Michael Sprung, president at Sprung Investment Management

Focus: Canadian large caps
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MARKET OUTLOOK
2016 was a year full of surprises. Following a terrible start in early January to mid-February, markets recovered. Several major events failed to go the way of "expert" prediction, most notably the vote in the U.K. to leave the European Union (Brexit) and the election of Donald Trump as the 45th President of the United States of America. In response to both of these occasions, initially markets reacted as the experts predicted but then they changed course and rallied in very short order. While all of this was happening, the European migrant crisis persisted, spurring more radical political movements. The underlying financial problems within the European Union linger, inflaming the rhetoric of politicians competing for headlines. A disturbing trend from an investor’s point of view is the rising sentiment against free trade and globalization.

There is no shortage of other global geopolitical concerns in the Middle East (particularly Syria), the South China Sea, Russian interventions in the Ukraine and Syria, etc.

As we start 2017, we will carry all of this baggage forward. Already, new shocks have emanated from the first weeks of the Trump presidency and many more, yet unknown surprises are sure to follow. The U.S. economy continues to expand and interest rate increases are anticipated as a result. Technology continues to influence productivity and labour markets.

There will be winners and losers in this trend, but change is inevitable. 2016 is still fresh in our minds. 2017 will bring its own shocks and surprises. Investors will prosper if they stay fast with their discipline and do not get distracted by the turbulence that surrounds them.

TOP PICKS

MANULIFE FINANCIAL (MFC.TO) – Last purchased March 3, 2016 at $18.50
Manulife is a leading Canadian-based financial services group with operations in Asia, Canada and the United States. Over the past five years, the company has made tremendous strides in de-risking the balance sheet and improving profitability through increasing wealth management operations as well as redirecting the mix of products sold. Manulife's geographic diversification in an era of expected interest rate increases positions the company to do well and raises the prospect of future dividend increases. The stock currently yields around 3.0 per cent.

AGT FOOD AND INGREDIENTS (AGT.TO) – Last purchased December 18, 2014 at $26.50
AGT is a leader in pulse processing for export and domestic markets. The company has had notable success in diversifying into food ingredients, an area that is facing increasing global demand. 2016 was demonstrative of the growing global demand for pulses. In 2017, AGT will be in a position to expand its ingredients and food shipments as additional capacity comes on-stream and the recently expanded pasta business in Turkey develops.

FORTIS (FTS.TO) – Last purchased April 12, 2016 at $39.41
Fortis is the largest investor-owned gas and electric distribution utility in Canada with operations in the U.S. and Belize. Over the next few years, Fortis is expected to significantly increase its rate base. Over the next five years, management anticipates capital expenditures in the order of $12.9 billion. The company is extremely well diversified by asset type, geographic location and regulatory regimes. Fortis has a history of dividend increases that are expected to continue. The stock currently yields 3.9 per cent.
 

PAST PICKS: JANUARY 7, 2016

ALARIS ROYALTY (AD.TO)

• Then: $22.56
• Now: $22.61
• Return: +0.22%
• TR: +7.59%

SUNCOR ENERGY (SU.TO)

• Then: $33.29
• Now: $40.50
• Return: +21.65%
• TR: +25.58%

STUART OLSEN (SOX.TO)

• Then: $5.32
• Now: $5.33
• Return: 0.18%
• TR: +8.19%

TOTAL RETURN AVERAGE: +13.78%