**January 2nd Issue of The JMRD Market Observer**
In This Week’s Market Observer
· A look back at 2014 and a look ahead to 2015
· NBF Monthly Equity Monitor – January 2015
· JMRD US Growth Basket Anniversary!
· Newalta Update – A DIG Basket Company
· 2015 Tax Reminders
· Retirement Corner
· Week at a Glance
· Reads of the week
Happy New Year to everyone!
The JMRD Wealth Management Team wishes you all the best in 2015!
In our first Market Observer of the New Year we focus on a number of items as 2014 was another year of significant change for the JMRD Wealth Management Team. Before we get to the investment comments, we wanted to review some very exciting developments and changes that have occurred over the past 12 months. Our Team is constantly striving to improve by adding new products and services to make our client offering better. We feel 2014 was another transformative year as much of our hard work paid off in ‘dividends’. Here is a short list:
- Steve Lockner became a full-time member of the JMRD Team in our Waterloo office. Steve also became a Portfolio Manager in 2014 bringing the total PM count to four on the Team.
- Faith Hatt joined the JMRD Team in our London office as an Investment Associate in August and is responsible for documentation and administration of our client accounts.
- We further improved our Financial and Estate Planning offering and look forward to introducing Marie Blanchet, a high level Financial Planner, and Camille Kanhai, a lawyer specializing in Estate Plans, to more clients in the year ahead. If interested in reviewing or putting in place a financial plan, please send us a note.
- These changes result in the new Team having 10 members in three convenient locations to serve you better.
- Special mention goes to Nicole Dell for being recognized as one of NBF’s Top 30 Elite Investment Associates. This recognition was based on nominations received throughout the 2014 year for her professionalism, strong work ethic, and mentorship of peers.
- We had our most successful United Way campaign ever and this initiative continues to be spearheaded by Paul Manders on an annual basis.
New Products and Services!
- We continued to improve our website – www.jmrdwealth.com. Here you will find back issues of the weekly Market Observer as well as snippets of JMRD events and team members out and about in the Community.
- We are working on another update on the website that will be rolled out in the first quarter of 2015 – as always, your feedback is appreciated.
- New NBF Microsites – Our new Firm–based websites will be continually improved to engage our clients over the course of the coming year.
- Electronic statements. – Year one is in the ‘bank’ with the e-statements and several clients signed up to receive monthly reports this way. We expect further improvements to the on-line experience in 2015.
- If you are not currently set-up for online access to your accounts please contact Erin Finnegan at email@example.com or any one of the Admin team to get started.
- 2014 was a huge year for social media. The main reason for the focus is our industry is finally embracing this form of communication and clear guidelines are being introduced. Expect more enhancements in 2015
- “We got LinkedIn” in 2013 but in 2014, we took it to a new level.
- Most of the Team can now be found on LinkedIn which is a tool to stay connected with our clients and colleagues and to share updates in a timely fashion. Please feel free to “Link up” with us!
- In October we celebrated the one year anniversary of our new JMRD All-Cap Basket (ACB) which has exceeded all of our expectations.
- ·We launched the new JMRD US Growth Basket on January 1st, 2014 and look to forward to updating you with the 1 year results below.
- Reg Jackson – ca.linkedin.com/in/regjacksonjmrd
- Paul Manders – ca.linkedin.com/in/pauljmanders
- Jaden Ropp – ca.linkedin.com/in/jadenropp
- Zach Davidson – ca.linkedin.com/in/zachdavidsonjmrd
- Nicole Dell – ca.linkedin.com/pub/nicole-dell/5/a77/ba5
- Erin Finnegan – ca.linkedin.com/pub/erin-finnegan/44/628/7b1
- Catherine Sunga-Doucet – ca.linkedin.com/pub/catherine-suñga-doucet/7a/b0b/402
- Steve Lockner – ca.linkedin.com/in/stevelockner
- Twitter became a new tool for the JMRD Team and we plan to do some fine tuning in order to use it more effectively in the coming 12 months – Follow JMRD Wealth Management on Twitter at: https://twitter.com/JMRDwealth or @JMRDwealth
We look forward to sharing all these new initiatives with clients in the coming year and encourage you to send us comments and suggestions on ways for us to improve further.
Top Investment Objectives for 2015 and Beyond
Our objectives have not changed from the last five years and we will simply repeat them here with relevant updates.
- Investors must continue to focus on their individual risk / reward profile.
- Balancing risk/reward by focusing on ‘best investment ideas’ while managing position size to avoid too much concentration.
- Investors must have an investment plan and stick to that plan.
- Review your Investment Policy Statement (IPS) and ensure your asset allocation is up to date and appropriate. Please feel free to talk to us for clarification on this very important point.
- The new ‘Annual Financial Planning Review’ and ‘Two Year Client Check-Up’ we launched last year will provide timely opportunities for clients to review or implement plans.
- Focus on income and get paid to wait. For cash flow, invest in dividend and interest paying securities.
Though conservative by definition, these top three objectives allow us to position portfolios conservatively, but this is not necessarily a call to reduce equity exposure.
Perhaps the single biggest change over the past few years and what is an inevitable trend going forward is that interest rates are no longer falling but are instead getting ready to creep higher. This ‘tightening’ will continue to put pressure on interest rate sensitive sectors so unlike the past few years, we need to add a caveat that investors need to sacrifice some income for growth. More on this in the coming weeks as we provide an update on our JMRD All-Cap Basket (ACB).
We would also recommend that clients review the account type that they have. We are able to offer full discretionary accounts through our ‘Discretionary Portfolio Management Services’. This account is taking our successful ‘Basket’ approach to the next level. For more information on whether this fully discretionary approach makes sense for you specifically, please call to discuss.
NBF Monthly Equity Monitor – January 2015
· Global equity markets have been under pressure in recent weeks, with most of the major regional indexes in decline. The price of oil – WTI still below US$60 a barrel – is the main excuse for the selloff. Though most equity indexes (including the S&P/TSX) are still up in 2014 to date, financial markets continue to ponder the significance of the oil price slide. For some, it is a clear symptom of a weakening global economy, as is the drop in Treasury yields. For others, it is rooted in an OPEC supply-shock experiment aimed at recapturing lost market share. We side with the optimists.
· Since the oil price slide exacerbates the decline of market interest rates by softening inflation, consumers worldwide are enjoying a potent spending stimulus that will benefit growth. On the other hand, the economies of OPEC members and Russia, with large oil net exports are being pummelled. Angola, Venezuela, Algeria, Iran, Iraq, Nigeria and Russia could be in for outright contractions due to a deterioration of their terms of trade ranging from 5% to 25% of GDP.
· Investment incentives in the U.S. energy sector have fallen to a 40-year low. With the U.S. Department of Energy now forecasting that shale oil production will flatten in 2015, capital spending could fall $30 billion next year. Thus the supply of oil could stabilize. Meanwhile, the International Energy Agency (IEA) sees demand rising 1.1% in 2015, up from 0.7% this year. Our current call is continued expansion of the global economy in 2015 with oil averaging US$70 a barrel. For 2016 we assume $80 a barrel.
· Going into 2015, we remain comfortable with our recommendation to overweight equities relative to our benchmark while maintaining a slight underweighting of fixed income products. Our year-end targets for 2015 remain at 16,200 for the S&P/TSX and 2,220 for the S&P 500. We are modifying our global equity allocation this month. We are increasing our S&P/TSX exposure to overweight for the first time since last summer and reducing our overweight stance on the S&P 500. We are also making changes to our sector allocation. We are upgrading the energy sector from market weight to underweight. To accommodate this change, we are reducing financials to market weight.
(See Equity Monitor Attachment for More Commentary)
The JMRD US Growth Basket: A great first year with solid gains!
Launched on January 1st, 2014, the Team is delighted to announce a 15.0% return for our newest Basket for 2014!
This compares to the following returns from other benchmark indices:
- Dow Jones Industrial Average – 7.5%
- S&P 500 – 11.4%
- Russell 2000 Index (Small Companies Index) – 3.5%
We launched the US Basket after we had received numerous requests for a portfolio of US companies that trades in US dollars. Diversification is important by asset class and currency making the launch of this new Basket very timely. Note the US Basket has a cash weighting of approximately 12%. The Team feels there may be an opportunity to add new names or top up existing positions on weakness at some point going into the new year.
We will focus on five questions you may have on the new Basket as a way of introducing it:
- Who should buy it?
- How do I buy it?
- What is in the Basket?
- How do you pick the holdings?
- What are the parameters in terms of buying the new Basket?
Who should buy it?
- Clients who have US dollar accounts are the best candidates for the Basket as they already have US dollars available.
- The Team was being proactive in this Basket launch as NBF has just recently rolled out US dollar RSP accounts.
- The U.S. Growth Basket can be purchased in this new USD RSP.
- Remember, if you don’t have US dollars already, a new buyer would first need to convert to US dollars.
- With the recent weakness in the Loonie, it takes more Canadian dollars to buy US dollars
- NBF’s current forecast for 2015 for the USD/CDN dollar is to end the year at $1.17. The rate at the time of writing was $1.16.
- Clients who think the Canadian dollar will continue to decline are also good candidates as this is also a currency call.
- For those in this camp, the conversion provides a way to diversify by currency as well.
How do I Buy it?
- The JMRD US Growth Basket is purchased the same way as our other Baskets.
- We would recommend setting up a US dollar account as a start.
- We would need to ‘code’ the account for Basket purchase as per usual – for those interested let us know and we will get the paper work together.
- The Basket is purchased on an annual fee basis similar to our other offerings.
What is 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.
How do we pick the holdings?
- 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.
What are the parameters in terms of buying the new Basket?
- The current value of the JMRD U.S. Growth Basket is approximately $11,800 (all figures in US dollars).
- The initial minimum position mandated by is 5 Baskets, or approximately $59,000.
- Subsequent purchases can be made in increments of 1.5 Baskets, or about $17,700.
Note that the minimum and subsequent purchase amounts are mandated by National Bank Financial’s Baskets department, not by JMRD.
Newalta Update – A DIG Basket Company
NAL remains on script; Industrial sale paves the way for higher growth
Selling Industrial Division to Birch Hill for $300 mln
At about 6.0x EV/EBITDA, the sale of its Industrial assets fetched slightly more than our estimated $277 mln and should reduce SG&A by about $10 – $15 mln /yr. Subject to regulatory and customary conditions, the sale is expected to close in Q1 of 2015. The Industrial Division has about 950 of NAL’s roughly 2,100 employees.
Stronger balance sheet supports $190 mln for ‘15 capex
NAL has also announced its ‘15E capex budget that includes $25 mln in maintenance and $165 mln of growth capex. This is an increase from $180 mln total budget in ‘14E ($35 mln for maintenance and $145 mln for growth), and is also higher than our previous estimate at $30 mln for maintenance and $140 mln for growth. The growth plan for ‘15E includes $45 mln in Heavy Oil, $45 mln in the U.S., $50 mln in Oilfield and $25 mln for technical development and corporate investments. We believe that NAL can maintain debt/EBITDA below 2x, despite the recent downturn in energy prices.
(See Newalta attachment for more information)
2015 Tax Reminders
- 2015 TFSA contributions – contribution limit $5,500.00 can be made in cash or securities.
- 2014 RSP contribution deadline – Monday March 2, 2015. The 2014 maximum RRSP contribution limit is 18% of “earned income” in 2013, to an annual maximum $24,270. The 2015 contribution limit is a maximum of $24,930.
“Evolving your TFSA to meet life’s changes” – (Financial Post)
Week at a Glance
The Week at a Glance will return next week!
Reads of the Week
“What can mortgage shoppers expect in 2015? Here are five predictions” ( Globe and Mail)
Follow JMRD Wealth Management on Twitter at: https://twitter.com/JMRDwealth or @JMRDwealth
We wish you all the best for 2015!