JMRD Market Observer for January 20, 2017 – JMRD U.S. Growth Basket Q4 UpdateJanuary 20, 2017
In This Week’s JMRD Market Observer
JMRD U.S. Growth Basket Q4 Update
Skate the Trail with Prusty4Kids
Bank of Canada Policy Monitor – BoC unhappy with strengthening Canadian dollar
Reads of the week
JMRD U.S. Growth Basket Q4 Update:
Last week in the Market Observer (MO) we reviewed the JMRD Diversified Income and Growth Basket (DIG) and the All Cap Basket (ACB) but this week will we review the JMRD US Growth Basket. First, let’s review the various returns of different investment vehicles, as per last week.
How do we decide on which companies to buy in the JMRD US Growth Basket?
- We use a proprietary relative strength technical analysis research that helps us to identify the stronger sectors to invest in.
- From there, we look to buy the strongest stocks in the best sectors. Stocks can be trading well but if they are in a strong sector, they can still be underperforming.
- Conversely, we look to avoid weak sectors as weak sectors and companies within those sectors can often stay weak for an extended period of time.
- Instead of trying to ‘guess’ when a stock might bottom, we look to identify the strongest companies that are performing well compared to their peers.
- For the U.S. Model we select among the top companies in the S&P 100 combined with Credit Suisse’s top picks.
- The requirements are: Minimum $1B market capitalization, no more than two securities per sector and an initially equal weighted portfolio.
Which companies are currently held in the Basket?
- We continue to include company updates on the holdings in our Market Observers so you can become more familiar with the individual positions.
- You will find below a full snapshot of all holdings.
For the quarter, the JMRD US Growth Basket was up 2.6% in Q4 and up 6.9% for 2016. As we discussed last week, the US equity markets rallied after the Trump victory, but again it was certain sectors that did better than others. Our position in Steel Dynamics, a steel producer and a company in a position to benefit from the anticipated infrastructure build out in the US was the big gainer in the quarter up 42%. United Health Care, along with other healthcare stocks, was a solid performer, returning 14% in the quarter. Waste Management increased 11% and Applied Materials gained 7%.
We were active in the quarter as we sold positions in names that became unfavoured from a technical perspective as well as names that may lag in a Trump world. We took profits in Home Depot and Altria and sold out of our positions in Prologis and Boston Scientific. We also took partial profits in defence company Lockheed Martin to lower its weighting in the Basket. With the proceeds, we added to the US Regional Banks ETF as banks stand to benefit from rising long term interest rates. We also added to our position in Steel Dynamics because of its growth characteristics. Companies in which we initiated positions were Microchip Technologies, the developer of semiconductor products, Arista Networks, a supplier of cloud-based networking solutions for Internet companies and XPO Logistics Inc., a transportation and logistics company.
What are the parameters in terms of buying the new Basket?
- The current value of the JMRD U.S. Growth Basket is approximately $25,400 (all figures in US dollars).
- The initial minimum position is 2 Baskets, or approximately $50,800.
- Subsequent purchases can be made in increments of a half Basket, or about $12,700.
- The minimum and subsequent purchase amounts are mandated by National Bank Financials basket department, not by JMRD.
Skate the Trail with Prusty4Kids
Over the years, The JMRD Team has been a proud supporter of Prusty4Kids, a foundation started by NHLer and London native, Brandon Prust, with the goal of helping kids lead happier and healthier lives. Prusty4Kids is hosting a “Skate the Trail” event at Storybook Gardens on February 17 from 6:00-9:00pm. JMRD has 20 passes to this event and if you are interested in bringing your kids out for a skate that evening, contact Sue Lidbetter at email@example.com and she will set aside some passes at our office for you. Passes are available on a first come first served basis.
Bank of Canada unhappy with strengthening Canadian dollar
As widely expected, the Bank of Canada left the overnight rate unchanged at 0.50% today. The central bank acknowledged the “firm” employment growth, but quickly pointed out that “indicators still point to significant slack in the labour market”. The central bank added that Canada “continues to operate with material excess capacity” which explains why measures of core inflation are below 2%. The BoC expects inflation to move close to the 2% target “in the months ahead and remain there throughout the projection horizon” as energy prices rise and the impact of low food prices dissipate. The BoC bemoaned the strengthening Canadian dollar saying it is “exacerbating ongoing competitiveness challenges and muting the outlook for exports”.
The BoC still expects world growth to be 3.2% this year but raised slightly its 2018 forecast to 3.6% (from 3.5%). It also raised U.S. growth in both years, although only after taking into consideration upcoming tax cuts and not increased spending. China’s growth was lowered this year by one tick to 6.3%, while oil-importing emerging economies were lowered by two ticks. For Canada, the central bank raised slightly its real GDP growth forecast for this year to 2.1% (from 2.0%) while leaving unchanged at 2.1% growth for next year. The BoC says GDP growth softened to 1.5% annualized in Q4 last year but sees an acceleration in Q1 this year to 2.5%. However, the BoC made clear that “While prospective protectionist trade measures in the United States would have material consequences for Canadian investment and exports, these measures have not been included in the base case.” The upgrade for this year’s growth forecast was largely due to government and consumption, although trade’s contribution was also raised slightly to zero (was a drag on growth in October’s MPR). Investment is now seen to be a drag on growth this year in sharp contrast to October’s MPR. The government upgrade incorporates “modest additional stimulus measures announced in November in the government’s fall economic statement, as well as those recently announced by provincial governments”. Real gross domestic income is expected to rise 2.3% this year, versus 2.1% in October’s estimate.
Potential GDP growth was left unchanged at 1.0-2.0% for this year. The BoC estimates the output gap at the end of 2016 was about 1.25%. The central bank still expects slack to be eliminated by mid-2018. The BoC’s inflation forecasts were raised slightly for this year but the central bank still expects inflation to be close to 2%.
Reads of the Week
Monday January 23rd – None
Tuesday January 24th – US Manufacturing PMI, US Existing Home Sales
Wednesday January 25th – None
Thursday January 26th – US Initial Jobless Claims, US New Home Sales, US Leading Indicators,
Friday January 27th – US GDP, US Durable Goods, US Consumer Sentiment
Monday January 23rd – Haliburton Co, McDonald’s, Yahoo!
Tuesday January 24th – 3M, Lockheed Martin, Verizon
Wednesday January 25th – AT&T, Boeing, eBay, Las Vegas Sands
Thursday January 26th – Alphabet, Baker Hughes, Dow Chemical, Intel, Microsoft, Potash, Starbucks
Friday January 27th – Honeywell
Have a good weekend!
Categorised in: JMRD Updates