Market Call Tonight for Thursday, March 30, 2017
Veronika Hirsch, portfolio manager at Arrow Capital Management Inc.
Focus: Canadian equities and alternative investing
The failed effort to repeal and replace Obamacare rattled U.S. markets and led to a long-anticipated correction. Only time will tell whether equities will resume their climb in response to improved global economic data, or run out of steam waiting for additional fiscal stimulus. Successful tax reform would bring meaningful benefits to corporate America and thus allow improved earnings prospects to propel equities higher.
There remain several alternative paths to successful tax reform. However, given the failed health-care bill, investors might remain skeptical whether the White House can choose the right political path. Markets might thus remain locked in a trading range until they can assess the probability of its success. There is also the risk of a scaled back tax proposal because of the need for the plan to remain revenue-neutral.
Trump’s promise of a 15 per cent corporate tax rate might now be off the table. I have a sense that markets would welcome any reasonable tax plan provided it was delivered in a timely fashion.
Significant delays — potentially into early 2018 — would most likely derail markets and cause heightened volatility.
BROOKFIELD INFRASTRUCTURE PARTNERS (BIP_u.TO)
Governments around the world are embarking on infrastructure spending in an attempt to stimulate economic growth. Because of budgetary constraints, existing projects might have to be monetized to finance future programs. This increases the pool of projects BIP can bid on. Management has done a great job of buying assets in countries facing political and economic hardships, and monetizing them years later when conditions have improved. BIP has a superb management team, a 4.4 per cent dividend yield and a growing portfolio of valuable global assets.
SVI is a consolidator of self-storage facilities across Canada. Because management has delivered on promised growth, valuation has been rising along with the stock price performance. However, in this fragmented industry, there remains plenty of running room ahead for the company. Competition from U.S. players will increase over time, perhaps putting pressure on valuations of larger deals. SVI pays a small dividend currently as it needs capital for acquisition growth. However, once the growth opportunities diminish, SVI will generate plenty of cash flow to be able to grow its dividend. This might be a stock investors can keep well into retirement.
TECHNOLOGY SELECT SECTOR SPDR FUND (XLK)
XLK is a technology ETF that uses market capitalization to weigh the holdings. As we are nearing the latter stages of the current economic cycle, companies will be increasing their capital spending on technology to allow them to grow with efficiency. XLK will allow an investor to own a portfolio of technology stocks while maintaining liquidity for a quick exit should this cycle come to an abrupt end.
PAST PICKS: FEBRUARY 25, 2016
TYSON FOODS (TSN.N)
- Then: $66.49
- Now: $61.64
- Return: -7.29%
- TR: -5.98%
ALIMENTATION COUCHE-TARD (ATDb.TO)
- Then: $60.83
- Now: $60.46
- Return: -0.60%
- TR: +0.05%
TOTAL RETURN AVERAGE: -2.96%
FUND PROFILE: EXEMPLAR PERFORMANCE FUND – CLASS F
PERFORMANCE AS OF FEBRUARY 28, 2017:
- 1 month: Fund 1.70%, Index* 0.21%
- 1 year: Fund 8.93%, Index* 23.24%
* Index: S&P/TSX Composite Total Return
* Fund’s returns are based on reinvested dividends and are net of fees
TOP HOLDINGS AND WEIGHTINGS
- CCL Industries Inc.: 3.83%
- Boyd Group Income Fund: 3.10%
- TransCanada Corp.: 2.96%
- Bank of Montreal: 2.15%
- Alimentation Couche-Tard Inc.: 2.09%