Also available in PDF: MIR Portfolios September 2019
Investment Commentary September 2019
Equity markets continue to climb in the midst of the wall of ongoing concerns.
Despite these issues, there have been some fundamental improvements in several factors that make the probability of an impending recession less likely.
First of all, the US 10-2 year Treasury yield spread has turned positive once again. Secondly the 10 year US treasury yield have climbed back from a low of 1.5% to the current rate of 1.9% over the last month.
Thirdly US corporate bond spreads over US Treasuries continue to narrow significantly.
Over and above these improvements, the ongoing Brexit talks are starting to take on a more positive stance. In addition, the US / China trade wars are also looking more conciliatory on both sides, a favourable development. The US Federal Reserve Bank is expected to continue to cut interest rates.
In light of these recent developments and in spite of the recent equity market strength, I am recommending a reduction of 5% in cash for both portfolios with the proceeds directed back into the North American equity markets.
In terms of equity sectors I remain overweight the 55% US 45% Cdn. equity benchmark, Industrials, Technology, Utilities, Consumer Staples and Real Estate.
I remain market weight Financials, Energy, Communication Services, and Healthcare.
I remain underweight Consumer Discretionary.
The only sector change from last month is that I am increasing my exposure in the Materials sector from underweight to market weight. The gold stocks continue to perform very well and will provide a buffer to markets should any unforeseen negative event happen.
In the healthcare sector I added CVS Healthcare to both portfolios on September 9th. The stock is cheap trading at 9 times this year’s earnings and offers a solid 3.2% dividend with a low cash payout of under 28%. Aetna, its recent acquisition is expected to be accretive to earnings.
In the Industrials sector, I am switching out of Raytheon into United Technologies. While this may seem pointless with the recent merger announcement of the two companies, UTX is currently benefitting from its equity interest in Carrier Air Conditioning. Carrier and its HVAC competitors are all participating in the very strong demand for air conditioning throughout Europe and the UK. In 2020 Carrier will be spun off from United Technologies to shareholders and this will most likely occur before the merger of Raytheon and UTX.
I also added United Rentals to the Growth portfolio in the Industrials sector. The company is benefitting from the strong secular trend into equipment leasing and has been able to increase its rental rates since 2017. The shares are trading at a reasonable valuation and offer good growth opportunities.
Lastly in the Energy sector I am adding Whitecap Resources to both portfolios. The stock is trading at a very attractive valuation and offers a dividend of 7.69% with a cash payout under 45%. The company has solid growth in free cash flow.
Peter McMurtry, B.Com, CFA
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|McMurtry Investment Report – Portfolios (September 2019)|
|Cash||Alterna Bank – High Interest Savings (2.05% current )||Alterna Bank – High Interest Savings (2.05% current)|
|EQ Bank – High Interest Savings ( 2.30% current)||EQ Bank – High Interest Savings ( 2.30% 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 CORP||iShares XHY US High Yield CDN$||iShares XHY US High Yield CDN $|
|Common Stocks||Security||Dividend Yield %||Security||Dividend Yield %|
|Financials||Royal Bank RY||3.99||Royal Bank RY||3.99|
|Bank of Montreal BMO||4.27||Bank of Montreal BMO||4.27|
|Intact Financial IFC||2.32||Intact Financial IFC||2.32|
|TD TD||3.94||TD TD||3.94|
|Sun Life SLF||3.59||Sun Life SLF||3.59|
|JP Morgan JPM US||2.99||JP Morgan JPM US||2.99|
|Bank of America BAC US||2.39||Bank of America BAC US||2.39|
|Citibank C US||2.90||Citibank C US||2.90|
|Morgan Stanley MS US||3.10||Morgan Stanley MS US||3.10|
|T. Rowe Price TROW US||2.56||T. Rowe Price TROW US||2.56|
|PNC Fin’l PNC US||3.30||PNC Fin’l PNC US||3.30|
|Energy||Suncor SU||4.16||Suncor SU||4.16|
|Canadian Natural Resources CNQ||4.46||Canadian Natural Resources CNQ||4.46|
|Freehold FRU||8.12||Freehold FRU||8.12|
|Pembina Pipe Lines PPL||4.88||Pembina Pipe Lines PPL||4.88|
|Enbridge ENB||6.37||Enbridge ENB||6.37|
|Trans Canada TRP||4.54||Trans Canada TRP||4.54|
|Whitecap Resources WCP||7.69||Whitecap Resources WCP||7.69|
|Parex Resources PXT||0.00|
|Materials||Agnico Eagle AEM||0.92||Agnico Eagle AEM||0.92|
|Franco Nevada FNV||1.10||Franco Nevada FNV||1.10|
|VanEck Vectors Gold ETF GDX US||0.39||VanEck Vectors Gold ETF GDX US||0.39|
|Osisko Metals OM.V||0.00|
|iShares Global Gold ETF XGD||0.58|
|Industrials||Toromont TIH||1.67||Toromont TIH||1.67|
|NFI Group NFI||5.67||NFI Group NFI||5.67|
|Air Products APD US||2.09||Air Products APD US||2.09|
|WSP Global WSP||1.99||WSP Global WSP||1.99|
|Canadian Pacific CP||1.09||Canadian Pacific CP||1.09|
|United Technologies UTX US||2.13||United Technologies UTX US||2.13|
|United Rentals URI US||0.00|
|Aecon Group ARE||3.08||Aecon Group ARE||3.08|
|Invesco Eq WT IND RGI US||1.34||Invesco Eq Wt IND RGI US||1.34|
|Honeywell HON US||1.96||Honeywell HON US||1.96|
|TFI Int’l TFII||2.39||TFI Int’l TFII||2.39|
|Consumer Discretionary||Home Depot HD US||2.32||Home Depot HD US||2.32|
|Magna Int’l MG||2.70||Magna Int’l MG||2.70|
|Amazon AMZN US||0.00|
|Canadian Tire CTC.A||Canadian Tire CTC.A||2.94|
|Lowes LOW US||1.94||Lowes LOW US||1.94|
|Communication Services||Rogers B RCI.B||2.97||Rogers B RCI.B||2.97|
|Facebook FB US||0.00|
|Alphabet GOOGL US||0.00|
|Consumer Staples||Alimentation Couche- Tard ATD.B||0.60||Alimentation Couche Tard ATD.b||0.60|
|Loblaws L||1.74||Loblaws L||1.74|
|Constellation Brands STZ US||1.47||Constellation Brands STZ US||1.47|
|Sysco SYY US||1.99||Sysco SYY US||1.99|
|Unilever PLC UL US||3.00||Unilever PLC UL US||3.00|
|Technology||Apple AAPL US||1.41||Apple AAPL US||1.41|
|Microsoft MSFT US||1.34||Microsoft MSFT US||1.34|
|Open Text OTEX||1.72||Open Text OTEX||1.72|
|Paychex PAYX US||3.04||Paychex PAYX US||3.04|
|Cisco CSCO US||2.80||Cisco CSCO US||2.80|
|Logitech Int’l LOGI US ADR||1.76||Logitech Int’l LOGI US ADR||1.76|
|ETFMG Prime Cyber Sec. HACK US||0.21|
|Visa V US||0.56|
|Utilities||Algonquin Power AQN||4.24||Algonquin Power AQN||4.24|
|Northland Power NPI||4.95||Northland Power NPI||4.95|
|Fortis FTS||3.45||Fortis FTS||3.45|
|Healthcare||Abbott Labs ABT US||1.52||Abbott Labs ABT US||1.52|
|Becton Dickinson BDX US||1.18||Becton Dickinson BDX US||1.18|
|Merck MRK US||2.66||Merck MRK US||2.66|
|US Healthcare iShares ETF IYH US||1.85||US Healthcare iShares ETF IYH US||1.85|
|United Healthcare UNH US||1.85||United Healthcare UNH US||1.85|
|CVS Healthcare CVS US||3.12||CVS Healthcare CVS US||3.12|
|Danaher DHR US||0.48|
|Thermo Fisher Scientific TMO US||0.26|
|Straumann ADR SAUHY US *||0.62|
|IBB Biotech ETF IBB US||0.11|
|Real Estate||Cdn Apt. REIT CAR.un||2.62||Cdn. Apt. REIT CAR.un||2.62|
|US Real Estate SPDR XLRE US||3.17||US Real Estate SPDR XLRE US||3.17|
|InterRent REIT IIP.un||1.88||InterRent REIT IIP.un||1.88|
|Dream Industrial DIR.un||5.69||Dream Industrial DIR.un||5.69|
|Summit REIT SMU.un||4.40||Summit REIT SMU.un||4.40|
|European Equity||iShares MSCI Europe XEU||3.42||iShares MSCI Europe XEU||3.42|
* Be careful purchasing and selling Straumann ADR’s as it is very illiquid. Always use a limit order.
|McMurtry Investment Report – Sector Weights (September 2019)|
|Equity Sector Weights (%)|
|Sector||My Weight||TSX Comp||S&P 500||55 % US /45% CDN|
|McMurtry Investment Report Asset Mix (Sept. 2019)|
|Asset Mix – Income and Growth Portfolios|
|Bonds – Regular||20.00||10.00|
|Bonds – High Yield||5.00||5.00|