Stan Wong, portfolio manager at Scotia Wealth Management

FOCUS: North American large cap stocks and ETFs

MARKET OUTLOOK:

Global equity markets continue to mark new all-time highs with the MSCI World Index now posting six consecutive monthly gains. However, concerns over how the global economy will cope against the coronavirus delta variant along with aggressive Chinese regulatory actions could keep equity markets in check over the near term. Another worry to consider is the seasonally softer August and September months.

Notwithstanding the looming delta variant, COVID-19 vaccination rates are rising globally as available supply increases. To date, more than 4.27 billion vaccine doses have been administered worldwide at a rate of roughly 42.7 million shots a day. The world’s next challenge is to secure vaccines for lower income developing countries and allow for greater removal of border and travel restrictions. Indeed, the extent of the delta variant and the pace of global vaccinations will largely determine the path of global equity markets over the coming months. Beyond any near-term market volatility, the macroeconomic outlook continues to look favourable – massive fiscal stimulus, low interest rates and tremendous household savings provide a positive backdrop for the global economy.      

In Stan Wong Managed Portfolios, we continue to seek strong secular growth companies with high-quality attributes trading at reasonable valuations. We favour cyclical over defensive equities and remain focused on an active stock, industry and sector selection strategy. From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names. We also like Europe given its relative valuation discount and broadening economic restart. In Canada, cyclicals such as financials, energy and materials look attractive to us.

TOP PICKS:

Alibaba (BABA NYSE) Last bought in July at ~US$185.00

Alibaba is one of the world’s largest online and mobile commerce companies with nearly US$106 billion in forecasted revenue for 2021. Alibaba accounts for about 58 per cent of all online retail spending in China and has about 45 per cent share of the Chinese cloud computing market. Alibaba’s digital payment service is offered through its subsidiary, Ant Group. China’s regulatory scrutiny has triggered a 40 per cent sell-off in the share price, creating a buying opportunity for investors in a long-term secular growth name. Alibaba’s revenue is forecasted to grow by more than 22 per cent annualized over the next few years. This week, management reported earnings per share that beat analyst expectations for the last quarter.  The Chinese e-commerce giant also announced that it would increase its share repurchase plan by 50 per cent from US$10 billion to US$15 billion, the largest in its corporate history. Long-term, we expect Alibaba to benefit from a long runway of user growth given China’s growing middle class and overall economy. BABA shares trade at a 21x forward price-earnings multiple while Amazon trades comparatively at 61x. Alibaba reports its next quarterly results on November 5th.

iShares Global Financials ETF (IXG NYSE) Last bought in July at ~US$75.00

The iShares Global Financials ETF provides exposure to a basket of global financial companies including diversified banks, investment banks, asset managers and insurers. With the global economy on the mend, loan losses declining and interest rates on the rise, the global financials sector should continue to benefit from these tailwinds. Valuations continue to look attractive for financials from a historical perspective with this ETF portfolio trading at a price-to-book ratio of approximately 1.2x. As well, central banks appear ready to lift capital distribution curbs on banks allowing them to increase share buybacks and dividend payouts. Approximately 50 per cent of the IXG ETF is invested in the United States and the remainder in international markets. Top holdings in the iShares Global Financials ETF include Berkshire Hathaway, JPMorgan Chase, Bank of America, HSBC and Allianz.

Manulife Financial (MFC TSX) Last bought this month at ~C$24.00

With C$1.3 trillion in assets under management and administration and a market capitalization of almost C$47 billion, Manulife is one of the world’s largest life insurance companies. Manulife offers annuity, pension, life insurance, health insurance and asset management products operating in North America and Asia. With Asia representing over 35 per cent of Manulife’s overall revenue, the Company stands to benefit long-term from the region’s growing middle class and its demand for life insurance, health insurance and wealth management. As well, an aging global population is a catalyst for greater demand for MFC’s wealth management offerings. Near-term, rising interest rates should help life insurers such as Manulife. MFC currently trades at about 1.0x price-to-book, a relative discount to its peer group. The shares pay an attractive 4.6 per cent dividend yield which is expected to reasonably grow over the next few years. 

PAST PICKS: August 26, 2020

iShares S&P/TSX Composite High Dividend Index ETF (XEI TSX)

• Then: $ 18.38
• Now: $ 23.66
• Return:  29%
• Total Return: 33%

Netflix (NFLX NASDAQ)

• Then: $ 547.53
• Now: $ 515.68
• Return:  -6%
• Total Return:  -6%

Teladoc Health (TDOC NASDAQ)

• Then: $ 214.57
• Now: $ 150.63
• Return:  -30%
• Total Return:  -30%

Total Return Average:  -1%

Website: www.stanwong.com

Twitter: @StanWongWealth