Feb 20, 2019
Veronika Hirsch's Top Picks: Feb. 20, 2019
BNN Bloomberg
Veronika Hirsch, portfolio manager at Arrow Capital
Focus: Canadian equities and alternative investing
MARKET OUTLOOK
Investors are riveted by the current U.S.-China negotiations as a trade war would roil markets already troubled by a global economic slowdown. A retest of the December lows would be inevitable under this scenario. Failure of trade talks are clearly not in the best interest of either country, as China needs to deal with its mounting debt problem and Donald Trump doesn’t want to risk a recession ahead of the 2020 presidential election. The sharp stock market recovery of the past six weeks has begun to discount a trade deal as the most probable outcome, albeit with an extended deadline. It’s the exact nature of the deal that remains uncertain. Reduction of the trade deficit over time is now a given, while structural issues will not be easy to resolve in the remaining time period, if ever. There remains the possibility investors will be disappointed unless there is meaningful progress on substantive issues.
TOP PICKS
CISCO SYSTEMS (CSCO.O)
I am sticking with this defensive large cap, with investor-friendly policies of regular dividend increases and stock buybacks. Cisco’s negligible exposure to China keeps it isolated from the current trade tensions (the majority of its customers are North American). The company is currently developing G5 products, which have good potential to win market share in countries from which Huawei equipment has been banned. The stock is not without risk, as Cisco’s growth depends on the success of its next-generation networking equipment to overcome sluggish sale of some of the legacy gear.
DOLLAR TREE (DLTR.O)
Dollar Tree operates a discount store chain built around merchandise at the $1 price point. The company has resisted calls by activists in the past to introduce higher-priced merchandise. This strategy could potentially increase earnings per share by a couple of dollars over the next few years, as it would increase sales and improve profit margins. The chain is well positioned to benefit from wage increases currently enjoyed by its middle income customers. However, if the company fails to grow its earnings sufficiently, the activists are sure to demand the company break its $1 policy. Either way, the stock price should benefit.
SPDR GOLD TRUST (GLD)
Investors face a litany of economic and political risks over the coming year, with potentially deleterious effects on market outcomes. Gold could act as a good hedge against equities under a variety of adverse scenarios.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CSCO | N | N | N |
| DLTR | N | N | Y |
| GLD | N | N | Y |
PAST PICKS: FEB. 28, 2018
CCL INDUSTRIES (CCLb.TO)
- Then: $63.87
- Now: $57.38
- Return: -10%
- Total return:-9%
CONSTELLATION BRANDS (STZ.N)
- Then: $215.48
- Now: $166.98
- Return: -23%
- Total return: -21%
CISCO SYSTEMS (CSCO.O)
- Then: $44.78
- Now: $49.63
- Return: 11%
- Total return: 14%
Total return average: -5%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CCLb | N | N | Y |
| STZ | N | N | Y |
| CSCO | N | N | N |
FUND PROFILE
Exemplar Performance Fund – Class F
Performance as of: Jan. 31, 2019
- 1 month: 3.6% fund, 8.7% index
- 1 year: -3.5% fund, 0.5% index
- 3 years: 4.5% fund, 9.8% index
INDEX: TSX Total Return.
Returns are net of fees, distributions and annualized.
TOP 5 HOLDINGS AND WEIGHTINGS
- Arrow Global Advantage Fund – Class F: 8.8%
- Boyd Group Income Fund: 7.0%
- Brookfield Infrastructure Partners: 2.9%
- Burford Capital: 2.8%
- CCL Industries: 2.6%
WEBSITE: arrow-capital.com
TWITTER: @ArrowCapital
