Andrew Pink, portfolio manager at LDIC
Focus: Canadian large caps, preferred shares and fixed income

MARKET OUTLOOK

With global interest rates and bond yields at very low levels, the market is telling us that economic growth will also be low in 2020. However, the growth scare of the summer highlighted by an inverted yield curve appears to have abated. Since then, yield curves have started to normalize and earnings growth indicators have moved up. Consequently, our outlook for 2020 remains optimistic. We expect central banks to keep interest rates low and economic growth to stay positive in North America through the year.

Broadly speaking, corporate earnings expectations are low again this year and thus tactically positive for equity markets. We believe the U.S.-China phase 1 trade agreement will have a positive impact on the global economy and investor confidence. Brexit now seems certain and while negative for the region, the end of the uncertainty may lead to new deals between United Kingdom and other nations.

The impeachment of Donald Trump is nearly certain to fail in the U.S. Senate. We believe attention will swiftly refocus on the November presidential election. As clarity on the Democratic nominee emerges in June, investors should expect some increased volatility within pockets of the equity markets.

At this point, we expect the economic impact from the coronavirus will be shallow as efforts to contain the spread are much more effective than with SARS in 2003. Still, it will be important to monitor this situation closely.

TOP PICKS

OPEN TEXT (OTEX TSX)

Open Text is the largest independent developer of enterprise information management (EIM) solutions, also providing business process management (BPM), customer experience management (CEM) and general data analytics solutions. The company sells directly and through partnerships to large enterprise, government agencies and other professional service firms worldwide.

Headquartered in Waterloo, Ontario, Open Text is leveraging Canada’s commitment to advancing its global leadership position within the technology space. It most recently acquired Carbonite, its first move into the small and medium-sized enterprises (SME) consumer business. The company provides leverage to key global macro technology themes such as enterprise competing for information advantages, data security, supply chain logistics, customer experience and the cloud.

BOYD GROUP (BYD-U TSX)

Boyd is a leader and consolidator in the fragmented U$40 billion auto collision repair industry in North America. Impeded only by the ability to hire and retain its technicians, Boyd has benefited from its scale and operational efficiencies. The company has unique partnerships with the largest insurance carriers, advanced management technology solutions to streamline business practices and a strong and aligned executive team. Boyd continues to acquire single and multi-shop operators at accretive valuations, most recently in California, the most populous state in America.

GRANITE REIT (GRT-U TSX)

Granite is an industrial real estate owner with more than 80 properties located in Canada, the U.S. and Europe. Operating in three unique international markets allows the investment team to target growth opportunities and allocate capital to regions with the highest return profile. The company focuses on logistic assets geared towards distribution and e-commerce, including conventional warehouses and e-commerce fulfillment centres for regional to last mile deliveries. Granite is well diversified both geographically and along the supply chain. We share management’s belief that the next big e-commerce growth areas are food and pharmaceutical distribution (particularly in Europe). The company pays a 4.1-per-cent dividend yield, which has been growing at 5 per cent annually. The balance sheet is under-levered and the relative valuation remains compelling.

PAST PICKS: MARCH 6, 2019

PARKLAND FUEL (PKI TSX)

• Then: $37.32
• Now: $46.06
• Return: 23%
• Total return: 27%

BROOKFIELD INFRASTRUCTURE PARTNERS (BIP-U TSX)

• Then: $54.01
• Now: $71.63
• Return: 33%
• Total return: 37%

WPT INDUSTRIAL REIT (WIR/U TSX)

• Then: $13.37
• Now: $13.94
• Return: 4%
• Total return: 9%

Total return average: 24%

FUND PROFILE

LDIC North American Growth & Income Fund
Performance as of Dec. 31/19

• 1 month: -1.17% fund, 0.33% index
• 1 year: 21.51% fund, 21.72% index
• 3 years: 7.55% fund, 7.94% index

INDEX: 70% TSX, 20% S&P 500, 10% DEX Universe Bond Index.
Returns are based on reinvested dividends, net of fees and annualized.

WEBSITE: ldic.ca