Stan Wong, portfolio manager at Scotia Wealth Management

FOCUS: North American large cap stocks and ETFs

MARKET OUTLOOK:

Global equity markets continue to rally this month to new all-time highs. As COVID-19 vaccines flow worldwide and case levels continue to fall, expectations of a robust global economic recovery have risen. To date, over 2.71 billion vaccine doses have been administered worldwide at a rate of roughly 41.7 million doses a day. In the United States, COVID-19 cases are down 96 per cent from its peak in January. From a macroeconomic perspective, massive fiscal stimulus, low interest rates and tremendous household savings provide positive tailwinds for the global economy. If realized, economic forecasts of six per cent global GDP growth for 2021 would represent the strongest global economic expansion since 1980. Estimates of 4.5 per cent global GDP growth are anticipated for 2022.

We view this backdrop as very supportive for equities. We prefer cyclical over defensive sectors and with interest rates likely trending higher over the medium term, we tilt towards a value approach over a growth strategy. We also expect commodity prices to remain firm as the global economy reopens. While inflation worries have recently materialized, we view the inflation swell as transitory rather than persistent where supply bottlenecks and pent-up demand have temporarily pushed prices higher. We view this economic restart as different from a typical business cycle recovery where demand slowly catches up to supply. While we maintain a constructive perspective for stocks, near-term risks to our outlook include an unexpected outbreak of the coronavirus “delta variant” and the potential for seasonally softer summer months.

In Stan Wong Managed Portfolios, we remain focused on active stock, industry and sector selection as the world economy recovers from the pandemic fallout. We expect market leadership to shift to economically sensitive sectors such as financials, materials and industrials. In our portfolio mandates, we favour companies with dominant long-term secular growth prospects and high-quality attributes. We have increased exposure to select cyclical equities positioned to benefit from the broad economic upturn. From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names but have broadened equity exposure more internationally to Asia Pacific and European markets.

TOP PICKS:

iShares Global Financials ETF (IXG NYSE) last bought this month at ~US$78

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 1.3x. 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, Wells Fargo and Royal Bank.

ConocoPhillips (COP NYSE) last bought this month at ~US$61

With nearly US$40 billion in expected 2021 revenues, ConocoPhillips is the world’s largest independent exploration and production company based on reserves and oil production. ConocoPhillips explores for oil and gas in more than 15 countries and has proven reserves of 4.5 billion barrels of oil equivalent. Increasing oil demand coupled with supply constraints have pressured inventories and pushed energy prices higher. Management at ConocoPhillips is committed to enhancing shareholder value with a plan to return 30% of operating cash flow yearly to shareholders though dividends and share repurchases. Last quarter, the Company announced plans to resume its share buyback program with the aim of repurchasing US$1.5 billion worth of shares this year. ConocoPhillips’ shares currently pay an attractive 2.8 per cent dividend yield. The Company reports its next quarterly results on July 30th.

UnitedHealth Group (UNH NYSE) last bought this month at ~US$387

With over US$281 billion in expected 2021 revenues, UnitedHealth Group is the largest managed care and private health insurance provider in the United States, providing medical benefits to 48 million members across its U.S. and international businesses. UNH’s strategy of providing medical insurance, pharmacy benefits, and healthcare services creates a strong value proposition to its customers and consequently, steady and reliable sales. Last quarter, management reported earnings that significantly beat Wall Street expectations and raised its guidance for the full year. UnitedHealth Group’s annualized earnings growth rate is expected to top 14 per cent over the next few years. UNH shares currently pay a modest but growing 1.5 per cent dividend yield. The Company reports its next quarterly results on July 15th.

PAST PICKS: July 9, 2020

Facebook (FB NASD)

• Then: $244.50
• Now: $340.59
• Return: 39%
• Total Return: 39%

Microsoft (MSFT NASD)

• Then: $214.32
• Now: $265.27
• Return: 24%
• Total Return: 25%

iShares Biotechnology ETF (IBB NASD) sold in February 2021 at ~US$162

• Then: $140.57
• Now: $160.50
• Return: 14%
• Total Return: 14%

Total Return Average: 26%

Twitter handle: @StanWongWealth. 

Website: www.stanwong.com