Veronika Hirsch's Top Picks: July 20, 2016

Veronika Hirsch, Portfolio Manager at Arrow Capital Management

FOCUS: Canadian Equities & Alternative Investing

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MARKET OUTLOOK:

The debate about North American equities valuation and sustainability of current rally remains contentious. By weakening Europe’s economic prospects, Brexit had the consequence of making even the tepid U.S. economy look appealing.

The political and economic uncertainty resulting from the Brexit vote seems to have clinched the lower-for-longer interest rate reality. In the context of negative yields on $13 trillion of European government bonds, equity yields look exceptionally competitive. Because investors are left with few attractive alternatives, North American equity markets should continue to outperform most other asset classes until we get closer the U.S. election.

Top Picks:

A&W Revenue Royalties Income Fund (AW_u.TO)

A&W is a unique stock in the current environment, as it combines a healthy 4.7 per cent yield with many years of growth potential. The company has been successful in attracting increasing number of millennial customers to its healthier menu offerings while being able to maintain competitive pricing. Currently, most of the stores can be found in traditional suburban locations, so there are ample opportunities to open new locations in areas where millennial work and live-mostly in urban area and city centres.

MDA Corp (MDA.TO)

MDA provides products and services in the satellite industry. The company has been busy developing a unique structure which will allow it to become “American” while maintaining its Canadian domicile. This unique status would allow MDA to compete for billions of dollars in U.S. military contracts once this unique structure gains all the necessary official approvals. The stock is currently inexpensive, as 2016 has been particularly slow for new satellite order awards and earnings will remain flat at best for the rest of this year.

iShares S&P/TSX Global Gold Index Fund ETF (XGD.TO)

XGD is an ETF made up of gold stocks. There are many reasons why portfolios should currently own either Gold commodity itself or Gold stocks. Here are just a few: very low or negative interest rates in many parts of the world, political uncertainty, terrorism, lackluster global economy prone to fits and starts, depressed business confidence and general dissatisfaction among the populace. Given the historically expensive U.S. stock market, investors could grow disenchanted with any new negative development thrown into such mix. Gold should act to counter the volatility which is almost inevitable in current difficult environment.

Past Picks:  September 1, 2015

Boyd Group Income Fund (BYD_u.TO)

• Then: $64.29
• Now: $77.71
• Return: +20.87%
• TR: +21.63%

Manulife (MFC.TO)

• Then: $20.33
• Now: $18.01
• Return: -11.41%
• TR: -8.85%

CCL Industries (CCLb.TO)

• Then: $176.20
• Now: $228.90
• Return: +29.91%
• TR: +30.98%

Total Return Average: +14.59%

Exemplar Performance Fund - Class F

Performance as of: June 30, 2016

* Index: S&P/TSX Composite TR 

*Returns are net fees & re-invested dividends

Top Holdings:

1. CCL Industries - 2.93%
2. TransCanada - 2.66%
3. Boyd Group - 2.63%
4. Alphabet Inc - 1.57%
5. MDA Corp - 1.54%

Twitter: @ArrowCapital

Website: www.arrow-capital.com