Daniel Lloyd, Founder and Portfolio Manager, Sui Generis Investment Partners

FOCUS: Canadian equities

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MARKET OUTLOOK

Equities in both Canada and the United States seem particularly vulnerable right now as we believe that we may have seen the bottom in bond yields during the summer. This is happening concurrently with our preferred economic indicators rolling over and some new-found political uncertainty south of the border. The unrelenting pressure the world’s central bankers have put on yields, by way of excessively loose monetary policy, has forced investors to chase investment income at the expense of prudent risk management for years. However, in spite of verbal commitments from the Bank of Japan, The European Central Bank and the United States Federal Reserve to keep interest rates low or negative for longer than any investor could have predicted, the market has begun to force bond yields higher this summer. We believe this is a tipping point for bonds where investors say "enough" to low or even negative returns on government-fixed income investments. The knock-on effects on equities should be two-fold if this turns out to be right; trading at historically high valuations, multiple points will be taken out of stocks and access to capital will become scarce. We would stress that one should continue to use a healthy dose of caution when investing right now and be wary of companies that have been consistently raising debt and/or equity to grow, because that window may soon be closed.

Top Picks

1) CI Financial (Short) (CIX.TO)

2) Cascades (CAS.TO)

3) Pair trade:

Long: TransAlta (TA.TO)

Short: TransCanada (TRP.TO)

 

Disclosure Personal Family Portfolio/Fund
CIX Y Y Y
CAS Y Y Y
TA Y Y Y
TRP Y Y Y

 

Past Picks: July 5, 2016

1) ZCL Composites (ZCL.TO)

We sold some ZCL Composites at $10.50 (our long call)

  • Then: $9.04
  • Now: $10.21
  • Return: +12.94%
  • TR: +12.94%

2) Pair trade:

Long: Secure Energy Services (SES.TO)

Covered the short side of our pair trade, Precision Drilling (PD.TO), at $5.18 and left the long side, Secure Energy Services, alone.

  • Then: $8.54
  • Now: $8.33
  • Return: -2.46%
  • TR: -1.99%

Short: Precision Drilling (PD.TO)

  • Then: $6.76
  • Now: $5.09
  • Return: +24.70%
  • TR: +24.70%

Average: +11.36%

3) CI Financial (Short) (CIX.TO)

  • Then: $26.59
  • Now: $25.11
  • Return: +5.57%
  • TR: +4.74%

Total Return Average: +9.68%

 

Disclosure Personal Family Portfolio/Fund
ZCL Y Y Y
SES Y Y Y
PD N N N
CIX Y Y Y

 

Website: www.sgip.ca