Veronika Hirsch, portfolio manager at Arrow Capital 
FOCUS: Canadian equities and alternative investing
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MARKET OUTLOOK

I expect equities to end the year on a high note, given favorable seasonality between October and December, and the tremendous market momentum. Global economic growth continued to improve in the latest quarter, fuelling healthy corporate profits.

Strong profitability should finally resurrect demand for capital spending, which has been notably weak in the current economic cycle. This should allow technology and industrial sectors to maintain their recent leadership well into 2018. Tax reform should serve as yet another catalyst for these two sectors. After all, large technology stocks account for the lion’s share of offshore cash hoards, which will be gradually repatriated.

U.S. companies will not be the sole beneficiaries however, as many larger Canadian companies have significant physical presence in the U.S. They will benefit not only from the improved tax treatment, but should also enjoy strong demand fundamentals.

As markets enter the end stages of the current cycle and higher inflation starts creeping in, portfolios skewed toward more cyclical sectors should outperform defensively positioned portfolios. Planned minimum wage increases on both sides of the border will put pressure on the cost structure of many consumer companies, and stock selection will start playing a more significant role in the months ahead.

TOP PICKS

BROOKFIELD INFRASTRUCTURE (BIP_u.TO)
Countries around the globe have an urgent need to start replacing aging infrastructure. Because of budgetary constraints, governments frequently have to monetize existing projects to help finance future programs. They might also seek partners to help finance the new programs. Brookfield can benefit from these trends because of its experienced management team, expanding global expertise and access to large pools of capital. It is an excellent vehicle to participate in a growing portfolio of valuable quality infrastructure assets while collecting a 4.1 per cent dividend.

AG GROWTH INTERNATIONAL (AFN.TO)
AFN manufactures grain handling, storage and conditioning equipment. I think of it as an infrastructure company that specializes in the agricultural (specifically grain growing) industry. AFN has been making acquisitions, allowing it to expand its global reach in the last few years. As demand for its products is cyclical and often dependent on regional weather and crop conditions, being diversified across geographies makes good business sense. This company is at an early stage in establishing grain handling and storage capabilities in many countries, which are years if not decades behind North American development. AFN sports a healthy 4.7 per cent yield, which allows investors to overlook its sometimes uneven quarterly results.

DESCARTES SYSTEMS (DSG.TO)
DSG provides cloud-based logistics management software primarily for the transportation industry. The company has been growing both organically and through reasonably priced acquisitions. Investors appreciate management’s frugal cost management and successful strategy of broadening its suite of services through acquisitions, which are quickly integrated into existing operations. DSG should continue to benefit from the rapid growth of ecommerce.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BIPu N N Y
AFN N N Y
DSG N N Y

PAST PICKS: NOVEMBER 2, 2016

TRANSCANADA (TRP.TO)

  • Then: $57.82
  • Now: $62.60
  • Return: 8.26%
  • Total return: 12.61%

A&W REVENUE ROYALTIES INCOME FUND (AW_u.TO)

  • Then: $35.33
  • Now: $35.50
  • Return: 0.48%
  • Total return: 4.96%

CASH

TOTAL RETURN AVERAGE: 5.85%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TRP  N N Y/REDUCED
AW_u N N Y/REDUCED

FUND PROFILE
Exemplar Performance Fund – Class F
Performance as of: October 31, 2017

1 Month: 3.17% fund, 2.73% index
1 Year: 9.48% fund, 11.48% index
3 Year: 6.72% fund, 6.22% index

*Index: S&P/TSX Composite Total Return
**returns based on reinvested dividends, net of fees

TOP HOLDINGS AND WEIGHTINGS

  1. CCL Industries: 4.45 %
  2. Boyd Group Income Fund: 3.46 %
  3. Royal Bank of Canada: 3.39 %
  4. TransCanada: 2.42 %
  5. StorageVault Canada: 2.25 %

TWITTER: @ArrowCapital
WEBSITE: www.arrow-capital.com