry Investment Report – Portfolios (September 2018)
|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||6.20||Enbridge Pfd V Enb.pr.V US||6.20|
|Horizons Active Mgt. Pfd HPR||3.78||Horizons Active Mgt. Pfd HPR||3.78|
|Industrial Alliance IAG.PR.G||3.94||Industrial Alliance IAG.PR.G||3.94|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.70||Royal Bank RY||3.70|
|National Bank||3.89||National Bank||3.89|
|TD TD||3.47||TD TD||3.47|
|CIBC CM||4.48||CIBC CM||4.48|
|Sun Life SLF||3.57||Sun Life SLF||3.57|
|JP Morgan JPM US||1.95||JP Morgan JPM US||1.95|
|Bank of America BAC US||1.94||Bank of America BAC US||1.94|
|Citibank C US||2.50||Citibank C US||2.50|
|Goldman Sachs GS US||1.35||Goldman Sachs GS US||1.35|
|T. Rowe Price TROW US||2.35||T. Rowe Price TROW US||2.35|
|iUnits US Regional Banks IAT US||1.64||iUnits US Regional Banks IAT US||1.65|
|Keycorp KEY US||2.40||Keycorp KEY US||2.40|
|Blackrock BLK US||2.49||Blackrock BLK US||2.49|
|Paychex PAYX US||3.25||Paychex PAYX US||3.25|
|PNC Fin’l PNC US||2.62||PNC Fin’l PNC US||2.62|
|Visa V US||0.61|
|Energy||Suncor SU||2.63||Suncor SU||2.63|
|Freehold FRU||5.41||Freehold FRU||5.41|
|Whitecap WCP||3.77||Whitecap WCP||3.77|
|Torc TOG||3.78||Torc TOG||3.78|
|Pembina Pipe Lines PPL||4.87||Pembina Pipe Lines PPL||4.87|
|Enbridge ENB||5.81||Enbridge ENB||5.81|
|Vermilion Energy VET||6.86||Vermilion Energy VET||6.86|
|Centennial Resources CDEV US||0.00|
|Step Energy STEP||0.00|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||1.14||Agnico Eagle AEM||1.14|
|Franco Nevada FNV||1.35||Franco Nevada FNV||1.35|
|BMO Global Base Metal ETF ZMT||2.61||BMO Global Base Metal ETF ZMT||2.61|
|Trevali Mining TV||0.00|
|Hudbay Minerals HBM||0.34|
|Industrials||DowDuPont DWDP US||2.21||DowDuPont DWDP US||2.21|
|Toromont TIH||1.38||Toromont TIH||1.38|
|WSP Global WSP||2.03||WSP Global WSP||2.03|
|Canadian Pacific CP||1.01||Canadian Pacific CP||1.01|
|General Dynamics GD US||1.86||General Dynamics GD US||1.86|
|SNC Lavalin SNC||2.17||SNC Lavalin SNC||2.17|
|Guggenheim Eq WT IND RGI US||1.14||Guggenheim Eq Wt IND RGI US||1.14|
|Honeywell HON US||1.87||Honeywell HON US||1.87|
|Finning FTT||2.58||Finning FTT||2.58|
|Fedex FDX US||1.06|
|Consumer Discretionary||Home Depot HD US||2.09||Home Depot HD US||2.09|
|Sleep Canada ZZZ||2.39||Sleep Canada ZZZ||2.39|
|Stanley Black and Decker SWK US||1.77||Stanley Black and Decker SWK US||1.77|
|Canadian Tire CTC.A||2.21||Canadian Tire CTC.A||2.21|
|Amazon AMZN US||0.00||Amazon AMZN US||0.00|
|Kohl’s KSS US||3.30||Kohl’s KSS US||3.30|
|Magna MG||2.49||Magna MG||2.49|
|Lowes LOW US||1.93||Lowes LOW US||1.93|
|Carnival Cruise CCL US||3.38||Carnival Cruise CCL US||3.38|
|Telecom||Rogers B RCI.B||2.80||Rogers B RCI.B||2.80|
|Consumer Staples||Alimentation Couche Tard ATD.b||0.67||Alimentation Couche Tard ATD.b||0.67|
|Loblaws L||1.72||Loblaws L||1.72|
|Constellation Brands STZ US||1.42||Constellation Brands STZ US||1.42|
|Unilever PLC UL US||3.18||Unilever PLC UL US||3.18|
|Technology||Apple AAPL US||1.53||Apple AAPL US||1.53|
|Microsoft MSFT US||1.58||Microsoft MSFT US||1.58|
|Open Text OTEX||1.67||Open Text OTEX||1.67|
|Nvidia NVDA US||0.25|
|ETFMG Prime Cyber Sec. HACK US||0.11|
|Alphabet GOOGL US||0.00|
|Utilities||Algonquin Power AQN||5.14||Algonquin Power AQN||5.14|
|Fortis FTS||3.97||Fortis FTS||3.97|
|Healthcare||Abbott Labs ABT US||1.71||Abbott Labs ABT US||1.71|
|Johnson & Johnson JNJ US||2.72||Johnson & Johnson JNJ US||2.72|
|Merck MRK US||2.91||Merck MRK US||2.91|
|US Healthcare iShares ETF IYH US||1.06||US Healthcare iShares ETF IYH US||1.06|
|United Healthcare UNH US||1.42||United Healthcare UNH US||1.42|
|Eli Lilly LLY US||2.28||Eli Lilly LLY US||2.28|
|CVS US||3.09||CVS US||3.09|
|Danaher DHR US||0.64|
|Thermo Fisher Scientific TMO US||0.29|
|IBB Biotech ETF IBB US||0.27|
|Real Estate||Cdn Apt. REIT CAR.un||2.87||Cdn. Apt. REIT CAR.un||2.87|
|InterRent REIT IIP.un||2.42||InterRent REIT IIP.un||2.42|
|Summit REIT SMU.un||5.82||Summit REIT SMU.un||5.82|
|Chartwell REIT CSH.un||3.86||Chartwell REIT CSH.un||3.86|
|European Equity||iShares MSCI Europe XEU||4.39||iShares MSCI Europe XEU||4.39|
McMurtry Investment Report – Sector Weights (September 2018)
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||65 % US / 35% CDN|
McMurtry Investment Report Asset Mix (September 2018)
|Asset Mix – Income and Growth Portfolios|