Full episode: Market Call Tonight for Friday, September 14, 2018
Hap Sneddon chief portfolio manager and founder of Castlemoore Inc.
Focus: Absolute return portfolio strategy and technical analysis
Markets are being subdued by daily reactions to trade issues between Canada and the U.S., and moreover, China and the U.S. The American dollar and market are the only game in town right now to the detriment of most other currencies and markets. But with this being said, the technical picture suggests that despite a U.S. trade tactic that’s getting too close to the Golden Goose of global trade, markets are tentatively discounting a positive outcome to the all the strife. The U.S. dollar, which has been in a counter-trend bull rally since the start of 2018, started to roll over in August. Copper, an indication of future economic activity has come down to trend, a move that has been inverse to U.S. dollar strength. Asian and emerging markets, which also have acted opposite to the U.S. dollar, are also at support and are showing a bit of life. Lastly, U.S. 10-year Treasury yields are close to breaking to new highs above 3.10 per cent, something that shouldn’t be happening if a larger slowdown is expected.
ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB.OQ)
Purchased on Jan. 9, 2017 at $94.66.
The biotech sector has outperformed the broader markets over the last five years. As one of the few sectors clearly in this state in the midst of a secular bull market, biotech is expected to continue to do so. While the barrier to entry is already high in healthcare and pharmaceuticals, it’s even higher in biotech. Moreover, it’s not very prone to competition from generic solutions. We also anticipate that traditional pharma companies will continue to look at acquisitions in the sector to bolster their stagnant pipelines. While certainly individual names can provide higher long-term returns allocating to the sector is the most important decision. In addition to this, an ETF provides safety from characteristic volatility.
FAIRFAX FINANCIAL (FFH.TO)
Purchased on Dec. 21, 2016 at $661.97.
This multi-faceted holding company (in investment management, property and casualty, and reinsurance) led by Prem Watsa and his team recently reported earnings that were slightly below consensus due to a temporary drag on the investment portfolio. Insurance operations, as with its India businesses, are on point. Part of the stability of this investment comes from operations and another from Watsa’s ability to see things we can’t from Canada alone. A multi-year base has formed since 2015, making the upside potential significant over the next few years.
TECK RESOURCES (TECKb.TO)
Purchased on Dec. 12, 2017 at $30.12.
Teck can be viewed as a proxy for the global growth story. Its Canada’s largest mining company, with primarily operations focused on copper, coal and zinc. On a fundamental basis, the company trades at a discount to enterprise value even with strong free cash flow generation. Technically, Teck is one of the front-runners in the commodity space, reacting quickly to positive trade talks even if they’re nascent and undefined at present. Together, this is about a good risk/reward situation. As an early mover, it now has stops below the early September price action. First resistance is at hand near $32; second at $38.
PAST PICKS: OCT. 30, 2017
- Then: $29.24
- Now: $22.85
- Return: -22%
- Total return: -16%
SPDR SELECT SECTOR MATERIALS ETF (XLB.N)
- Then: $58.84
- Now: $59.41
- Returns: 1%
- Total return: 2%
ROYAL BANK OF CANADA (RY.TO)
- Then: $100.94
- Now: $103.07
- Return: 2%
- Total return: 5%
Total return average: -3%
CastleMoore CDN Equity Portfolio
Performance as of: Jun. 30, 2018
- 1 year: 11.53% fund, 7.22% index *
- 3 years: 6.10% fund, 3.80% index
- Average drawdown: -3.99% fund, -7.50% index
- Average recovery (months): 6.5 fund, 13.3 index
* Index: TSX.
* Returns are net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Kirkland Lake Gold Ltd: 7.5%
- Bombardier Inc: 7.4%
- Open Text Corp: 7.0%
- Shopify Ind: 5.8%
- Sun Life Financial Inc: 5.4%