Hap Sneddon, chief portfolio manager and founder at CastleMoore Inc.

Focus: Technical analysis
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MARKET OUTLOOK
For the longer term, the evidence is indisputable that asset values are a concern, especially when compared with productivity (GDP). Also, deflation is still the Balrog down in the deep that central bankers are fighting, as proven many time over the last nine years, including today, where inflation only rises briefly and then is followed by a resumption of lower growth and prices. However, these disconnects and others, such as global debt levels, can last for quite a while before a reconciliation. They are not a timing indicator in and of themselves, but they are still in the background. Imbalances will become more relevant later in 2017 and early 2018 as these fundamental challenges line up with the longer-term technical analysis forecast we see today. 

Portfolios account for this underlying risk, in the meantime, through the maintenance of stop losses on all positions and by monitoring portfolio convexity, or the balance between pro-growth and defensive positions. Temporal economic optimism and rising interest rates now favour financials, industrial, and materials through the end of the year, while defensives, which have had a good run, such as bonds, utilities and staples, will be susceptible to lower valuations in the months ahead and should be underweighted. 

With the expected short-term weakness almost past, the current conditions are setting up for some significant mid-term strength that will get a tailwind from investors chasing prices and absorbing the inflation narrative. As we proceed through this bullish phase, CastleMoore will be monitoring conditions to prepare for the final act that rationalizes events that began in 2000, resurfaced in 2008, and that will eventually set the stage for a secular bull market.

TOP PICKS

ROYAL BANK OF CANADA (RY.TO) – Last purchased on June 9, 2017 at $95.49
RBC reported a very strong Q2/17, showing even growth across most of its business lines. Though common equity ratios deteriorated by 40 bps Q/Q, there was very strong internal capital generation. Technically, banks are displaying early bullish movements from expectations, eventually unfounded or not, that interest rates will be rising over the next several months. Target $105.

MATERIALS SELECT SPDR FUND (XLB) – Last purchased on June 30, 2017 at $53.7199
This ETF is made up of the top U.S. chemical, metals and mining, paper and forest products, containers and packaging, and construction materials companies. The sector had reported earnings growth of 31.6 per cent and revenue growth of 12.6 per cent, and almost all of the constituents beat their estimates. The sector is leading as part of a pro-growth run in stock markets. Target $72.

SNC-LAVALIN GROUP (SNC.TO) – Last purchased on January 17, 20118 at $56.2510
As part of the industrial sectors and specifically as an infrastructure play, SNC-Lavalin has tailwinds from both the fundamental and technical sides. SNC’s earnings potential is a compelling story when compared to its global peers, primarily from expected upcoming contract announcements, its purchase of Atkins, and EPS/NAV synergies. The undervalued stock has recently broken out, and its sector, industrials, has begun to show excellent relative strength. Target $86.
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
RY Y Y Y
XLB N N Y
SNC N N Y


PAST PICKS: APRIL 18, 2016

APACHE (APA.N) – Sold on June 6, 2016, 5.03 per cent total gain

  • Then: $53.44
  • Now: $47.93
  • Return: -10.31%
  • TR: -8.31%

HEALTH CARE SELECT SECTOR SPDR ETF (XLV.N)

  • Then: $70.67
  • Now: $79.24
  • Return: +12.12%
  • TR: +14.37%

ISHARES S&P/TSX GLOBAL GOLD INDEX ETF (XGD.TO)

  • Then: $12.54
  • Now: $12.16
  • Return: -3.03%
  • TR: -2.86%

TOTAL RETURN AVERAGE: +1.06%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
APA N N N
XLV Y Y Y
XGD N N N


FUND PROFILE: CASTLEMOORE CANADIAN EQUITY PORTFOLIO

PERFORMANCE AS OF MARCH 31, 2017:

  • 1 month: Fund* 0.5%, Index** 1.0%
  • 1 year: Fund* 4.0%, Index** 15.2%
  • 3 years: Fund* 16.5%, Index** 8.5%

* Net of fees
** Index: TSX Composite


TOP HOLDINGS AND WEIGHTINGS

  1. Open Text Corp.: 7.1%
  2. Canadian Apartment Properties REIT: 6.9%
  3. Saputo Inc.: 6.4%
  4. Suncor Energy Inc.: 6.3%
  5. Wajax Corp.: 6.3%


COMPANY TWITTER: @CastleMoore
PERSONAL TWITTER: @Hap_Sneddon
COMPANY WEBSITE: www.castlemoore.com