July’s Volatility

Good day,

Given the long bull market which started in early 2009, investors have been spoiled with very little volatility for a number of years. While it hasn’t happened yet, it’s just a matter of time before our firm’s advisors (and advisors at every firm for that matter), begin to field calls about portfolio contractions and/or swings.

As investors, we need to take a step back and accept the fact that being emotional is just part of being a human being. A number of studies have shown that psychologically, the pain of losing is roughly twice as powerful as the pleasure of gaining.

Most of us invest to be able to spend later. Because we don’t have the double-digit interest rate environment we had in the 80s, we have no choice but to invest in vehicles which fluctuate in value in order to attain the returns needed to keep up with inflation and tax. While we understand this in theory, in practice, as soon as our statements or our account web access shows a decline, many investors don’t understand “why” and instead question their advisors’ capabilities.

Investors and their advisors would benefit from engaging in conversation to understand performance attribution – why a portfolio has gone up or down in the short term. Investors are more likely to reach their investment goals if they understand what they’re investing in and feel comfortable with the investment process.

As an example, we can look at the Willoughby Investment Pool – our firm’s most widely used portfolio model. Although the portfolio is still up year to date, it gave up some of its winnings this past June due to a few market driven factors.

The hot tech sector has taken a breather and retracted as of late, investors continue to lack confidence in the energy sector despite tremendous value in the underlying securities, and the recent rise in the Canadian dollar has offset some of the gains of the portfolio’s US holdings for the time being.

For readers who would like to know more, we’ve included info below on the activity and trades that have occurred in the portfolio in response to the recent volatility.

Open Text and Seagate Technology have both reversed their trend as shown by the drop below their respective 200 day moving averages and have been sold as per the strategy rules. You might remember that we trimmed about half of our resource holdings a little while back and given the sector’s continued negative sentiment, we have liquidated the balance of the allocation. That said, we believe in the sector long term, and will add back once the downward trend reverses. Proceeds from some of these sales have been used to increase our global exposure both through Europe and the Emerging Markets. As the US economy is stronger than that of other nations, US stock valuations are on the healthy side while valuations abroad are more favourable.

The North American environment favours selective stock picking and in Canada, we have purchased Boyd Income Group. It has been one of the top performers over the past 3 and 6 months and one of Canada’s top stocks over the past 5 years. While its PE ratio (Price to Earnings) is relatively high, it has been coming down recently as earnings continue to expand. Forward PE is also expected to decline further to 27.21. Earnings Per Share are expected to grow considerably to 4.889 from 1.94 by 2019. Below are some further details about Boyd Income Group.
























On the US side, UnitedHealth Group has been purchased. UNH has also had strong performance recently and has been one of the strongest US stocks over the past several years. Earnings are expected to grow from 7.81 to 12.20 by 2019 while PE is expected to decline to 19.05. Price-Sales ratio is a respectable .95. Below are some additional details about UnitedHealth Group. It should be noted that a stronger Canadian dollar helps us on the purchase side of the trade.


















* Source: YCharts June 29, 2017

Have a great weekend.

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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
F: 604-558-6823


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