Keith Richards, portfolio manager at ValueTrend Wealth Management of Worldsource Securities

Focus: Technical analysis
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MARKET OUTLOOK
Perhaps it’s time to address the questions revolving around the recent strength in the loonie. One of our long-time (25+ years!) clients called the other day. After the usual pleasantries, he asked a simple question: "So what happened in June?"

I had to laugh, because this certainly sums up what most Canadian investors are feeling about that month — especially if they've held U.S. stocks. Here was my answer:

The recent quarter, and indeed the first half of the year, has been punctuated by a very significant upward move by the Canadian dollar. The loonie has risen some five per cent against the U.S. greenback since the end of May. What this means for Canadian investors is that your U.S. dollar denominated stocks have had a negative tide against them over June. The S&P 500 made about 0.5 per cent in actual gains for the month, whereas the Nasdaq lost 2.45 per cent. After the loss in currency exchange, this resulted in a net average drawdown on U.S. stocks of about four per cent to seven per cent that month after converting their value to Canadian dollar equivalents.

Despite the currency problems, we must point out that it is imprudent to hold a pure Canadian stock portfolio and expect to earn a respectable risk-adjusted return. There is just too much concentration within the TSX in resources and financials, which have been losing sectors this year. Case in point: the TSX lost about 2.6 per cent over the month of June. So a focused portfolio of Canadian stocks wouldn't have helped much. Moreover, returns on the Canadian stock exchange have been poor for the better part of a decade. The TSX is virtually flat — i.e. no net returns (beyond dividends) — since 2008!

Diversifying outside of Canada makes sense. We view the ultimate potential for the loonie is to top somewhere around its current levels — 79 to 80 cents US. Despite momentary strength by the loonie, the big picture for the Canadian dollar, and commodities, has been down since 2011. Thus, we continue to want exposure to currencies outside of Canada, despite what we view as a temporary rally for our dollar. We posted a blog that covers the outlook for the loonie on the website here.

TOP PICKS

CONSUMER STAPLES SELECT SECTOR SPDR FUND (XLP)
Long-term trendline intact. Bouncing off that trendline, looks like an ideal entry point.

COSTCO WHOLESALE (COST.O)
Amazon taking over Whole Foods has pushed retailers into the red recently — and like most aggressive reactions on the market, we feel this selloff is way overdone. There are going to be hurdles and dollars that Amazon must spend before significant consumer habits change to buying groceries on Amazon — and, like many of their projects, it may end up being a money pit, anyhow. Costco has a membership following that is almost like the Apple franchise. The touch to its longer-term trendline is a buying opportunity for those with a bit of patience.

CASH
It’s prudent to hold some cash over the summer. We hold about 30 per cent cash at this time.
 

PAST PICKS: JUNE 12, 2017

BCE (BCE.TO)
Support at $57 is strong on this stock. The uptrend is in place. We still hold it.

• Then: $60.60
• Now: $58.20
• Return: -3.96%
• TR: -2.80%

MONDELEZ INTERNATINOAL (MDLZ.O)
Trades range bound $43 to $47. Currently at the bottom of the range. Staples are a summer trade, and we view this as a safe stock if bought around this range.

• Then: $45.37
• Now: $43.75
• Return: -3.57%
• TR: -3.15%

CASH

TOTAL RETURN AVERAGE: -2.98%
 

TWITTER: @ValueTrend
WEBSITE: www.valuetrend.ca