Full episode: Market Call for Monday, February 4, 2019
Hap Sneddon, chief portfolio manager and founder at Castlemoore Inc.
Focus: Technical analysis
Our technical forecast continues to show that the strongest parts of the investment landscape since the Dec. 24 low are pro-growth sectors. These include base metals, energy, industrials, technology and financials. Brazil, South Korea, China and Canada represent indexes showing the same cyclical strength, but on a country basis. Seasonality also favours a pro-growth portfolio posture at present.
Fundamentals are a bit of a mixed bag in supporting an economic picture that matches both the technical and seasonals, however. Housing and inventories have been soft, lowered corporate earnings estimates of late have set the stage for positive surprises, and inflation and employment are bullish. A positive resolution to U.S.-China trade friction before the “hard” March 1 deadline would be very supportive of the market structure since those market lows.
As we process the gains since the end of the year, still the two most important factors determining liquidity and thus market direction are the U.S. dollar and the Fed.
CP RAIL (CP.TO)
Last bought on Jan. 7 at $244.11.
Aside from it being the start of the period of seasonal strength for the rails, CP is trading at a discount to its historical forward price-to-earnings (P/E) multiple (15.9 versus 19.5) and to the U.S. peer group (17.5), it recently beat on earnings per share (EPS) and revenue and it also reaffirmed guidance in the double digits. The rails are at heart of the current market and must be owned.
PROGRESSIVE CORP (PGR.N)
Last bought on Jan. 25 at $65.45.
The company’s personal auto margins are expected to outperform estimates from telematics-based underwriting and its market share forecast to increase from being a low-cost provider in a market that is moving towards greater e-commerce distribution. Progressive is also making a push on the commercial side (where it is a leader) to pick up non-auto business that has historically been left on the table.
ISHARES CORE MSCI EMERGING MARKETS ETF (XEC.TO)
Last bought on Jan. 30 at $26.05.
Emerging markets have been slammed by two factors that are one and the same: a strengthening U.S. dollar and the China-U.S. trade spat. With the U.S. dollar rolling over again on an intermediate-term basis, emerging market debt will get a reprieve as most of it is priced in the greenback. Strength in copper and energy and a resurgence in the industrials (also think South Korea), are forecasting an eventual end (an imperfect one, mind you) to the trade friction. If the December lows are in and the move in markets since are to be believed, a position in emerging markets (or China too) offers excellent risk/reward after several years of underperformance.
PAST PICKS: MARCH 23, 2018
- Then: $23.82
- Now: $13.78
- Return: -42%
- Total return: -38%
- Then: $97.46
- Now: $78.28
- Return: -20%
- Total return: -16%
KIRKLAND LAKE (KL.TO)
- Then: $20.30
- Now: $42.78
- Return: 111%
- Total return: 112%
Total return average: 19%
Seasonal Advantage Portfolio
Performance as of: Dec. 31, 2018
- 1 month: -6.3% fund, -4.1% index
- 3 months: -6.2% fund, -7.0% index
- Since May 1, 2018: -0.4% fund, -3.1% index
INDEX: Equal Weight S&P, TSX and 10-year U.S. Treasury bond.
Returns are net of fees.
TOP 5 HOLDINGS
- iShares S&P/TSX 60 Index ETF (XIU): 20%
- iShares Core MSCI Emerging Markets ETF (XEC): 20%
- iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP): 20%
- iShares Nasdaq 100 Index ETF (CAD-Hedged) (XQQ): 15%
- iShares US Medical Devices ETF (IHI): 7.5%