Chris Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: North American large caps and global ADRs

MARKET OUTLOOK

In the simplest of terms, two wrongs make a right. The market’s December plunge was not warranted in our view and the instantaneous bounce-back straight up was also abnormal. Nevertheless here we are back to within 5 per cent of the record highs, and the sentiment for 2019 is actually much more negative than during the same time last year. All the positives in 2018 are still here, tax reform has made corporations much more profitable, the unemployment rate is at record lows and the consumer remains strong.

Interest rates were increased four times last year to give us a bit of room in the event of a recession and the new policy is to hold steady on interest rates and not increase. In our view, this is the single most important market event. Keeping interest rates low is actually beneficial to stocks, creating a real TINA (there is no alternative) situation that generally pushes them higher as the most likely asset class to earn a higher return. By keeping interest rates lower for longer, the Federal Reserve has effectively done its best to prevent downside in the stock market. This is a positive thing short term, but over the long term it produces more risks.

UPDATE

Sold Deutsche Bank at a loss, as interest rates seem to be steady for the time being.

TOP PICKS

TENCENT (TCEHY.PK)

Tencent is a one-of-a-kind platform in China with conglomerate-style technology investments. It struggled last year with the government not approving many of its games, but now the company has a positive backlog against easier comparables. It should continue its high double-digit revenue growth while keeping a solid balance sheet. Tencent generates 95 per cent of its revenue in China, so it isn’t much affected by the trade war. The stock may move, but the company doesn’t change.

ANALOG DEVICES (ADI.O)

Analog Devices is the bridge between the physical and digital worlds, its core business being digital sensors. The company had a very successful purchase of Linear Technologies, where it levered up the balance sheet. It’s now paid off a meaningful amount of debt and the company is easily capable of growing cash flow and dividends. Without Analog Devices, it’s a challenge to get the data from the real world.

ROYAL BANK (RY.TO)

If markets do go into a sideways pattern, Royal Bank is paying a 4 per cent dividend which is an exceptional return given the low amount of risk. It is Canada’s largest company and shows no sign of sitting on its laurels operationally. Interest rates holding steady does take away the market tailwind, but with Treasuries at 2.5 per cent a Royal’s dividend is a good risk/reward proposition.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TENCENT  Y Y Y
ANALOG DEVICE N Y Y
RBC Y Y Y

 

PAST PICKS: OCT. 17, 2018

ALIMENTATION COUCHE-TARD (ATDb.TO)

  • Then: $61.97
  • Now: $77.89
  • Return: 26%
  • Total return: 26%

BOX (BOX.N)

  • Then: $19.84
  • Now: $19.46
  • Return: -2%
  • Total return: -2%

BANCO SANTANDER (SAN.N)

  • Then: $4.90
  • Now: $4.77
  • Return: -3%
  • Total return: -1%

Total return average: 8%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
COUCHE-TARD Y Y Y
BOX Y Y Y
SANTANDER Y Y Y

 

FUND PROFILE

Custom Managed Growth Account Composites
Performance as of: Mar 31, 2019

  • Year-to-date: 10.4% fund, 13.3% index
  • 1 year: 4.8% fund, 8.1% index
  • 3 years: 11.2% fund, 9.3% index

INDEX: TSX Composite.
Returns are net of fees, distributions and annualized.

WEBSITE: stuchberrygroup.ca
TWITTER: twitter.com/stuchberrygroup