Chris Stuchberry, portfolio manager at Wellington-Altus Private Wealth

Focus: North American large caps and global ADRs


MARKET OUTLOOK

Review

There is no easy way to say it, the fourth quarter was brutal. It was the worst in nearly 100 years and markets had the worst December in history. I have never seen a Christmas Eve go down by nearly three per cent. Our strategy remained positive all year until uncertainty grew so much that the market gave out and dropped like a rock in December.

So what did we learn from this?  We learned that rising uncertainty trumps a strong economy and profitable growing companies. We continue to believe there is virtually no proof of a slowdown in the economy however the market cannot handle so many factors of uncertainty thrown in its direction and our standard approach to buy weakness failed on us in the face of this uncertainty.

The uncertainty we are referring to is coming from every direction. The new trade Cold War with China, rising interest rates, the insane actions of the Oval Office and uncertainty with figures in the White House to name a few.  When we began 2018 we had the Fed raising interest rates, tax reform powering strong economic and business growth, and powerful innovative companies growing their businesses. As we end 2018 we have: uncertainty over the 2019 interest rate environment, a trade war over multiple fronts, a split house and congress preventing any further fiscal reform, and asset prices falling.

Outlook

Currently it’s much easier to be bearish than bullish. While we may have been wrong not calling the bear market cycle sooner, we continue to think this will be short lived.  That being said a bear market cycle can last on average for 300 days and if this downturn in the market is not short lived, as we expect it will be, it could be another 300 days or more in the mud.  

Our current economy is one of the most innovative in history: we have another leg of progress in web 3.0, artificial intelligence, blockchain, overall digital disruption in the legacy economy and researchers are reporting that they may have found a cure for cancer. As we look forward with this positive backdrop it is nearly impossible to be bearish, yet the market still is on the basis of the uncertainties that we listed above. In order for the stock market to grow we need these doubts to be sorted out.  While some of these are easy to solve, some are truly a challenge and could take an immeasurable amount of time.  The longest to sort out is without a doubt is the new China-U.S. conflict which truly is a war over control in the 21st century.

For 30 years we have all witnessed the meteoric rise of China. It seems that the U.S. has officially taken the issue of China’s growing strength and has basically said “You have to go through us to take control of the future.” The recent actions of the U.S. have categorically shown that they will do everything in their power not to lose this war. While this political environment is an uncomfortable place to be, it could become a new normal for us and we may need to get used to it. Like the Cold War with Russia, this new Cold War with China could last for some time. 

Through history we have seen that the markets react badly to uncertainty.  We always like to say that political uncertainties are a buying opportunity.  Every Grexit and Brexit was an opportunity to buy good companies on sale.  One thing to be thankful for is the fact that the U.S. constitution does not allow for a permanent president and change is inevitable, in this case for the better.

We felt our approach to hold significant cash balances and strong balance sheet companies was the right thing to do, but we still did not get the results we wanted. The positive is that the companies we hold are strong and while the market dragged them along for the ride, we believe they continue to be good investments in the long run. In the future we intend to keep a significant cash balance as markets show vulnerability and to be ready to take advantage of weaker markets to make investments in companies we believe in.

TOP PICKS

Chris Stuchberry's Top Picks

Chris Stuchberry of Wellington-Altus Private Wealth shares his top picks: Amazon, Bank of American and Vermilion Energy.

AMAZON (AMZN.O)

Their lead over competitors in Amazon Web Services and cloud technology at this point is incredible.  The holiday season will see arguments over sales disappointing yet growing greater than 20 per cent, meanwhile bricks and mortar legacy retailers are going bankrupt at a staggering pace. Investors should own some shares of Amazon.

BANK OF AMERICA (BAC.N)

As the 10-Year Yield declined on market uncertainty and there is a lot of talk about the yield curve, don’t forget, Bank of America made 7.2 billion in profit in Q3 and the stock is down around 16 per cent in the quarter. They could double their dividend if they chose to and this is a good company to buy during volatile times.

VERMILION ENERGY (VET.TO)

Vermilion is a very well run Canadian energy company. They have a steady balance sheet, a good dividend policy and it is unlikely they will cut their dividend.  As well, most of their energy portfolio is outside Canada so the oil differential and pipeline argument is muted. If you believe in Canadian energy long term this is a good entry.

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
AMZN Y Y Y
BAC Y Y Y
VET Y Y Y

PAST PICKS: OCT. 17, 2018

Chris Stuchberry's Past Picks

Chris Stuchberry of Wellington-Altus Private Wealth reviews his past picks: Facebook, Alibaba and ING Groep.

FACEBOOK (FB.O)

  • Then: $159.42   
  • Now: $131.09    
  • Return: -18%     
  • Total return: -18%

ALIBABA (BABA.N)

  • Then: $148.14   
  • Now: $137.07    
  • Return: -7%       
  • Total return: -7%

ING GROEP (ING.N)

  • Then: $12.50     
  • Now: $10.66      
  • Return: -15%     
  • Total return: -15%

Total return average: -13%

DISCLOSURE PERSONAL  FAMILY PORTFOLIO/FUND
FB Y Y Y
BABA Y Y Y
ING Y Y Y

FUND PROFILE

Custom Managed Account Composites

Performance as of Nov. 30, 2018.

  • Year-to-date: 0% growth, 0% balanced, -10.8% index
  • 1 year: 0.6% growth, 0.6% balanced, -9.8% index
  • 3 year: 7.6% growth, 7.1% balanced, 4.5% index

Index: S&P/TSX Composite

Returns are net of fees.

TWITTER: @stuchberrygroup

WEBSITE: www.stuchberrygroup.ca