Terry Shaunessy's Top Picks
Terry Shaunessy, president and portfolio manager at Shaunessy Investment Counsel
IGNORING THE RHETORIC
The Trump administration’s heavy-handed approach to global trade spooked international markets and pro-cyclical sectors late in the second quarter. Investors fretted over the possibility that trade tensions could slow economic growth in regions that are heavily dependant on exports (China, Germany and Canada). We suspect that these threats are an American negotiating tactic designed to force concessions from major trading partners. We doubt that a full-scale trade war will ensue, although trade advantages will definitely favour the U.S. in the short-term.
Apart from the commotion over trade, the fundamental underpinnings of the U.S. economy continued to be impressive. Low unemployment, strong corporate profits and a financially healthy American consumer should contribute to strong domestic GDP growth and higher stock prices. We suspect that, as European and Asian trading partners concede to U.S. pressures, relief rallies can be expected both in the EAFE and emerging markets indexes. Moreover, the success of U.S. fiscal policy (that is, corporate tax cuts) may lead to similar fiscal action in Europe as the effectiveness of ECB monetary policy seems to have run its course. Stimulative economic policy should continue to favour stocks over bonds. Consequently, U.S. and international equities remain the asset class of choice.
Canada benefited from higher world oil prices, which caused a sharp rally in energy stocks in Q2. Unfortunately, that seems to be the extent of the good news, as a slowdown in housing, a retrenchment from the consumer and an ongoing current account deficit continue to weigh on Canadian GDP growth. The Bank of Canada is unlikely to match interest rate increases from the Federal Reserve over the next six to 12 months, so that wider interest rate spreads may further weaken the Canadian dollar. We remain underweight in Canadian equities and un-hedged on most of our non-Canadian investments.
As global equity markets rally in the second half of 2018, fixed income will likely experience renewed downward pressure. Therefore, fixed income allocations will remain near minimums. Fitting to a “late-cycle” strategy, we plan to rebalance our fixed income investments by upgrading credit quality and lowering duration.
ISHARES CORE MSCI EMERGING MARKETS IMI (XEC.TO) — bought at $28.54.
ISHARES S&P/TSX GLOBAL BASE METALS (XBM.TO) — bought at $13.70.
INVESCO S&P 500 EQUAL WEIGHT ETF (EQL.TO) – bought at $20.87.
PAST PICKS: JUNE 1, 2017
BMO MSCI EAFE INDEX ETF (ZEA.TO)
- Then: $18.85
- Now: $19.07
- Return: 1%
- Total return: 4%
HORIZONS EURO STOXX50 INDEX ETF (HXX.TO)
- Then: $31.39
- Now: $31.61
- Return: 1%
- Total return: 1%
ISHARES CORE MSCI EMERGING MARKETS INDEX ETF (XEC.TO)
- Then: $26.46
- Now: $27.18
- Return: 3%
- Total return: 5%
Total return average: 3%
Shaunessy Investment Counsel (SIC) offers its global balanced portfolio management to the public through Wealthsimple. Look for the Wealthsimple tab on our website: www.shaunessy.com
The performance details are shown below:
Mandate: SIC Global Multi-Asset Portfolio
Performance as of: June 30, 2018. Net of fees.
- One Month: 0.4% SIC, 1.1% benchmark portfolio
- One Year: 6.4% SIC, 7.3% benchmark portfolio
- Three Year Annualized: 7.0% SIC, 6.0% benchmark portfolio
- Five Year Annualized: 9.6% SIC, 8.6% benchmark portfolio
* Benchmark portfolio: 5% T Bills 35% Canadian Bond Universe, 20% TSX Composite TRI, 20% S&P 500 TRI (C$) 20% MSCI EAFE TRI (C$) 20%
TOP 5 HOLDINGS AND WEIGHTINGS
- iShares Core S&P 500 Index ETF:10.5%
- Invesco S&P 500 EW Index ETF:10.1%
- iShares S&P TSX Composite Index ETF: 9.9%
- Horizon Eurostoxx 50 Index: 9.8%
- iShares MSCI EAFE: 9.7%