Bruce Campbell, President & Portfolio Manager, StoneCastle Investment Management
FOCUS: Canadian Equities

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MARKET OUTLOOK:

Last time I was on Market Call we discussed the impressive rally the market had experienced over the previous month. Fast forward to today and the last month has been relatively flat with little progress. We are not surprised by this sideways consolidation after the rally. The breadth thrust and volume thrust that occurred in July often take a great deal of the market’s internal energy to produce. As a result a consolidation period allows the markets to build back energy for a move higher. This could begin once the market enters the seasonally stronger period in November to May. 

We continue to be constructive on the overall markets based on both the economy and the technical tools we follow. The economic indicators continue to produce positive results and the likelihood of a major U.S. recession in the next 6 months appear to have lessened from the start of the year. Case in point is the 4.4 per cent increase in U.S. durable goods orders in July, the largest increase since 2015. 

Most of the technical tools we monitor continue to be positive. The short and intermediate term indicators are positive and have been for several months with many of the longer term indicators improving as well. The improvements in the long term indicators are suggesting the market may be starting a new uptrend similar to the 2012 time frame. We will continue to monitor the top down indicators for any changes. As of now, we continue to be on offence with the indicators. 

We have just recently seen another interesting change in a relative relationship that we follow. A relative momentum indicator between growth stocks to the S&P/TSX has recently changed in favour of the growth stocks. This change along with our indicators being on offences indicate markets should produce positive returns while the indicators are positioned this way. If we see those indicators change, investors will want to adjust their portfolios to build a more defensive posture. 

We host a regular monthly webinar where we update investors on whether the indicators are on Offence or Defence. The next webinar is September 20, 2016 at 4:30pm ET. To register contact info@stonecastlefunds.ca


Top Picks:

Sleep Country Canada (ZZZ.TO)

Sleep Country is the number one mattress retailer in Canada. The business continues to provide impressive growth with 12 consecutive quarters of same store sales growth. Sleep Country continues to add new stores across the country and can continue to add stores to reach their store location goals. The company has focused on growth of the higher margin accessory side of their business. The stock trades at a reasonable valuation for the past and future growth. The last purchase was $24.72. Funds own, but none personally or family.

Altus Group (AIF.TO)    

Altus provides advisory, data solutions and software to commercial real estate clients globally. Their software and services help clients maximize their real estate portfolios. The company operates three business units; Analytics, Real Estate Consulting and Geomatics. The high growth areas is Altus Analytics that is growing at greater than 30 per cent per year, has high margins and recurring revenue. The Geomatics business unit has been struggling, any recovery in the energy sector will move Geomatics back into a profit position. The stock trades at a reasonable valuation. The last purchase was $26.39, Funds own, but none personally or family.

Intertape Polymer Group (ITP.TO)

Intertape is one of the largest tape and film manufactures in North America. The company has been working to repair the balance sheet and focus on a higher margin profit mix. The company has a five year strategic plan to double revenue organically and acquisitions could accelerate this goal. The stock trades at a reasonable valuation in the midpoint of the historical valuation range. The last purchase was $21.35. Funds own, but none personally or family. 

Disclosure Personal Family Portfolio/Fund
 ZZZ N  N  Y 
AIF  N  N  Y 
ITP  N  N  Y 

 

Past Picks:   August 19, 2015

NYX Gaming (NYX.V)

  • Then: $2.55
  • Now: $1.85
  • Return: -27.45%
  • TR: -27.45%

Perk.com (PER.TO)

  • Then: $4.95
  • Now: $3.20
  • Return: -35.35%
  • TR: -35.35%

Inspira Financial (LND.V)

  • Then: $0.15
  • Now: $0.42
  • Return: -67.35%
  • TR: -66.93%

Total Return Average: -43.24%

 

Disclosure Personal Family Portfolio/Fund
NYX  N  N  Y 
PER  N  N  Y 
LND  N  N  N 

 

Fund Profile

Redwood Income Growth Fund

Performance as of August 23, 2016

  • 1 month: Fund 8.22%, Index* 13.48%
  • 1 year: Fund 7.74%, Index* 13.11%
  • 3 year: Fund 8.07%, Index* 4.98%

* Index: TSX Composite

*Returns Net Fees & Distribution

Top 5 Holdings

  1. Cash - 11.03%
  2. Parkland Fuel Corp - 5.14%
  3. Northwest Healthcare Properties - 4.85%
  4. Chartwell Retirement REIT - 4.84%
  5. Student Transportation - 4.79%

Twitter: @SC_funds

Website: www.stonecastlefunds.ca