Darren Sissons, vice-president and partner of Campbell, Lee & Ross
Focus: Global equities and technology

MARKET OUTLOOK

After a difficult fourth quarter, the markets continue trending sideways to down.  High-valuation, momentum stocks in particular have been hit hard, Apple being the most recent.  The lessons of maintaining a well-diversified portfolio with a focus on income-producing securities has been reinforced for a number of unfortunate investors.  Equally so, the benefits of carrying a cash buffer have also been reinforced by the 2018 sell-off.  U.S. politics, while a major source of anxiety in the two prior years, will increasingly become somewhat of a sideshow moving forward as the Democrats’ control of the House of Representatives effectively eliminates significant Republican legislative power. The doubling down on key elements of Trump’s policy platform can’t be ruled out, however, so volatility will likely remain elevated over the near term.

We’ve also reached a major policy junction for central bankers. Central bankers and governments alike are well aware of the real estate and security bubbles created by the excesses of quantitative easing (QE). But removing the excess stimulus and simultaneously raising interest rates appears to be too much for the markets to bear, as the fourth quarter 2018 sell-off clearly demonstrated. I suspect interest rates continue to gradually rise, but at a slower pace than initially guided. Additionally, central bankers including our own Stephen Poloz are coming to the unfortunate realization that much of the QE excess liquidity has become permanent financial system capital and can’t be removed now without disastrous consequences for real estate and securities markets.

Given the above, actively managed investment programs with the ability to raise or maintain heightened cash reserves will be well positioned to deploy capital at attractive prices. Equally so, being untethered to specific indexes and having the ability to pursue attractive investment opportunities internationally will be an advantage.

Given the relative strength of the U.S. dollar and the large declines we have seen in many global markets, it makes sense to re-deploy some U.S. dollar reserves to less expensive markets. 

Finally, we now have one of the best opportunities to deploy capital since the ravages of the financial crisis a decade ago. While it’s likely a little early to be investing significant capital, investors should be mindful of the sizable discounts currently available in many sectors. Beginning a wish list of names to buy is prudential exercise at this time.

TOP PICKS

AIR LIQUIDE (AIQUY.PK)
Last bought at €107.25.

1. It has a progressive dividend currently yielding 2.5 per cent.
2. Its defensive business model benefits from a high degree of contracted and or take-or-pay contracts.
3. Air Liquide’s financial performance is improving due to the accretive benefits of the AirGas acquisitions in 2016 and the recent commercialization of a number of large, multi-year investment projects.
4. The market is highly concentrated after the merger of leading competitors Praxair and Linde in 2018. Pricing dynamics should favour Air Liquide and the two remaining large players.
5. Air Liquide has generated an annualized 15-year total return in Canadian dollars of 9.7 per cent.  

AT&T (T.N)
Last bought at $30.60.

1. It has a progressive dividend currently yielding 6.9 per cent.
2. Telecoms typically reflect their underlying economy’s growth, so positive U.S. economic growth will benefit AT&T.
3. AT&T will likely benefit from sector rotation switches; Verizon outperformed the company by 28 per cent last year, so value buyers will see upside in the name.
4. This company is a yield-enhancer for balanced and income portfolios.

SUBSEA 7 (SUBCY.PK)
Last bought at 85.74 Norwegian kroner.

1. It has a 5.8 per cent dividend yield.
2. The balance sheet is very strong
3. Subsea 7 is a leading offshore oil field services company with a strong competitive position as its expertise at 300 metres and below sea level attracts only two other competitors.
4. Its smart, proven management team is well positioned for the recovery in offshore oil.

PAST PICKS: DEC. 20, 2017

CN RAIL (CNR.TO)

• Then: $104.42
• Now: $103.36
• Return: -1%
• Total return: 1%

ROTORK PLC (RTOXY.PK)

• Then: £263.20
• Now: £259.30
• Return: -1%
• Total return: 0.3%

DISNEY (DIS.N)

• Then: $109.69
• Now: $111.42
• Return: 2%
• Total return: 3%

Total return average: 1%

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