Hap Sneddon, portfolio manager at CastleMoore Inc.
Focus: Technical analysis and macro portfolio strategy
Short-term (January-February 2017) markets appear to be entering a correction phase, though one push higher is quite possible. Historically, markets correct going into and following a U.S. presidential inauguration after a win by the opposition party following a two-term president. The underlying fundamental cause is that investors appreciate that all that the new president intends may not come to pass as expected or as quickly, and this may very well be the case this year. Beyond equities, further analysis, most from commercial trader positioning (versus speculators), shows a bearish setup for crude oil, and bullish ones for the Yen, Euro, bond prices and gold.
On a mid-term basis (February-August 2017), markets are expected to bottom quickly from the end of the presidential honeymoon because the short-term correction is not a trend change, some of Trump’s plans, especially around taxes, have legs in investor’s minds, and seasonality patterns — a weak January, followed by a stronger February and March — are supportive.
However, on a longer-term horizon (August 2017 and out), some technical and fundamental problems are building. While there has been much healing for corporate balance sheets and housing, structural problems stemming from debt, be it at the individual (debt-to-income, autos, student loans) or governmental level (China, U.S. et al), still persist. All the stimulus, in the end, does not help create end demand, nor has time, alone, been enough to set the stage for the next secular bull market in equities.
AGNICO EAGLE MINES (AEM.TO) – Bought on December 28, 2016 at $53.86
This very fresh top pick is about a longer-term bottoming in gold, and a selection based on best of breed. There are some producers far more leveraged to the price of bullion, however, Agnico is a top pick due to its robust exploration pipeline, the best profile of senior producers and a strong balance sheet. Not many producers have also added to their net asset value over the last few years. Technically, the stock has a first target of $68 with downside support at $50.00 (six per cent), setting up a decent risk-to-reward profile.
SNC-LAVALIN GROUP (SNC.TO) – Bought on December 21, 2016 at $59.33
The engineering and construction company recently reported a beat on EPS in part from good cost control management as well as an improvement in operational cash flow. Aside from O&G, all divisions are performing well, especially infrastructure. With its bad press behind it, the company is in the right space for the long term, and because it derives 56 per cent of its business outside the country, it can take advantage of global opportunities as well as domestic ones. Technically, the stock brokered out at $57.00 and though it could retest this level, the first target (18 months) is north of $80.00.
FAIRFAX FINANCIAL HOLDINGS (FFH.TO) – Bought on December 21, 2016 at $661.97
Fairfax, whose mix of business between its insurance and reinsurance and investment business, often confuses investors and analysts for its unconventional setup and reliance on its chief, Prem Watsa. While its insurance business is somewhat of an underperformer (and maybe undervalued, too), its recent acquisition of Allied World, having 25 per cent of its business abroad and improvement in overall underwriting may create some broader appeal. Though recent bearish equity bets were taken off, Watsa still maintains a longer-term deflation bet, which we like. Also, Watsa allows us to stand on his shoulder for his global perspective. The stock recently broke out of a bottom at $650, bringing in a $850 target.
PAST PICKS: NOVEMBER 26 2015
OPEN TEXT (OTC.TO)
- Then: $64.00
- Now: $84.33
- Return: +31.76%
- TR: +33.80%
POWERSHARES FINANCIAL PREFERRED PORTFOLIO ETF (PGF)
- Then: $18.66
- Now: $17.94
- Return: -3.81%
- TR: +2.35%
- Then: $32.86
- Now: $47.33
- Return: +44.03%
- TR: +46.61%
TOTAL RETURN AVERAGE: +27.58%
FUND PROFILE: CASTLEMOORE CANADIAN EQUITY PORTFOLIO
PERFORMANCE AS OF SEPTEMBER 30, 2016:
- 1 year: Fund 14.98%, Index* 10.66%
- Average annual ROR: Fund 11.69%, Index* 5.69%
- Mean drawdown: Fund -3.66%, Index* -8.27%
- Mean recovery: Fund 5.2 months, Index* 12 months
* Index: TSX Composite
* Net of fees
TOP HOLDINGS AND WEIGHTINGS
- BCE Inc.: 10.9%
- Aecon Group Inc.: 7.0%
- Goldcorp Inc.: 6.6%
- Canadian Apartment Properties REIT: 6.4%
- Fortis Inc.: 5.7%