Ryan Modesto, Managing Partner at 5i Research

Focus: Canadian small and mid-cap equities

Market Outlook
The same broad market themes have largely remained for the last six to nine months, which (in no particular order) is along the lines of: will they/won’t they raise rates, Trump or Clinton for President, and are stocks expensive? A rate increase in December is looking likely, but the FED already looks to be talking down the pace of further increases (lower-for-longer scenario). The outcome of the presidential race adds to uncertainty, but we think it is unlikely to derail the American economy in any short order, especially if the recent Brexit events offer any insight into how markets may act. We would view these first two issues largely as short-term in nature and think investors may benefit from taking advantage of uncertainty and volatility over the next three months if it surfaces. This leaves the question of valuations. Stocks are expensive on an absolute basis, but in a low inflation and low interest rate world where there are not many other viable investment options and real returns go a bit further (less inflation eating at nominal returns), some sort of premium in stocks looks to be warranted. Looking at it more mathematically: If an investor required 7 per cent nominal returns in the past when inflation was, say, 3 per cent (4 per cent real return), higher-priced markets that offer only a 5 per cent nominal return can very well still meet investor needs in a low inflation environment of 1 per cent (4 per cent real returns).  Regardless, we continue to believe that investing and staying invested with a long-term mindset can be one of the greatest tools for individuals to reach financial independence.

Top Picks

Great Canadian Gaming (GC.TO)
A casino operator that has some organic growth runway behind it with some renovations at a B.C. casino and a new casino expected to be completed in Belleville in 2017. The company has a good operational history and the valuation is attractive at these levels.

Stella Jones (SJ.TO)
In the business of railway ties and utility poles but also moving into lumber, which should add a bit more growth than has been seen in the past. Shares have moved sideways over the last year and the fundamentals have caught up to the valuation. We think SJ offers a good entry point for long-term investors at these levels.

Spin Master (TOY.TO)
This international toy company has a lot of growth levers that can be pulled between international growth, acquisitions, media content and re-launch of past hot products. The company has been delivering on quarterly results and still run by the founders that built it to what it is today. 

Disclosure Personal Family Portfolio/Fund

 *Held in model portfolio — 5i Research does not manage money

Past Picks: June 24, 2016

Airboss of America (BOS.TO)

  • Then: $14.10
  • Now: $13.26
  • Return: -5.96%
  • TR: -5.05%

Exco Technologies (XTC.TO)

  • Then: $12.20
  • Now: $12.10
  • Return: -0.82%
  • TR: -0.24%

Premium Brands Holdings (PBH.TO)

  • Then: $52.70
  • Now: $61.80
  • Return: 17.27%
  • TR: 18.79%

Total Return Average: +4.50%

Disclosure Personal Family Portfolio/Fund

*Held in model portfolio — 5i Research does not manage money 

Fund Profile: Balanced Equity Model Portfolio

Performance as of August 31, 2016:

  • 1 month: Fund 3.5%, Index* 0.27%
  • 1 year: Fund 15.84%, Index* 8.69%
  • 3 year: Fund 86.06%, Index* 26.18%

* Index: TSX Composite Total Return
Fund and index includes reinvested dividends.
Model portfolios have no fees.

Top Holdings and Weightings

  1. Savaria Corp (SIS) – 5.49%
  2. CCL Industries (CCLb) – 5.47%
  3. Constellation Software (CSU) – 5.32%
  4. Magna International (MG) – 5.23%
  5. Kinaxis (KXS) – 5.2%

Twitter: @5iresearchdotca

Website: www.5iresearch.ca