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Model Portfolio

Portfolio Manager’s July Comment For Q2 2020

In the second quarter, the S&P/TSX Composite Total Return Index increased by 17%, the S&P500 total return grew by 20.5% while the MSCI ACWI ex-USA returned 16.3%.

Q2 returns were eye-popping and are pointing to a V-shaped recovery. Growth and technology have continued their outperformance compared to the rest of the market.

In Q2, NQICA returned 16.3% leading to a year-to-date return of -12.7% versus the S&P/TSX composite which increased by 16.9% in Q2 and declined -7.5% on a year-to-date basis.

In Canada, the best Q2 sectors were Info-Tech up 68.2%, Materials up 41.6% and consumer discretionary up 32%. The worst sectors were telecommunication services down 2.1%, Utilities up 2.7%, and Financials up 4.8%.

The NQICA’s worst performers in the second quarter were Evertz with a return of -14.3% as the company has been affected by the shutdown of professional sports, Fortis declined by 3.9% given the company’s profile was less attractive during the recovery and Winpak with a return of -3.3% caused by lower than expected sales and profits.

On the other hand, the best results in the second quarter were TFI International with a return of 56.2% as the acquisition of Gusgo Transport has been well received by the market, Canadian Tire jumped 40.1% as the retailer kept its stores open and was able to protect its profits and Parkland Corp. grew by 39.1% helped by rising oil prices.

StockPointer® US and ADR Model Portfolio Transactions – June 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. United Therapeutics Corporation (UTHR) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. AT&T Inc. (T) – Market Trend. Increase in the Telecommucations sector.
  3. Federated Investors (FHI) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Constellation Brands, Inc. Class A (STZ) – Both a Market Trend and an intra-sectoral transaction. Decrease in the consumer staples sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio. The company’s EPI also fell below 1.
  2. Employers Holdings, Inc. (EIG) – Both a market trend and an intra-sectoral transaction. Decrease in the Financial sector and no longer in the top of its sector.
  3. South State Corp (SSB) – Intra-sectoral transaction. No longer in the top of its sector. This company was in our portfolio following the merger with CenterState Bank Corportation (CSFL).

 

Here are the details for the ADR portfolio:

Ins:

  1. Swedish Orphan Biovitrum AB (BIOVF) – Market Trend. Increase in the Healthcare sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. Globe Telecom Inc. (GTMEF) – Market Trend. Increase in the Telecommucations sector.
  3. Ford Otomotiv San (FOVSY) – Intra-sectoral transaction. In the top of its sector.
  4. Daito Trust Construction (DITTF) – Intra-sectoral transaction. In the top of its sector.
  5. Wipro Technologies (WIT) – Intra-sectoral transaction. In the top of its sector.
  6. China Resources Cement (CARCY) – Intra-sectoral transaction. In the top of its sector.

 

Outs:

  1.  Trane Technologies (TT) – Market Trend. Decrease in the industrial sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Fomento Económico Mexicano (FMX) – Market Trend. Decrease in the Industrial sector.
  3. Megacable Holdings (MHSDF) – Intra-sectoral transaction. No longer in the top of its sector.
  4. DBS Group Holdings (DBSDF) Intra-sectoral transaction. No longer in the top of its sector.
  5. Garmin (GRMN) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.
  6. LyondellBasell (LYB) – We decided to exclude this stock because it is not an ADR and we think this is a good timing to do it.

Portfolio Manager’s June comment For May Results

The Canadian stock market continued to rally in May. The S&P/TSX Total Return Index rose by 3% during the month, while the S&P 500 and the MSCI ACWI ex. USA gained 4.7% and 3.3% respectively. At May end, the year-to-date S&P/TSX Total Return Index loss was 9.7% while the S&P500 shrunk by 5% and the MSCI ACWI ex. USA fell off 14.6%. Despite being in negative territory, all equity indexes are now into a V-shape recovery.

The best TSX sectors for the month of May were Information Technology up 14.6% and Consumer discretionary up 8.1%. At the opposite, the worst performing sectors were Real Estate down 0.4% and Utilities unchanged on the month.

Our best performers in May were Canadian Tire up 20.4%, Parkland Corp up 17.6% and Constellation Software up 16.9%.

On the other hand, the weakest contributors were Kirkland Lake Gold down 7.8%, First National down 4.5% and Equitable group down 3.7%.

Portfolio Manager’s May Comment for April Results

The S&P/TSX increased by 10.8% in April and the S&P500 increased by 12.8% while the MSCI ACWI ex USA gained 7.6%. At the end of the 12-month period ending April 30th, the S&P/TSX was posting a negative return of 7.9%. Over the same 12-month period, the S&P500 gained 0.9% while the MSCI ACWI ex USA posted a decline of 11%. For the U.S and Canadian markets April results were the best monthly returns of the past decades. Over the past 12 months, the strong performance behind the U.S equity market can be explained by its 5 largest technology names (Microsoft, Facebook, Amazon, Apple and Google).
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The best TSX sectors for the month of April were Materials up 33%, followed by Information Technology up 29.3%, and Consumer Discretionary up 20.1%. The worst performing sectors were Telecommunication Services (-0.3%), Financials (0.9%) and Utilities (3.7%).

The best monthly performers in the portfolio were Kirkland Lake Gold (39.1%) and Parkland Fuel Corp (33.1%). At the opposite, the weakest contributors were Great-West Life Co, which was down 5.7% and Royal Bank of Canada down 1.8%.

4 stocks were sold and bought in the strategy, in April. For this rebalancing, the model required an exposure reduction to 2 sectors namely Consumer Discretionary and Energy. MTY Group (MTY) was sold for several reasons including its negative exposure to the COVID-19 pandemic, Parex Ressources (PXT) was sold as weak oil prices put severe pressure on its margins.

The model called for the selling of Brookfield Asset Management (BAM.A) and Brookfield Infrastructure Partners L.P. (BIP.UN) due to a deterioration of their respective performance scores.

The model also required an increased exposure to Materials and Financials. The names that made it into those sectors were Winpak (WPK) and First National (FN). The other 2 names purchased in this rebalancing were Fortis (FTS) as a replacement for Brookfield Infrastructure Partners L.P. (BIP.UN) and Sun Life Financial as a replacement for Brookfield Asset Management (BAM.A).

StockPointer® Canada Portfolio Transactions – April 2020

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Canadian Model Portfolio, which will be effective on April 17th after market close. Here are the details :

Ins

  1. First National Financial Corp. (FN)– Market Trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. Winpak Ltd. (WPK)– Market Trend. Increase in the Material sector.
  3. Sun Life Financial Inc. (SLF)– Intra-sectoral transaction. In the top of its sector.
  4. Fortis (FTS) – Intra-sectoral transaction. In the top of its sector.


Outs

  1. MTY Group (MTY)– Market Trend. Decrease in the consumer discretionary sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Parex Resources Inc. (PXT)– Market Trend. Decrease in the Energy sector.
  3. Brookfield Asset Management Inc. (BAM.A)– Intra-sectoral transaction. No longer in the top of its sector.
  4. Brookfield Infrastructure Partners L.P. (BIP.UN) – Intra-sectoral transaction. No longer in the top of its sector.
  5. Brookfield Infrastructure Corporation (BIPC) – Intra-sectoral transaction. No longer in the top of its sector. This company was in our portfolio following a unit split equivalence from Brookfield Infrastructure Partners L.P (BIP.UN).

Portfolio Manager’s April Comment For Q1 2020

The performance of Global equities has been severely impacted by the COVID-19. The S&P/TSX Composite Total Return Index declined by 20.9% in Q1 more than offsetting last years’ gains for an annualized negative total return of -14.2%. For Q1, the S&P500 total return was -19.6% also erasing last returns for an annualized total return of -7% while the MSCI ACWI ex US posted a -23.3% return leading to a negative -15.1% annualized total return.

The obvious of this year’s first quarter is the COVID-19 and its impacts on the economic activity. In this period of turbulence, the COVID-19 often decides who is the winner or the loser.

NQICA in Q1 returned -24.9% leading to a 1-year return of -16.3% versus the S&P/TSX composite which returned -20.9% in Q1 and -14.2% on a 1-year basis.

In Canada, the best Q1 sectors were Info-Tech down 3.8%, Utilities down 6.2% and Telecommunication Services down 9.2%. The worst sectors were Energy down 38.2%, Healthcare down 37.3%, and Consumer Discretionary down 33.3%.

The worst performers in the NQICA in Q1 were MTY with a return of -61.2%, as a majority of its franchises needed to close because of the COVID-19, Gildan with a return of -53.3% given its discretionary profile and closing some of its manufacturing facilities and Parkland Fuel Corp. with a return of -50.7% given the lower traffic at its gaz station. On the other hand, Metro delivered a 6.6% return, as its groceries and drug stores benefits from increased volume, Constellation Software realized a 1.5% return as it was not directly impacted from the COVID-19 while Canadian National was down only 5.8% despite the hostage of its network by pressure groups earlier this year and the upcoming economic slowdown.

StockPointer® US and ADR Model Portfolio Transactions – April 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. American Express (AXP)– Market Trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. LyondellBasell (LYB)– Market Trend. Increase in the Material sector
  3. Starbucks (SBUX)– Intra-sectoral transaction. In the top of its sector.
  4. Home Depot (HD) – Intra-sectoral transaction. In the top of its sector.
  5. Cabot Oil & Gas (COG) – Intra-sectoral transaction. In the top of its sector.
    6. Centerstate Bank Corp (CSFL) – Intra-sectoral transaction. In the top of its sector.
    7. TransDigm Group (TDG) – Intra-sectoral transaction. In the top of its sector.
    8. Newmont Mining (NEM) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Bristol-Myers Squibb Co. (BMY)– Market Trend. Decrease in the Healthcare sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. DTE Energy (DTE)– Market Trend. Decrease in the Utilities sector
  3. Six Flags (SIX)– Intra-sectoral transaction. The company was in potential financial distress.
  4. H&R Block (HRB) – Intra-sectoral transaction. No longer in the top of its sector.
  5. GeoPark Ltd. (GPRK) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Medical Properties Trust Inc. (MPW) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Alaska Air Group Inc. (ALK) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Westlake Chemical Corporation (WLK) – Intra-sectoral transaction. No longer in the top of its sector.

 

Here are the details for the ADR portfolio :

 

Ins:

  1. Anhui Conch Cement(AHCHF)– Market Trend. Increase in the Materials sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. DBS Group Holdings (DBSDF)– Market Trend. Increase in the Financial sector
  3. Telenet Group Holding (TLGHY)– Intra-sectoral transaction. In the top of its sector.
  4. Husqvarna AB (HUSQF) – Intra-sectoral transaction. In the top of its sector.
  5. Neste OYJ (NTOIF) – Intra-sectoral transaction. In the top of its sector.
  6. Ping An Insurance (Group) Co. Of China (PIAIF) – Intra-sectoral transaction. In the top of its sector.
  7. Ashtead Group (ASHTF) – Intra-sectoral transaction. In the top of its sector.
  8. Shionogi & Co (SGIOF) – Intra-sectoral transaction. In the top of its sector.
  9. Nexon (NEXOF) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Brookfield Infrastructure Partners L.P. (BIP)– Market Trend. Decrease in the Utilities sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Brookfield Infrastructure Corporation (BIPC)– Market Trend. Decrease in the Utilities sector. This company was in our portfolio following a unit split equivalence from Brookfield Infrastructure Partners L.P (BIP).
  3. Enersis (Enel Américas) (ENIA)– Market Trend. Decrease in the Utilities sector
  4. Arcos Dorados Holdings (ARCO) – Intra-sectoral transaction. No longer in the top of its sector.
  5. Michael Kors (Capri Holdings) (CPRI) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Transportadora (TGS) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Bank of N.T Butterfield & Son Limited (NTB) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Banco Santander Brasil (BSBR) – Intra-sectoral transaction. No longer in the top of its sector.
  9. Taro Pharmaceuticals (TARO) – Intra-sectoral transaction. No longer in the top of its sector.
  10. NXPI Semicondutors N.V (NXPI) – Intra-sectoral transaction. No longer in the top of its sector.

Canadian Model Portfolio update: COVID-19

With the current COVID-19 spreading all over the global. Here is a quick portfolio update:

  • On February 20, S&P/TSX TR achieved new highs closing at $17,944. Since then the benchmark is down -20.29%. Whereas Inovestor Canadian model portfolio is down -17.44%
  • YTD the S&P/TSX is down -15.90% and Inovestor Canadian model portfolio is down -14.26%
  • The best performing stocks in our Canadian model portfolio since 20 February: Dollarama Inc -0.6%, Metro Inc -0.7% and Telus Corpotation -9.1%
  • The worst performing stocks in our Canadian model portfolio since 20 February: Parex Resources Inc -34.7%, Equitable Group Inc. -30.7% and Parkland Fuel Corp -28.6%
  • We remain focus on the long term and avoid current market noises. We believe our portfolio companies are fundamentally sound and should performed well on the long term

Portfolio Manager’s March comment For February Results

The Canadian stock market realized one of its worst performance in February. This negative outcome unfolded as growing concerns on the economic impact of the COVID-19 was being factored in investor expectations. Given the elevated level of equity markets, the COVID-19 was the perfect trigger for a market correction.

The S&P/TSX Total Return Index declined by 5.9% in February and the S&P 500 also declined by 8.2% while the MSCI ACWI ex. USA lost 7.9%. At February end, the 12-months S&P/TSX Total Return Index gain was 4.9% behind the S&P500 gain of 8.2% and higher than the MSCI ACWI ex. USA who was flat.

The best TSX sector for the month of February was Information Technology down 2.7%, followed by Utilities down 3.1%, and Real Estate down 3.8%. On the contrary, the worst performing sectors were Health Care (-16.7%), Material (-7.6%) and Energy (-7.5%).

The best performers in February were Brookfield Asset Management (-0.9%) Constellation Software (-1.7%) and TFI International (-2.3%). Brookfield Asset Management trades as a bond equivalent and performs relatively well when long term interest rate decrease and the market considers IT stocks like Constellation Software isolated from the COVID-19 economic impact. At the opposite, the weakest contributors were CCL Industries, which was down 20.6% on very disappointing results as organic growth missed by a wide margin, Kirkland Lake Gold was down 20.2% due to poor production gold grade in Fosterville and Equitable group was down 15.4% because of low guidance despite better than expected results.

 

Portfolio Manager’s February Comment for January Results

The Canadian stock market as defined by the S&P-TSX posted another positive return for the month of January. This positive outcome took place despite global worries resulting from the coronavirus potential impact on the economy.

Last month, the S&P/TSX TR realised a 1.7% return, while the S&P500 TR was essentially flat and the MSCI ACWI ex USA declined by 2.7%. On a one-year basis, the S&P/TSX TR was up 15%, the S&P500 TR posted a 21.7% return while the MSCI ex USA lagged with a 10.5% return.

The best TSX sector for January was Information Technology up 9.4% followed by Utilities up by 7.6%. The worst sector for the month was Health Care down 2.6%.

The NQICAT was up 1.5% in January and 16.6% on a one-year basis. The NQICAT’s best performer was Brookfield Infrastructure (BIP.UN) up 11.1% closely followed by Constellation Software (CSU). BIP.UN was up in sympathy with other Utility stocks rallying as long term interest rate were coming down.

The worst performer was Parex Resources (PXT) the only oil stock of the portfolio. Every energy producer’s stocks price of the S&P-TSX Index came down in January. Energy producers were negatively impacted by a weaker outlook for oil demand, again caused by the fears around the Coronavirus and its impact on the economy.

2 stocks were sold and bought in the strategy in January. Norbord (OSB) was sold because its economic performance indicator turned negative. OSB cost of capital was higher than its return on capital as a consequence of its most recent quarterly report. OSB was replaced by Kirkland Lake Gold (KL). KL had the highest SP score in the material sector. Ritchie Bros. Auctionneers (RBA) was the other stock sold. The industrial sector EVA weight had having declined in the aggregate total profit. We had to sell the lowest SP score stock of the industrial sector which happened to be RBA. The consumer discretionary sector weight increased and MTY food group (MTY) was the stock with the best SP score in its sector that was not already in the portfolio.