Jason Del Vicario, portfolio manager at HollisWealth
Focus: North American growth stocks

MARKET OUTLOOK

We’ve been concerned about heightened recession risk for over a year now, taking the opportunity to slowly shift our portfolio to what I refer to as a “barbell” approach.

On one side, we have equities that we find using our proprietary quantitative screening technique. These companies generally possess the following attributes: little to no debt, high and consistent margins and asset turn, they’re buying back shares and run by capable management teams. We have also started to pay attention to how we expect companies to do in a recession by looking at how they did during the financial crisis. We believe companies like Ross Stores and Dollarama can in fact improve their results during periods when the consumer is struggling.

On the other side, we have securities we feel can zig if when the markets zag. U.S. Treasuries, Canadian government bonds, gold and silver are such examples. We don’t know if or when the consumer will roll over and tip us into a recession, but the longer this “expansion” continues, the sharper the inevitable correction will be.

We caution against reaching for yield at this stage of the cycle. Our sneaking suspicion is that corporate debt is where we’ll see signs of cracks leading to the next downturn. Pay particular attention to high yield spreads for clues.

In short, we continue to play offence while being very mindful of the downside risks. Interestingly, in spite of being quite conservatively positioned through 2019, we were able to match our benchmark due to the alpha generated from strong security selection. We believe our clients will benefit from our continued cautious stance.

TOP PICKS

Jason Del Vicario's Top Picks

Jason Del Vicario, portfolio manager at HollisWealth Focus, discusses his past picks: Constellation Software, Parex Resources, Texas Pacific Land Trust.

CONSTELLATION SOFTWARE (CSU TSX)
We’ve held since inception in 2014.

Constellation Software and Boyd are the two best-performing stocks on the TSX for the past decade. I think there’s a strong chance both can lead during the next 10 years as well. Constellation is refining its acquisition strategy. They’re led by arguably one of the best capital allocators in the world, Mark Leonard. Shares are off a bit from recent highs. This is a “must-hold” security in our opinion.

PAREX RESOURCES (PXT TSX)
We bought recently at about $24.

I’ve never highlighted an oil and gas company because frankly, the economics of most businesses in this sector are awful. Parex appears to be an exception. The company exclusively operates in Colombia, which along with oil price movement is a risk investors need to be mindful of. However, Parex is still very profitable, has no debt and uses free cash flow to fund more exploration and buy back shares. We are agnostic to the direction of oil prices, but if crude does move higher, we believe Parex is very well positioned to benefit.

TEXAS PACIFIC LAND TRUST (TPL NYSE)
We bought in early December at $675.

This trust is way off the map for Wall Street. It’s one of the largest landowners in the state of Texas and has been around since the 1870s. They’re effectively a royalty play on Permian Basin oil and gas activities. They receive royalties for resources extracted on their 800,000-plus acres of land, easement revenues for roads and electrical lines, grazing rights for cattle and, more recently, fees for water use. The trust also recently announced it’s hosting a large solar installation. Lastly, they periodically buy and sell land, which further affects their financials.

Given that their expenses are very low, the trust is extremely profitable and has no debt. It’s also in the process of converting to a C-corp, which we believe will attract a lot more eyes to this gem.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CSU Y Y Y
PXT Y Y Y
TPL Y Y Y

 

PAST PICKS: JAN. 21, 2019

Jason Del Vicario's Past Picks

Jason Del Vicario, portfolio manager at HollisWealth Focus, discusses his past picks: Dollarama, Kirkland Lake Gold, iShares 20+ Year Treasury Bond ETF.

DOLLARAMA (DOL TSX)

  • Then: $35.50
  • Now: $45.74
  • Return: 29%
  • Total return: 29%

KIRKLAND LAKE GOLD (KL TSX)

  • Then: $35.29
  • Now: $56.78
  • Return: 61%
  • Total return: 62%

ISHARES 20+ YEAR TREASURY BOND ETF (TLT NASD)

  • Then: $119.56
  • Now: $138.02
  • Return: 15%
  • Total return: 18%

Total return average: 36%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
DOL Y Y Y
KL Y Y Y
TLT Y Y Y

 

FUND PROFILE

Hillside Moderate Growth Portfolio
Performance as of: Jan. 13, 2019

  • 1 month: 2.06% fund, 1.85% index
  • 1 year: 15.39% fund, 14.02% index
  • 3 years: 9.11% fund, 6.74% index

INDEX: Vanguard Balanced Portfolio Index.
Returns are based on reinvested dividends, net of fees and annualized.

TOP 5 HOLDINGS

  1. Mastercard (MA:UN): 4%
  2. Dollarama (DOL:CT): 4%
  3. Ross Stores (ROST:UN): 4%
  4. Kirkland Lake Gold (KL:CT): 4%
  5. Constellation Software (CSU:CT): 4%

COMPANY TWITTER: @hillside_wealth
PERSONAL TWITTER: @jasondelvicario
WEBSITE: hillsidewealth.ca