Full episode: Market Call Tonight for Wednesday, November 20, 2019
Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: Precious metals and North American dividend stocks
I remain steadfast and continue to recommend that investors have at least a 10 per cent allocation in the precious metals sector as protection for geopolitical uncertainty and the next recession, keeping in mind that clients are currently at a minimum of 20 per cent invested in the sector.
Throughout this past year, this strategy has delivered a positive hedge for clients as gold has broken out from a six-year base and has rallied against every currency in the world, with some saying that it is in a new bull market. Gold is currently trading at $1,941, having recently reached an all-time high of $2,030 in September. This rise in price has translated into very healthy returns for many of the producers I have recommended as Top Picks, with many issuing and/or increasing dividends this quarter due to very healthy balance sheets.
On a cautionary note, gold is moving because it is the only asset that is nobody’s liability and the best hedge for financial stress, which in my opinion is different this time. In 2006, the Fed began easing rates from a high of 5.25 per cent and lowered them to 0.25 per cent; this time, the Fed began its easing cycle from 2.5 per cent, which means that negative rates might be in the cards for the U.S. Even though gold pays no dividend or interest, what a better hedge than real money when your money in being taxed through negative rates.
For the remainder of the portfolio, I continue to recommend that investors begin to rebalance into recession-proof sectors such as pipelines, utilities, REITS and infrastructure. These sectors have the economic benefit of being needed in even the lowest level of economic activity, which means that their dividend distribution should hold well through a recession. Furthermore, many of the Canadian companies in these sectors generate international income, which protects investors from declines in the Canadian dollar. Lastly, I have rebalanced the asset allocation of portfolios and increased fixed income allocations to 30 per cent, mostly in convertibles bonds.
UPDATE: Top Pick Kyron Life Sciences was sold at a 10-per-cent loss soon after recommending it on Aug. 6, 2019.
SANDSTORM GOLD (SSL:CT)
I recently switched my position in North American Palladium to Sandstorm Gold. I was very impressed with management and the experience gathered from their stewardship of Silver Wheaton. We rank this stock as a “buy,” with an $11 target.
AGNICO EAGLE MINES (AEM:CT)
I continue to hold Agnico Eagle as my favorite blue-chip producer for the next bull market. They recently increased their dividend by 40 per cent, which is a great foreshadowing of things to come. We rank this stock as a “buy,” with a $98 target.
This is a new addition to the portfolio as a replacement for the recent takeout Dream Global REIT, as I wanted to replace the foreign cash flow. This ETF is an equal-weighted portfolio of the world’s 30 biggest utilities, through direct ownership in the shares. It yields 6.38 per cent.
PAST PICKS: JAN. 16, 2019
METALLA ROYALTY (MTA:CV)
- Then: $0.78
- Now: $1.33
- Return: 71%
- Total return: 72%
FAIRFAX INDIA (FIH/U:CT)
- Then: $13.82
- Now: $11.99
- Return: -13%
- Total return: -13%
Total return average: 20%