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

FOCUS: Technical Analysis and Macro Portfolio Strategy

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MARKET OUTLOOK:

The major themes over the next few months impacting the markets will be China data and yuan devaluation, forward corporate earnings guidance and the June and July Fed meetings. Of the three, the Fed will have the most impact as the market tries to square a “data dependent” Fed with a “market level dependent” Fed.

Technically, there is room for pro-cyclical equities – e.g. energy, financials, industrials, consumer discretionary – to run in the short term, certainly into the June meeting and then maybe to the July meeting. But also technically, the ratio of the S&P to the 10 year U.S. treasury is stuck in a band where stocks vs. bonds are expensive. This level capped the run in the spring and in late summer last year, and as well back in 2007. Too, since the February recent bottom in equity markets bond yields have not backed up as would be expected nor have defensives lost a decent bid.

Market dichotomies requires client portfolios have a high level of “convexity.” Portfolio convexity means that assets are allocated across defensive and pro-growth securities whatever class the securities come from. This insulates assets from both the long and short term consequences of these opposing forces. It’s diversification by risk not asset class. In addition, this approach reduces the impact and guessing game surrounding monetary policy or GAP to non-GAAP earnings while being mindful of asset protection and absolute client asset growth expectations. Portfolio convexity for CastleMoore portfolios is not balanced. At present, it is more heavily weighted to one side over the other. 

At CastleMoore we are treating the rise in pro-growth securities as a short term event until it’s borne out that there’s more to the moves, requiring us to adjust this balance.

Top Picks:

MDA Corp (MDA.TO)                       

This multifaceted company (aerospace, land based-systems and communications) generated an in-line quarter in what has been a stable sector for investors. More importantly the company had two significant catalysts for future growth. MDA continues to hit markers to achieve U.S. military contract status and it brought on board a star CEO, Howard Lance from Harris Corp. Technically, the stock is at an excellent risk to reward level (risk management of $82.25) with an upside target of $95.00.

Pfizer Inc (PFE.N)

Pfizer has a recent solid earning beats in what is an improving company. Guidance for 2016 revenue and EPS is up $2 billion and $0.18 respectively. Healthcare is in a secular bull market that began in 2012. Upside target of $45; risk level $32.38.

BCE Inc (BCE.TO)      

BCE had a solid start to the quarter with both revenue (+0.6 percent) and EBITDA up (+3.3 percent). While no division blew the doors off this defensive position, it has a good bid underneath. It recently broke above previous resistance just below $60 to hit an all-time high. Price target is $82.00.

Past Picks:  June 10, 2015

Aecon Group (ARE.TO)

• Then: $13.50
• Now: $17.42
• Return: +29.04%
• TR: +32.85%

Utilities Select Sector SPDR ETF (XLU) 

• Then: $42.58
• Now: $48.75
• Return: +14.48%
• TR: +18.74%

JPMorgan (JPM.N)      

• Then: $68.26
• Now: $65.03
• Return: -4.73%
• TR: -2.03%

Total Return Average: +16.52%

Fund Profile

CastleMoore Canadian Equity

Performance as of: March 31, 2016

6 month: Fund 8.6 %, Index*0.9 %

2 year: Fund 2.8 %, Index*-3.0 %

3 year: Fund 5.1 %, Index*1.9 %

* Index: S&P/TSX

Dividends are reinvested and returns are net of fees.

Top 5 Holdings

1. BCE - 10.3%
2. Goldcorp - 6.7%
3. Metro - 5.6%
4. Fortis - 5.4% 
5. CGI Group - 5.3%

Company Twitter Handle: @CastleMoore

Personal Twitter Handle: @Hap_Sneddon

Company Website:CastleMoore.com