A Comment -- General Comments From an Expert (A Commentary)

The trend is that this is still lagging data, seeing last year's results. Numbers have been reasonable -- not blowout, but not as negative as was feared. It's going to be more about how does 2023 unfold as the rise in interest rates gets digested for a full calendar year. 

The story maybe has played out in terms of YOY increases, but the squeezing of the economy has not yet played out. Consumer wages haven't kept up with price increases. Wages have recently ticked up, but on a 3-year basis they're well behind increases in food, energy, and broad CPI. Now increased interest costs are also squeezing the consumer, and we're only 6 months into that cycle. As that plays out across a full year, plus the view that durable goods were stocked up during the pandemic, the earnings story in 2023 gets worse and so does the economy. The market's saying we're going to get both a soft landing and a decline in interest rates at the end of the year, and he doesn't think you can have both. We might actually get neither, and the market is not properly discounting that.

Currently up to about 15% of a portfolio. The big difference from last year is the rate we're getting on cash balances, nearly 4%. At that rate, you can afford to be patient for a few quarters. When rates were low, there was more impetus to get that money invested. Notwithstanding the very strong market action over the past week or so, we may yet see a significant buying opportunity open up. Remember that last year, too, markets looked very positive in the first few months.

When considering what to add to your stable of stocks, first questions are what's already in your portfolio and at what weighting? For portfolio stability, it's really important to be diversified so that different parts of your portfolio perform well at different times. What he's looking for is stability in returns and, therefore, stability in the underlying dividend. A lesson from his mentor: "If the assets are good, management is temporary." This reflects longer-term thinking than the market, which tends to focus on the most recent quarter. Either management will run them better, or a new team will come in and run them better. 

With the warm winter, nat gas prices have been demolished. Nat gas is a commodity that's very sensitive to weather and has very significant short-term cycles. Winter is becoming the bigger variable on demand, with summer demand becoming more consistent due to cooling demand in the US. LNG Canada is bringing a significant export opportunity for all Canadian nat gas companies towards the end of 2025. This will be transformational. He likes all Canadian nat gas producers on a volume basis. His preference is ARX, as it's diversified with undeveloped land. 

Not looking for anything crucial. Rate increases are expected to continue in the US, same as they have in Canada. BOC has shown some leadership by moving first with a smaller amount, and we may see that again today from J. Powell.

Increasing quality, looking for higher ROEs and ROCs and less debt. Increased the number of stocks, going from 18 names to 30. They shifted into better value names, by taking profits in names that had run up and deploying profits into names with more reasonable valuations that pay dividends. 2022 was a very different year that what we experienced over the past decade. Inflation has roared back, interest rates have risen, fears of global recession are as high as they've been since 2008. When the facts change, they change their minds.

His firm doesn't try to predict 12-month returns or set price targets. Instead, they evaluate a company's ability to produce earnings for the next 3-4 year period. In other words, what is its normalized earnings power? So, if the company looks attractive based on its share price and normalized earnings power, it's a Buy. If it becomes expensive, then they tend to lighten up. 

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

Max Drawdown: Expressed as a percentage, measures the absolute worst-case scenario of a particular fund. It calculates, for an investor, the maximum fall in the value of the investment if an investor bought at the absolute peak and sold it at the lowest trough. The metric offers a quantitative estimate indicating the capital preservation quality of a fund, a peak-to-trough loss of investment. Ideally, investors would want the maximum drawdown to be as low as possible. A max drawdown of 0% would indicate that the fund has never declined in value, and on the other hand, a max drawdown of 100% would mean that the fund is now worthless as the entire capital has been lost at least once in the time frame selected. Unlock Premium - Try 5i Free  

Everything Jerome Powell said today was positive. His remarks triggered a rally and positive momentum. Stocks are moving up, so it's a buying opportunity. Those who sold today are living in the past.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

Performance Metrics when Evaluating a Fund. Benchmark Holdings indicates the overlap between the portfolio holdings and the benchmark set for the portfolio. The ‘active’ measure in the third column measures the percentage of the portfolio, as position weight, that differs from the benchmark index. It is a metric quantifying the level of active management within a portfolio. While this metric might not give a whole lot to an investor, investors allocating to investments with a higher portion of ‘active’ holdings typically expect a differentiated return profile relative to a passive or a benchmark-driven portfolio. Unlock Premium - Try 5i Free

Through 2022, the S&P couldn't break the ceiling of resistance during several peaks. However, last January 23, the S&P did break that ceiling and stayed above that for six straight sessions. It broke that negative pattern. Secondly, the VIX. Last year, whenever the S&P hit a new low, the VIX peaked at a lower level. Meanwhile, every lower high for the S&P saw a lower low for the VIX. Bottom line: last October's bottom may not hold and if the S&P breaks below its 200-day moving average, the market could return to that October bottom or fall lower. And that's when you buy--it's the bottom. The market is reaching a crucial time this week.

The narrative for the office market is negative with announcements of layoffs especially in the tech sector. This comes at a time when new construction continues, creating an increasing supply but demand is decreasing due to less space being needed. Warehouse space however is not overbuilt and in fact the industrial warehouse sector is phenomenal on a fundamental basis with a 98/99% occupancy rate. Asking rents are increasing by a lot: 37% in Montreal to 70% in Toronto. More and more space is needed to meet new trends. The theme of on-shoring is coming to North America and will lead to even more demand for industrial warehouse space.

The question was on new apartment construction. With higher construction costs and development charges you need 4 to 5 dollars per square foot in rent justify new construction. This is not affordable for many so is only for higher end customers. However we need more affordable housing to solve the housing crisis. We have draconian rent controls but on turnover there is vacancy de-control.

The caller from Vancouver was looking for ethical REIT's as he was concerned about sky high rents in that area.. The basic response was that Canadian apartment REIT's are doing a great job by doing their best to provide affordable living space for Canadians. Boardwalk for example self-imposes rent increases in Alberta where there no rent controls. There are many other examples of REIT's that provide safe, affordable places to rent along with transparency. They are good ESG companies. Go to their websites to find out more.