Jason Del Vicario, portfolio manager, HollisWealth
Focus: North American Growth Stocks

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MARKET OUTLOOK

The North American equity markets, for the most part have been trading sideways after the post Trump election rally. While we believe our core stable of companies and other consistent return on equity (ROE) generators can outperform no matter the general market conditions, we are mindful that we are late cycle.  We are now nine years removed from the last recession and bear market; I noted the other day that this is now the third longest bull market in history. This rally is certainly getting long in the tooth!

We’ve been keeping a keen eye on the yield curve as it’s the best predictor of an impending recession. While the curve is flattening (short end rising while long end not rising as much) we are still a good three to four rate rises away from it becoming inverted. An inverted yield curve generally leads an actual recession by about twelve months. Based on our calculations we are at least eighteen to twenty-four months away from the next recession. 

We feel the Fed/BoC and European central bank are playing catch up. Where they should’ve been normalizing rates in 2013-2014, they didn’t and are now behind the curve. They claim to be data dependent however both inflation and GDP growth figures are exceptional yet they seem committed to raising rates.  
Having said this one must also be mindful of the fact that the markets (particularly in the U.S.) could go on and make news highs which would make us more constructive in the near term. We recently took some risk off the table and are holding elevated levels of cash (five to ten per cent) and would look to deploy should the markets continue their upward trend.

Lastly, we must admit to being caught a bit off guard with the very strong CAD rally. 83 cents seems to be a technical resistance level and we expect in the short term for the loonie to trade around this level. If it breaks higher next stop appears to be 90 cents. 

TOP PICKS

Jason Del Vicario's Top Picks

Jason Del Vicario, portfolio manager, HollisWealth discusses his Top Picks: Boyd Group Income Fund, CCL Industries and Constellation Software.

BOYD GROUP INCOME FUND (BYD_u.TO)
Boyd possesses one of the most beautiful stock charts I’ve ever laid eyes on. Look at a ten year chart and marvel. They operate auto body shops across North America. They are VERY consistent ROE generators. On the surface they appear to be very pricey as their PE ratio is north of 60 but if you look at their cash earnings PE ratio it’s a much more palatable ~18. They are very well run and we anticipate holding them for a long time.  We originally bought them July 2016 at $79 and added to them in April 2017 at $84. They have sold off a bit here and represent good value.

CCL INDUSTRIES (CCLb.TO)
This company has been on our radar for a number of years. They are consolidators in the packaging sector. They are very well run and consistently generate cash ROE metrics in the high twenties. They were too expensive for our liking for the longest time but have since traded down and we added to our position.  We initiated our position March 2016 at $46 and recently added in the mid $50s during the recent pullback. They are still well off their all-time high of $70 and we believe this is a good entry point.

CONSTELLATION SOFTWARE (CSUdb.TO)
This is a debenture issued but the number one performing stock on the TSX over the past ten years: Constellation Software (CSU.TO). We are huge fans of Mark Leonard and the CSU management team.  They are hands down the best capital allocators in Canada. CSU the stock is one of our largest holdings and we have nearly ten per cent of our more conservative portfolios invested in the CSU.db debenture. We like it for a few reasons: 1) it is under the radar 2) it yields 6.73 per cent and 3) the yield is linked to CPI so there’s an element of inflation protection. We like the equity and we like the debt.

 

DISCLOSURE PERSONAL FAMILY  PORTFOLIO/FUND
BYD_U  Y Y Y
CCLb Y Y Y
CSU.db  Y Y Y

PAST PICKS

Jason Del Vicario's Past Picks

Jason Del Vicario, portfolio manager, HollisWealth discusses his Past Picks: Ceapro, data Communications Management and Alimuntation Couche-Tard.

​CEAPRO (CZO.V)
We only ever held in our Small Cap portfolio and we recently sold the position in August for $0.60. The company remains on our radar as I like what they do but their results have been weak of late and we haven’t been impressed with the level of communication from the company.

  • Then: $1.99
  • Now: $0.59
  • Return: -70.35%
  • Total return: -70.35%

DATA COMMUNICATIONS MANAGEMENT (DCM.TO)
This is a small position for us and it’s down a lot however we feel the stock is extremely undervalued at these levels. If management is able to execute on their EBITDA guidance for 2017 ($18-20m) where else can you find a company that has $275m in revenues, EBITDA of $18-20m and trades at a $20m market cap?! We continue to hold and are slowly adding to our position. Look for next earnings report in November.

  • Then: $3.70
  • Now: $1.18
  • Return: -68.10%
  • Total return: -68.10%

ALIMENTATON COUCHE-TARD (ATDb.TO)
This is a core holding for us. The stock has traded virtually flat for almost two years and we feel the stock is undervalued at these levels. If you can pick up shares under $60, go for it as the stock has bounced off these levels many times. However, be mindful of the fact that (ATD.b.TO) are serial acquirers and have a disciplined acquisition process. We could wake up tomorrow to find out they bought another 500-1000 stores and the stock could gap up ten per cent, so I wouldn’t get too cute with the purchase price.  

  • Then: $62.12
  • Now: $60.06
  • Return: -3.36%
  • Total return: -2.67%

TOTAL AVERAGE RETURN: -47.04%   

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CZO N N N
DCM Y Y Y
ATDb Y Y Y

FUND PROFILE

HILLSIDEWEALTH MODERATE GROWTH PORTFOLIO
PERFORMANCE AS OF SEPTEMBER 1, 2017

1 Month: 0.55% Fund, 0.07% Index*
1 Year: 3.19% Fund, 1.99% Index*
3 Year: 9.07% Fund, -0.68% Index*

* Index: Composite Benchmark: 30% TSX | 35% Universe Bond | 20% S&P Pref | 15% TSX Small Cap
* Identify if your fund’s returns are based on reinvested dividends. 
Returns provided must be net of fees - Yes; based on re-invested dividends.  Returns net of 1.0% mgmt. fees.

TOP HOLDINGS AND WEIGHTINGS

  1. RP Strategic Income Fund - 9%
  2. Constellation Software Debenture (CSUdb.TO) - 9%
  3. Cash - 8%
  4. Dollarama (DOL.TO) - 4%
  5. Constellation Software (CSU.TO) - 4%

TWITTER: @jasondelvicario
WEBSITE: www.hillsidewealth.ca