Aug 14, 2018

Jaime Carrasco's Top Picks: Aug. 14, 2018

BNN Bloomberg

Jaime Carrasco , BNN Bloomberg

Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: North American equities

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MARKET OUTLOOK

Why own precious metals anymore?

The fact that 80 per cent of the long-term performance of a portfolio is dependent on proper asset allocation is the most important lesson I’ve learned throughout my career. The first time I saw Canadian investors neglect this important fact was from 1998 to 1999, when they failed to consider the benefits of value-based investments such as those offered by Warren Buffett. Instead, they overloaded on the benefits of growth-based investments such as those offered by the likes of Nortel, leading to massive losses once growth turned in 2000.

Today, that same mistake is reoccurring as investors neglect participation in the precious metals sector, for which asset allocation rules recommend that at least a 5 per cent allocation be held during “normal times.” Meanwhile, the fundamental factors of this sector keep getting stronger, something that Canaccord Genuity Research has fully recognized in its latest report, A Golden Opportunity - Technicals, Macro, and Fundamentals aligning on Gold. Furthermore, these aren’t “normal times.”

What concerns me is that neglecting this sector will be a very expensive lesson for investors. The precious metals sector is the best hedge for geopolitical instability, monetary instability, financial instability and political instability. While all those continue increasing, the participation in the sector is nowhere to be seen, leaving behind an awesome opportunity for the savvy investor, as eventually the tide will turn and investors will come running back.

Canaccord Genuity Research’s latest report pointed out the fact that the sector is offering investors a very low-risk entry point, reflecting the fact that investors interest is currently non-existent while its inherent benefits are glowing. Going forward, I expect greater monetary instability as global currency devaluations accelerate and lead to rising inflation and higher cost of living, conditions that can only result in higher interest rates and further political instability. Call me contrarian, but I continue to recommend at least a 15 per cent allocation in the best hedge for all these negative factors.

I manage three segregated portfolios designed to help our clients with their cash management needs, capital growth, and dividend income generation. Portfolios are tailored to meet each client’s risk/return profile based on their individual investment needs and aren’t suitable for everyone. The Special Opportunities Portfolio is designed as a stand-alone solution for those looking to get participation in the precious metals market, a sector long forgotten by most investment advisors. The Equity Income Portfolio is designed for growth and income through a “top-down” industry-specific approach. The Cash Management Portfolio is designed for short-term money management needs. All portfolios require a minus investment account size of $300,000.

My views can best be followed through my LinkedIn page.

TOP PICKS

IAMGOLD (IMG.TO)

We reiterate our $10.50 target price and “buy” rating for IAMGOLD following its fiscal Q2/18 results release. Our rating remains predicated on 21 per cent growth in attributable production by 2021 (v 2017) from brownfield expansion.

BARKERVILLE GOLD (BGM.TO)

We have updated our model of Barkerville Gold to reflect the results of the recently released Cariboo Gold technical report, current management guidance, and the company’s current financial position/market valuation. We lower our target to $1.25 from $1.50 to reflect the changes.

DREAM GLOBAL REIT (DRG_u.TO)

Dream Global reported a strong quarter led by solid internal growth and highly accretive acquisitions, the Merin acquisition in the Netherlands in particular. With fundamentals continuing to strengthen in the German office market and the REIT’s improved cost of capital, we expect this to continue.