I had our portfolio group put up some charts and comments as despite the challenges with currency and low commodity prices earlier this year, 2017 is shaping up to be one of the strongest years we’ve had on record.
We track our various models but our firm’s most widely used portfolio, the Willoughby Investment Pool showed a 5.42% return in October, and a 9.77% year to date return (F series). Statistically September and October are typically the 2 weakest months of the year for equity markets, but this hasn’t held true this year. Our Canadian stock strategy gained over 4% in both September and October while the US strategy gained almost 8% in September and just under 11% in October.
Sierra Wireless was the larger gainer for the Canadian component as it bounced back from previous weakness with a 7.81% month. Some readers might recall that Sierra had been one of our weaker performers and had dropped below its 200-day moving average but, we decided to hold tight as the company’s fundamentals remained strong. CP Rail and New Flyer Industries were also strong with a 6% month while Magna and Dollarama returned over 5% in October. At the end of the month, we picked up a new position, Savaria Corporation. The company designs, engineers and manufactures products for personal mobility including home and commercial elevators, wheelchair lifts, monarch ceiling lifts, stair lifts, van conversions etc. – a strong area of growth given our aging population. We picked it up at $15.56 (highlighted below) and it finished November at $17.95 for a nice 15.36% start.*
The portfolio’s US stock strategy continues to carry the performance of the portfolio with a 6% month bringing the YTD return to just over 34% in US dollar terms. One of the top performers was the semiconductor Micron Technology again – up 12.66% in October bringing the YTD return to 102%. The stock is up 140% since we first purchased it last December. Fundamentals are still strong and the price relative to the company’s earnings is much lower than the general market so we will continue to hold for now but are not adding to the position.*
At the end of the month, we were concerned about the earnings estimates for Southwest Air, so we entered a stop limit order (which would sell the stock if it started to drop if earnings turned out to be negative). The stock did drop after poor earnings and triggered our sell order which allowed us to exit the position at an average price of $55.38. It ended the month at $53.86.
We replaced Southwest with Caterpillar which is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. Caterpillar reported strong earnings figures and is part of one of the strongest industries in the current marketplace – manufacturing, construction and mining. While it pays a 2.29% dividend, we are buying it for its growth potential. Below is a chart for Caterpillar to the end of November. The stock appears to be breaking up out of a recent sideways pattern which could bode well through to the end of the year.
November was a solid month with the portfolio gaining a little over 1%, to get us to the 9.77% stated above. The conservative fixed income component also contributed to the total return, as it gained a little over 1% which was a nice follow up to the 2%+ move it had in October.
At the end of the month, we took some profits from 3 of our strongest positions: Micron, Applied Materials and Dollarama, up 93%, 63%, and 60% respectively. Company fundamentals are still strong and we continue to maintain positions in these holdings.
We used the profits from above along with $8 million in total recent inflows to rebalance the portfolio. We added to 15 of our 21 existing stock positions and also added to the fixed income portion of the portfolio to bring the allocation to about 20% from 17%. Finally, we replaced the US Small Cap position with a Canadian Dollar hedged US Mid Cap ETF from iShares. This will allow us to stay in the attractive US small and mid-cap space, while reducing our costs and exposure to currency fluctuations.
Tax changes in the US will likely gather most of the financial headlines in the upcoming weeks which may add to market volatility as investors try to anticipate the sectors/industries that will benefit most. We expect many of our US holdings to benefit from the proposed changes if/when they happen.
Have a great weekend,
Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
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