Lyle Stein, senior portfolio manager and managing director at Vestcap Investment Management

Focus: Canadian equities
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MARKET OUTLOOK
The ground has shifted. The surprise election of Donald Trump as U.S. president has resulted in dramatic volatility in financial markets, the consequences of which are still being felt. While commodities, currencies, fixed income and major equity sectors have all been affected by the post-election results, both up and down, the clouds are anything but clear with respect to what the year ahead will bring.

We’ll start with a macro overview of growth, interest rates and currency. As to economic growth, we expect that the U.S. will tend to surprise on the upside, with Canada lagging, perhaps considerably. The notion of a Trump tax cut is a tailwind to U.S. equities that few in the world can match. On the interest-rate front, the notion of "lower for longer" is most likely history, with reflationary expectations strengthening day by day. In this world, the U.S. dollar will continue to wear the crown it was handed with the Trump victory.

The above outlook is subject to numerous risks, particularly the unintended impacts on dollar-dependent emerging markets and highly-levered governments. With global debt levels at all-time highs, a shock to the system is as problematic as it has ever been.

In this ebullient environment, we are ever-conscious of risk, especially with respect to fixed-income investments. Yields, though higher, are not high enough to compensate for inflationary risk. We prefer cash to long-dated bonds, and high-yield preferred shares to their corporate debt equivalents. On the equity side, we are wary of commodities, should growth expectations lag. We find the safety of four per cent+ dividend yields quite attractive. Recently, we have added to financials, and are looking for beaten-up names in the U.S consumer and health sectors to increase portfolio exposure to asset classes not available in Canada. 

TOP PICKS

NORTHLAND POWER (NPI.TO)
Northland Power has income with significant growth potential. Company is reaping the benefits of major investments in offshore wind production in Europe, as post-completion cash flows ramp up smartly. Current $1.08 distribution (five per cent yield) is expected to increase with cash flow. Company has announced it is examining strategic alternatives, adding potential near-term upside. Last purchased at $21.

GOLDCORP (G.TO)
Total contrarian play. A fallen angel, the company has lagged the gold sector as new management has focused on tightening operations. Produces 2.9 million ounces per year at declining all-in costs of $850 for 2017, and has a rock-solid balance sheet. "Hot" money has flowed to Barrick and Agnico Eagle, away from Goldcorp. As management meets expectations going forward, we expect the stock to be rerated. Core holding. Last purchased at $18.

WELLS FARGO (WFC.N)
Buying on bad news. After leading U.S. financials out of the 2009 financial crisis, WFC has stumbled badly as a result of the account-opening scandal. Three per cent dividend yield and 12x earnings provide good entry point for a core U.S. bank. With largest mortgage book in the U.S., rising rates provide a significant earnings tailwind. We expect a rerating to historical multiples as near-term concerns subside. We also like the fact that Warren Buffet maintained his position. Established position at $46.
 

PAST PICKS: NOVEMBER 4, 2015

HUSKY ENERGY (HSE.TO)

• Then: $19.05
• Now: $15.78
• Return: -15.38%
• TR: -15.38%

NATIONAL BANK (NA.TO)

• Then: $43.53
• Now: $50.49
• Return: +15.98%
• TR: +21.92%

HUDBAY MINERALS (HBM.TO)

• Then: $6.63
• Now: $9.09
• Return: +37.10%
• TR: +37.62%

TOTAL RETURN AVERAGE: +14.72