Feb 7, 2018
Lorne Zeiler's Top Picks: Feb. 7, 2018
Lorne Zeiler, portfolio manager and wealth advisor at TriDelta Financial
Focus: dividend stocks and macro strategy
The current market sell-off has likely reminded investors that there are risks to equity investing and that market prices do fluctuate. We anticipate more volatility in 2018, but modest positive returns for stocks due to synchronized global growth. Europe, Japan and emerging markets should provide the best overall returns due to lower valuations, their equity market compositions and improved economies. Equity selection will be important as further upward movement for most stocks will be based on improved guidance and exceeding earnings growth expectations. De-risking portfolios should be considered for investors who have been overly growth focused or who have much higher equity weightings than usual in their portfolios. Bringing bonds back to target weight, increasing or considering weightings into certain alternative assets and holding larger than usual cash balances are prudent measures that can be taken.
ISHARES MINIMUM VOLATILITY EMERGING MARKETS ETF (EEMV.US)
We have been increasing our exposure into emerging markets over the past 18 months due to better valuations and higher growth rates, particularly in Asia. This ETF provides broad based exposure, but should fare better than the Emerging Market Index during periods of market pullbacks due to its higher weightings in financials and consumer stocks vs. the index.
Over the past decade, TransCanada has increased dividends and EBITDA by over six per cent per year. 2018 should see revenues increase by 10 per cent and similar growth in earnings, partly due to its acquisition of the Columbia Pipeline, which increased its access to the U.S. shale gas basins.TransCanada has $24 billion of new infrastructure services to be put in place by 2020 and an additional $40 billion of commercial projects expected to be approved. The stock offers an attractive dividend yield of nearly 4.5 per cent and we expect further dividend increases over the next few years.
ENBRIDGE PREFERRED SHARE SERIES D (ENB.PR.D.TO)
Preferred shares are an attractive income investment due to their distributions being taxed as dividends and the higher yields they offer over fixed income. We think the most attractive area in the fixed reset preferred share market is those securities that are trading below par value and whose distribution rates are scheduled to be reset higher in 2018. Enbridge Preferred Share Series D should reset approximately 0.5-per-cent higher in March based on current five-year Government of Canada bond yields, providing a yield of approximately 5.5 per cent at current market prices. Similar rate resets are trading closer to 4.5 to five per cent, so investors should get both a higher coupon and some capital appreciation.
PAST PICKS: APRIL 20, 2017
ISHARES MSCI EDGE MIN VOL EAFE (EFAV.US).
Europe and Japan achieved significantly higher economic growth levels last year and this looks to continue into 2018. We have been adding to our international equity positions over the past year due to better valuations and expectations of double digit earnings growth. This ETF provides broad exposure to these markets, but with lower overall volatility.
- Then: $66.40
- Now: $71.95
- Total return: 11.13%
JOHNSON & JOHNSON (JNJ.N)
Johnson & Johnson remains the largest and most diverse healthcare company in the world. Last year all three of its business lines (pharmaceuticals, medical devices and consumer products) experienced earnings growth of three to 17 per cent. The company has a robust pipeline of new medications over the next few years, partly due to its Actelion acquisition. It's expected to grow earnings by approximately eight per cent in 2018 and trades at a very reasonable 16-times forward earnings.
- Then: $121.87
- Now: $131.42
- Return: 7.83%
- Total return: 9.90%
SUN LIFE FINANCIAL (SLF.TO)
Sun Life remains the largest life insurer in our portfolios. It offers a reasonable valuation of 12-times earnings and dividend yield of 3.5 per cent. Earnings are expected to grow by eight per cent per year over the medium-term and tax cuts in U.S. will improve 2018 earnings guidance. Sun Life has a well-diversified business among wealth management, benefits and core insurance products and is internationally diversified with operations in Canada, U.S. and Asia.
- Then: $47.80
- Now: $52.01
- Return: 8.80%
- Total return: 11.87%
Total return average: 10.96%
TriDelta High Income Balanced Fund
Performance as of: December 31, 2017
- 1 Month: -0.3% fund, -0.2% index
- 1 Year: 9.9% fund, 6.0% index
- 3 Year: 6.6% fund, 6.1% index
Index: 50% Canadian Bond Index per BMO Aggregate Bond ETF (TSX: ZAG); 25% Canadian Equities per iShare Canadian Equity ETF (TSX: XIU) and 25% US Equities per SPDR S&P500 Index (SPY.N), currency adjusted. Fund’s and index returns are based on reinvested dividends.
TOP 5 EQUITY HOLDINGS
- Canwel Building Materials
- Goeasy Ltd.
- Martinea International Inc.
- TransCanada Corp.
- SPDR S&P500 ETF Trust
TOP 5 FIXED INCOME HOLDINGS
- Government of Canada 2.75% 12/01/2048
- GTA Development Series-1 10% 06/30/2021
- Manulife Financial 3.049% 08/20/2029 (2024)
- Royal Bank of Canada 2.48% 06/04/2025 (2020)
- Wasaga Development & Infrastructure 7% 08/22/20121