Gavin Graham, chief strategy officer at Integris Pension Management Corp

Focus: North American and global large caps
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MARKET OUTLOOK
The political scene continues to become more uncertain, despite the strong likelihood of Hillary Clinton winning the U.S. presidential election in a few weeks. With the Italian referendum in December, as well as presidential and chancellorship elections in France and Germany next year, there could be a complete change of leadership in Europe within a year. Meanwhile, as the Brexit vote and Donald Trumps' steady 35 to 40 per cent support demonstrates, the level of discontent amongst electorates is much greater than expert opinion expected, and investors should be aware that the U.K. will definitely be exiting the European Union by March 2019, leading to more uncertainty.

Turning to the more prosaic field of earnings and valuations, government bond yields have started to creep up, reflecting the possibility of rising inflation, even though one-third of developed bond markets are charging investors for holding bonds, an unsustainable situation in the medium- let alone long-term. With U.S. markets back to near all-time highs and earnings negative for the last five quarters, investors should be reducing equity exposure, and the sell-off in the "bond proxies," such as utilities and REITs this year, is a warning of what may occur. In the short-term, the U.S. Federal Reserve will likely raise interest rates another 0.25 to 0.5 per cent in December, and the Canadian authorities are tightening mortgage conditions and imposing taxes on foreign investors in overheated markets such as Vancouver. The energy and commodity sectors have recovered sharply but should have further to run, consumer stocks remain a defensive choice and exporters should benefit from the lower loonie in time. Finally, every portfolio should have five to 10 per cent gold exposure as eventually central banks will succeed in generating inflation, as is now occurring in the U.K.

TOP PICKS

VODAFONE (VOD.O)
VOD is one of the three largest mobile phones operators in Germany, U.K., Spain, Egypt, South Africa, India and Turkey. After the sale of its 45 per cent stake in Verizon Wireless in 2014, it has upgraded its network and is gaining subscribers in Europe again. Over 30 per cent of its revenues comes from emerging markets and yields five per cent.

ZCL COMPOSITES INC. (ZCL.TO)
ZCL is the largest maker of fibre-reinforced plastic underground tanks in Canada and one of the top two in the U.S. Sixty per cent plus of sales are for retail gas stations, with the remainder for water and corrosive products. Sales in 2015 were over $150 million and the market cap is $350 million, while it yields three per cent having raised its dividend 75 per cent in the last 18 months.

GOLDCORP (G.TO)
Goldcorp, under the new CEO formerly of Hudbay and Agnico, has reduced costs and changed most operating managers. It has risen the least of all of the gold majors due to worries over write-downs and delays in production, but has good-quality assets in safe jurisdictions and positions as one of largest miners. Mean shares should catch up over the next few months.
 

PAST PICKS: JUNE 3, 2015

SUNCOR (SU.TO) – Still recommend

• Then: $36.30
• Now: $38.61
• Return: 6.36%
• TR: 10.83%

COGECO (CGO.TO) – Still recommend

• Then: $53.07
• Now: $50.58
• Return: -4.68%
• TR: -2.10%

CANADIAN WESTERN BANK (CWB.TO) – Still recommend

• Then: $28.62
• Now: $25.27
• Return: -11.71%
• TR: -6.69%

TOTAL RETURN AVERAGE: +0.68%
 

TWITTER: @GavinGraham20
WEBSITE: www.integris-mgt.com