Q3 2018 | Portfolio Commentary

Volume 2 | Issue 3
October 5, 2018

 
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Big wheel keep on turnin’
— Proud Mary by Creedence Clearwater Revival

Q3 2018: 

Last week Lorenzo and I travelled to Toronto for our quarterly Portfolio Managers conference where we spent three days listening to economists, market strategists and Portfolio Managers discussing the current investment landscape.

The general consensus on both the US economy and stock market was rather positive and we are now in the longest rising stock market and business cycle in history. 

Source: NBF Economics and Strategy (http://www.nber.org/cycles.html

Source: NBF Economics and Strategy (http://www.nber.org/cycles.html

Although this is the longest expansion on record, it is also the weakest[1] from an annualized price appreciation perspective; a fact that is often overlooked in the media.

The media headlines are full of things to worry about, but risks are ever-present at all points in the economic cycle, and we don’t believe today’s risks are extraordinary.  


“Worryin' 'bout the way things might have been

Big wheel keep on turnin'

Proud Mary keep on burnin'

Rollin', rollin', rollin' on the river”


We firmly believe that we are in the latter stages of the economic expansion.  Most commentators seem to think there are 2-3 years left in this bull market for a few reasons:

  • No real inflationary pressures in Canada or the US,

  • Job growth remains strong in both countries,

  • Personal and corporate default rates remain low in Canada and the US, and

  • Recent corporate tax cuts in the US should continue to stimulate markets and economic expansion.

[1] BMO Investment Strategy Group, FactSet


As always, our goal is to balance market growth while having the portfolio positioned to protect during a market downturn.  Given our economic outlook and how well the Income and Growth models have withstood the market volatility this year, we have decided not to make significant changes for the 4th quarter of 2018 (with one small exception discussed below). 


CHANGES MOVING FORWARD

After more than a year of negotiations, the US, Mexico and Canada came to an agreement on updating NAFTA. This new deal will be given the name: United States Mexico Canada Agreement (USMCA). This resolution increases the probability of further interest rate hikes by the Bank of Canada. Due to this headwind in fixed income (bonds), we have made the following changes to both our Income and Growth models: 

We will be switching our low cost iShares Core Canadian Short Term + Maple Bond Index ETF (symbol XSH) for an equally low cost ETF by BMO; BMO Ultra Short-Term Bond ETF (symbol ZST.L). The lower interest rate sensitivity of this EFT should help insulate against the negative effects of rising rates on our core bond position. 

If you have any questions about the trades or your portfolio, we would love to hear from you.


 
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Matthew Evans, CFP®, CIM®  | Portfolio Manager
HollisWealth®, a division of Industrial Alliance Securities Inc.
m.evans@westmountwealth.com  

Lorenzo Pederzani, CFA, CFP®, FCSI®  | Director, Private Client Group & Portfolio Manager
HollisWealth®, a division of Industrial Alliance Securities Inc.
l.pederzani@westmountwealth.com  

 
 
 

This information has been prepared by Lorenzo Pederzani and Matthew Evans who are  Investment Advisors/Portfolio Managers for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisors/Portfolio Managers can open accounts only in the provinces in which they are registered.

HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.