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Canada

StockPointer® Canada Portfolio Transactions – April 2021

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Canadian Model Portfolio, effective April 16 after market close.

Here are the details:

Ins:
1. Power Corporation of Canada (POW) Market trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio. The company is in the top of its sector
2. goeasy Ltd (GSY) – Market trend. Increase in the Financial sector. The company is in the top of its sector
3. Canfor (CFP) - Market trend. Increase in the Material sector. The company is in the top of its sector

Outs:
1. Thomson Reuters (TRI)  Market trend. Decrease in the Consumer Discretionary sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio. The company has the second lowest SP score of the sector. Richelieu Hardware (RCH) has the lowest SP score by one point, but we preferred it over TRI.
2. Empire Company (EMP.A) – Market trend. Decrease in the Consumer Staples sector. The company has the lowest SP score of the sector.
3. Parkland (PKI) Both Market trend and the EPI fell below 1. Decrease in the Energy sector. It was the only stock in the Energy sector.

How to add ESG factors to your portfolio? Positive/ Best-in-class screening

The best-in-class approach involves selecting top companies in terms of ESG metrics. These companies are actively making an effort to improve their ESG impact. Best-in-class screening rewards them by overweighting these companies in their portfolios. 

This method has the advantage of including companies that operate in industries that are not necessarily ESG-friendly. To illustrate, the energy sector is one of the worst sectors for sustainable investment due to its devastating effects on the environment. The energy sector represents 10.2% of the total nominal gross domestic product in Canada and represents over 12% of the S&P/TSX Composite Index as of March 31, 2021. Excluding this sector would mean a substantial deviation from the main Canadian market index. Positive screening also has the benefit of encouraging companies to adopt better ESG guidelines because that would make them more competitive compared to their peers. 

However, implementing a best-in-class screen is time-consuming, if done without the use of third party ESG ratings. Analysts must examine each company in the universe and rank them in terms of sustainability. Third party such as Sustainalytics, offered by InoAdvisor as an add-on, can considerably improve this tedious process. We provide a breakdown of the ESG Risk Rating, Notable Material ESG Issues, Product Involvement and a list of Controversies on over 12,000 companies worldwide. 

Implementation 

Best-in-class selection can be done on an absolute basis, when companies are selected based on their outperformance in terms of ESG characteristics in the entire universe, or on a relative basis, when companies are compared to their competitors within the same industry/sector and are selected based on their superior ESG ratings. 

We focus on the relative basis as it is the most used method. The steps are as follows: 

1. Assign an ESG rating to each company in the investible universe

Each company
has to be analyzed and assigned an ESG score in order to compare companies across sectors or industries and determine which ones are the best in terms of ESG performance. An alternative to this lengthy process is to use readily available ESG data providers.

2. Rank the stocks from best to worst in each sector

Classify the companies in each sector or indus
try from best ESG scored companies to worst ESG scored companies.

3. Overweight the ESG leaders and underweight the ESG losers in your portfolio

Depending on your strategy, you can overweight top ESG companies and underweight bottom ESG companies or only include top ESG companies in your po
rtfolio

Illustration 

Using the InoAdvisor’s screener, we find the best-in-class stocks in the Canadian energy sector. 

We apply the following filters to stocks listed on the TSX: 

  • Energy sector, 
  • Market capitalization of $1 billion or above, 
  • Current SP Score of 5or higher and, 
  • Positive Return on Capital. 

We get a list of 11 Canadian energy companies, ranked from lowest ESG risk exposure to highest ESG risk exposure. Portfolio Managers using the best-in-class approach will favor the lowest ESG risk exposed companies, which implies a higher ESG rating, to their portfolios. 

For a list of this screen, click here. Contact your account executive if you are not already subscribed to our new ESG add-on. 

Pembina Pipeline Corporation (PPLis the top company in our screen. Despite a high Overall Exposure Score of 44.3, the company’s ESG Risk Rating stands at 20.2. Iis able to considerably manage its ESG risk through its ESG measures. From their Sustainability Report 2020, Pembina 

  • Focuses on safe working conditions, with their safety records continuously exceeding the industry average, 
  • Is once again recognized as one of Canada’s Top 100 Employers, 
  • Advanced the implementation strategy for their Carbon Stand as well as their Inclusion and Diversity Stand, 
  • Demonstrated support to the communities in which they have a presence, with a direct investment of $10 million in 2019, a 30 percent increase over the prior year.

The Best-in-class ESG Integration technique helps investors align their values and enhance their risk-adjusted returnsUsing third-party ESG data improves the integration process by reducing the time and effort required to analyze how sustainable companies are. This method encourages companies to consider ESG issues in addition to their bottom-line because mindful investors favor ESG-friendly companies.

StockPointer® Canada Portfolio Transactions – January 2021

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Canadian Model Portfolio, effective today, January 22, after market close.

Here are the details:

Ins:

1. CCL Industries Inc. Class B (CCL.B) - Market trend. Increase in the Material sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.

2. Hydro One (H) - Intra-sectoral transaction. In the top of its sector.

Outs:

1. Great-West Lifeco (GWO) - Market trend. Decrease in the Financial sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.

2. Fortis (FTS) - Intra-sectoral transaction. No longer in the top of its sector.

StockPointer® Canada Portfolio Transactions – October 2020

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Stockpointer® Canada model portfolio. These trades are effective as of Friday, October 16th after market close. Here are the details of the trades:

Ins:

  1. Quebecor Inc. (QBR.B) – Market Trend. Increase in the telecommunication sector as shown by the Top 100 index, therefore, increasing our position in the portfolio. The stock is in the top of its sector.
  2. Stella-Jones (SJ) – Market trend. Increase in the material sector. The stock is in the top of its sector.

Outs:

  1. Magna International (MG) – Market Trend. Decrease in the discretionary sector as shown by the Top 100 index, therefore, decreasing our position in the portfolio. Furthermore, the EPI fell under 1.
  2. Sun Life Financial Inc. (SLF) – Market trend. Decrease in the financial sector. Furthermore, the EPI fell under 1.

StockPointer® Canada Portfolio Transactions – July 2020

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Stockpointer® Canada model portfolio. These trades are effective as of Friday, July 17th after market close. Here are the details of the trades:

Ins:

1. Thomson Reuters Corp (TRI) – Market Trend. Increase in the discretionary sector as shown by the Top 100 index, therefore, increasing our position in the portfolio.
2. Empire Company (EMP.A) – Market trend. Increase in the Consumer Staples sector.
3. Richelieu Hardware Ltd. (RCH) – Intra-sectorial transaction. In the top of its sector.

Outs:

1. CCL Industries Inc. Class B (CCL.B) – Market Trend. Decrease in the materials sector as shown by the Top 100 index, decreasing our position in the portfolio.
2. Stella-Jones (SJ) – Market trend. Decrease in the materials sector.
3. Gildan (GIL) – Intra-sectorial transaction. No longer in the top of its sector.

Rebalancing :
The purpose of rebalancing is to limit idiosyncratic risk associated with individual stocks. The re-balancing process resulted in a 3.5% weight for each on the following stocks: Thomson Reuters Corp. (TRI), Richelieu Hardware (RCH), Empire Company (EMP.A), Dollarama (DOL), Fortis Inc. (FTS) and Winpak (WPK).

1. We have reduced the weight of Constellation Software (CSU) from 11.3% to 9%.
2. We have reduced the weight of Alimentation Couche-Tard (ATD.B) from 10.6% to 9%.

 

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).

StockPointer® Canadian Equities Model Portfolio Transactions – January 2020

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

In:

1. Kirkland Lake Gold (KL) – Intra-sectoral transaction.

2. MTY Food Group (MTY)– Market Trend – Increase in the Consumer Discretionary sector as seen in the Top 100 index.

 

Out:

1. Ritchie Bros Auctioneers Inc. (RBA) – Market Trend – Decrease in the Industrial sector as seen in the Top 100 index.

2. Nordbord (OSB) – Not in the top performers of its sector.

 

Portfolio Manager’s November Comment For October Results

The S&P/TSX Total Return Index declined by 0.9% in October, the S&P 500 rose by 2.2% and the MSCI ACWI ex. USA rose by 3.5%. At October end, the YTD S&P/TSX Total Return Index was up 18.1% which was lower than the S&P500 23.2% increase but higher than the MSCI ACWI ex. USA return of 16.0%.

The market made new highs in October as trade disputes concerns were dissipating and Q3 financial results were coming in line to better than expected. At month’s end, the US 10-year treasury yields were firming up in both the US and Canadian markets. The best TSX sector in October was Materials up 2.9%, followed by Industrials, up 1%. On the contrary, the worst performing sector was Health Care principally due to the poor performance of the Cannabis sector.

Looking more specifically at INOC, the best performers in October were Norbord (+19.7%), the Canadian manufacturer of wood-based products and leading producer of Oriented Strand Board. The next best performer was Equitable Group (+9.2%), %), a Canadian bank with the bulk of its business involved in the residential mortgages sector.

The NASDAQ Inovestor Canadian Equity Index YTD and Yearly returns stood at 20.2% and 14.7, ahead of the S&P TSX TR corresponding figures of 18.1% and 13.2%.

The Inovestor strategy was rebalanced in October. We increased exposure to the Industrials with the addition of Ritchie Bros Auctioneers Inc. (RBA) and Evertz (ET). We also added Parkland Fuel Corporation (PKI) as their results are strengthening now that their strategic acquisitions are being successfully integrated.

We exited Bell Canada (BCE), Canadian Imperial Bank of Commerce (CM) and Linamar Corp (LNR). These were the holdings with the weakest economic value added (EVA) figures in their respective economic sector.

StockPointer® Canadian Equities Model Portfolio Transactions – October 2019

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Canadian Model Portfolio, which will be effective on October 18th after market close. Here are the details:

In:

1. Ritchie Bros Auctioneers Inc. (RBA) – Market Trend. Increase in the Industrial sector as seen in the Top 100 index.

2. Evertz (ET) – Market Trend – Increase in the Industrial sector as seen in the Top 100 index.

3. Parkland Fuel Corporation (PKI) – Market Trend – Increase in the Energy sector as seen in the Top 100 index.

Out:

1. Bell Canada (BCE) – Market Trend. Decrease in the Telecommunications Services sector as seen in the Top 100 index.

2. Canadian Imperial Bank of Commerce (CM)- Market Trend. Decrease in the Financial sector as seen in the Top 100 index.

3. Linamar Corp (LNR) – Market Trend – Decrease in the Consumer Discretionary sector as seen in the Top 100 index.

Portfolio Manager’s Q3 Commentary

The S&P/TSX Composite Total Return Index increased by 2.5% in the third quarter. This adds to this years’ gains for a YTD return of 19.1%. During Q3, the S&P500 produced a 1.2% return for a YTD rate of 18.7% and the MSCI ACWI ex USA posted a 1.1% return leading to a 16.6% YTD total return.

Over the 3rd quarter, most company results were inline or better than expected. Interest sensitive sectors such as Utilities and REITS performed the best due to lower long-term interest rates.

In addition, the FED confirmed its dovish stance by reflecting the FED meeting minutes that were perceived to be accommodating. The FED had hinted that they would be open to reduce rates further if economic slowdown was visible. As a result, the Financials sector had the strongest sector rally in the month of September compared to the rest of the market.

NQICA in Q3 returned 3.9% leading to a YTD return of 21.1% versus the S&P/TSX composite which returned 2.5% in Q3 and 19.1% YTD. The one-year return for NQICA is 8.2% in comparison to the S&P/TSX which generated 7.1%.

The worst performers in the NQICA in Q3 were Stella Jones (SJ) with a return of -17.8%, due to the departure of the CEO, and CCL Industries (CCL.B) with a -16.52% return, due to poor quarterly results and increased insider selling. On the other hand, the best performers were Equitable Group (EQB) up 43.46%, due to excellent quarterly results and improvement in the Canadian real estate statistics, and Metro Inc. (MRU) up 19.11% based on great earnings and a positive update on the integration o the Jean-Coutu acquisition.