Darren Sissons, partner and portfolio manager, Campbell, Lee and Ross Investment Management
FOCUS: Global, technology stocks
Top Picks: Accenture, Crombie, Northrop
MARKET OUTLOOK:
This year has ushered in a complex trading environment that required judicious asset allocation and risk management. Our portfolios, like many of our peers, have frequently hit all-time highs throughout 2024, with last Thursday ticking our latest high. In fundamental terms, new market highs off a deteriorating global economy is a concern. Adjusting indexes for the handful of companies that propelled the markets to new highs illustrates that a large quantum of other index constituents are underperforming and/or are experiencing deteriorating year-over-year performance.
For Canadians, the strong U.S. dollar and Swiss franc, and relatively strong euro have been a tailwind for U.S., Swiss, and Eurozone investments. Given the Bank of Canada cut interest rates twice with further cuts expected, the Canadian dollar should underperform major currencies. Consequently, Canadian exporters are increasingly price competitive and international holdings are incrementally more valuable to Canadians.
Geopolitically, conflicts in the Middle East, Ukraine and Pan-Asian tensions driven by China’s continuing rise are structural tailwinds for oil and gas, logistics, shipping and defense sector investors. Additionally, should the U.S. re-elect Donald Trump, his “Make America Great Again” theme coupled with continued China containment are policy initiatives investors must weigh judiciously. Alternatively, a Kamala Harris administration is perceived as less negative towards global trade.
Inflation remains untamed, employment and consumer credit metrics continue deteriorating and central banks have a dismal track record engineering a soft landing during a recession. Consequently, active risk management including cutting losers and trimming over-weights, raising cash reserves, and/or buying protection is warranted.
Markets are volatile presently and quality opportunities will present if market drawdowns persist.
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Given the increasing possibility of a recession and Accenture’s pre-eminence in the IT outsourcing segment, it is well positioned to serve client needs ranging from work force reduction via automation, data analytics and artificial intelligence programs. The 10-year annualized total return in Canadian dollars is 20 per cent.
Crombie will benefit from interest rate cuts as management progressively conduct active treasury management on the debt stack. Trailing inflation tailwinds will trigger higher rents, which will provide positive operating leverage. An excellent rent base as adjusting for the Sobey’s supermarket franchise, banks, and government departments approximately five per cent of the REIT footprint is higher risk small medium sized businesses. There is an inverse correlation between interest rates and REIT profitability so lower interest rates will positively impact the share price.
A dividend, currently yielding 1.70 per cent, which grew at 13 per cent annualized for the prior ten years. The company is a net beneficiary of the end of the Peace Dividend in Europe and the growing re-armament of Asia triggered by the continued rise of China. These growth drivers are structural, sustainable and will have a multi-year trajectory. On an annualized basis, Northrop Grumman has bought back 4.3 per cent of shares outstanding for a decade. The company has generated a Canadian dollar annualized total return of 19.6 per cent since 2014.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ACN NYSE | Y | Y | Y |
| CRR.UN TSX | Y | N | Y |
| NOC NYSE | Y | Y | Y |
Past Picks: JULY 31, 2023
Bayer AG (BAYN FRA)
- Then: 53.14€
- Now: 26.11€
- Return:-51%
- Total Return: -51%
Jardine Matheson (JARLF OTC)
- Then: US$49.85
- Now: US$35.35
- Return:-29%
- Total Return: -25%
TC Energy (TRP TSX)
- Then: $47.26
- Now: $58.76
- Return:24%
- Total Return: 34%
Total Return Average: -14%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BAYN FRA | N | N | N |
| BAYN FRA | N | N | N |
| TRP TSX | Y | Y | Y |
