Market View

Quarter 2, 2021

What Worked in Q2What Didn't in Q2
Energy StocksShort Bonds
Technology StocksUtilities Stocks
Telecom StocksIndustrial Stocks
Equity MarketsFirst Quarter % Change (in Cdn$)Second Quarter % Change (in Cdn$)
S&P/TSX Composite8.1%8.5%
S&P 5004.7%7.0%
MSCI/EAFE2.2%3.8%
MSCI/EM1.0%3.6%
TSX Energy20.3%13.9%
TSX Financials13.9%8.3%
Bond MarketsFirst Quarter % Change (in Cdn$)Second Quarter % Change (in Cdn$)
REFINITIV Overall Bond Index-5.0%1.9%

June 2021  

Long term issues in a short term environment - FB

Over the course of my 42 years in the investment business many things have changed. Fads have come and gone, investment styles have become more, and then, less common. One thing has remained constant and that’s the struggle between short term issues and long term trends. The current environment illustrates that better than most other time periods that I’ve witnessed. 

The global economy has just been exposed to the first pandemic since the Spanish Flu, which was rampant between 1918 and 1920. At time of writing, the Covid-19 virus seems to be retreating as case counts and deaths are declining. Nobody questions whether that is a good thing. What is uncertain is the state of the economy, and for investors, the state of the markets.  Is the damage permanent or will things be back to normal shortly? Will interest rates, inflation and economic growth be affected and, if so, by how much? What will happen if we experience another wave? 

The questions are endless and essentially unanswerable. When I’m presented with that or a similar situation I retreat to the basics of investing, meaning, the challenge of evaluating the prospects of a business and how the market is pricing that business. After a strong year in the markets, with many

indexes trading at, or close to, all-time highs, it’s easy to fall into the trap of “everything is fine with nothing to worry about”. That I think is a recipe for trouble. By any measure, the recent pandemic has made changes to our society. The terms: “work from home”, “Zoom meeting” and “why aren’t you wearing a mask?” have all become common place yet were virtually unheard two years ago. So, will the changes to society be permanent or transitory?  The correct answer(s) will be difficult to obtain but promise lucrative results. My take is that the pandemic has moved forward societal changes that would otherwise not have arrived for at least 15 years. 

One trend which I feel has staying power is the move to reduce carbon production with the resulting atmospheric improvement. How then does an investor capitalize on that trend without simply following the masses and overpaying for the privilege? We have initiated positions in a Uranium miner, well positioned to supply electrical generation through nuclear energy and an auto parts firm, with contracts in the electric vehicle markets and expect both to prosper in a low carbon world. 

As important as joining a blossoming trend is to avoid one with an uncertain future.  So, clients are unlikely to see any holdings of office building stocks until there is more clarity on the current work from home trend.   Formerly a vibrant and populous place, downtown Toronto has been a ghost town for over a year, and I can only imagine landlords are hurting, and will continue to hurt, until the work from home issue is settled. 

Among other worries, we are cognizant that the value investment area became the market darling in November of last year and as pleasant as that has been we are wondering how long that trend will last.  To that end we have added a few more growthy names to our list which will appear in client portfolios where appropriate. 

I Did It My Way – NL

When I was 13, my cousins Fern and Irving along with Fern’s parents Mary and Maurice, each gave me 5 shares in two different companies as Bar Mitzvah presents. From that day on, I became enamored with the investment industry. In high school and university, money I made from part-time jobs enabled me to buy small amounts of stocks in companies I liked. My best investment then was buying a small number of shares in Crush International (I loved their cream soda) and my tiny claim to fame was that I sold the stock at the highest price it ever traded at, while still in school.

This led me to a short-lived career as a stockbroker after graduating university with my B.A. I quickly discovered, the hard way (which is always the best way), that a stockbroker is really a salesperson who needs to master the crafts of sales and cold calling, not so much investing, and I was totally useless, at the young age of 21, at both. Fast forward to going back to school and getting an MBA and then looking for a job. One place I applied was The Ford Motor Company of Canada. I landed an interview with the VP Finance, Hymie Schwartz (Henry Ford, a horrible anti-Semite, must have been spinning in his grave the day Hymie got that appointment -- too bad!) at Ford in Oakville. I walked into his office, and he said to me “You used to be in the investment business. It’s now in your blood. You don’t really want to work here. Let’s go have lunch”. And he was right.

On July 5, 1976, I began my career in investment management at the investment department of Crown Life Insurance. The Dow Jones Industrial Average was at about 1,000, a price it would not see again until December of 1982, due to inflation and interest rates that peaked in the 20% range. Price/earnings ratios were decimated by inflation, which brought them down to single digit levels. All that changed in 1982 when the head of the Federal Reserve, Paul Volker, broke the back of inflation. Since that time, both the stock and bond markets in Canada and the United States have witnessed the largest and longest bull markets in the history of the world, with the Dow Industrials trading, on the day I’m writing this, at 34,800 and 10-year Government of Canada bonds yielding 1.3%. I have had the extreme pleasure of being in the business throughout that time, as an analyst, strategist, and portfolio manager, serving first institutional clients and then individuals, along the way. My most recent 18 years have been at Portfolio Management Corporation.

It hasn’t exactly been a smooth ride as I have experienced, during that time period, among other events, insane inflation and interest rates, the crash of 1987, the tech bubble and bust, the financial crisis and the Covid-19 crash. If you resisted the urge to let emotions get in the way of your investing and believed in the long-term history of rising markets and compound investing, you would have earned returns beyond your dreams during that time period by remaining invested in stocks and bonds.

As in anyone’s career, there have been ups and there have been downs. I’ve had the luck, a few times over the years, to have been in the first percentile for performance compared to other professional investment managers. It’s a wonderful place to be, for a moment, until you realize there is nowhere else to go but eventually down the ladder. I have also once, and thankfully only once, been at the opposite end of that performance game and been pretty much dead last. A humbling experience, to say the least, but one I learned a lot from. You are never quite the genius some people think you are when you are at the top and you are never the dummy some people think you are when you are at the bottom. One of the things about our business is that our records are public, and we have nowhere to hide, good times and bad.

So, by now, you must be wondering where I am going with all of this. The answer is, after 45 years in the investment management business, I will be retiring from Portfolio Management Corp. on March 31 of next year. 45 years is a long time. My wife, Shelley and I are still relatively young and in good health and we want to travel and see more of the world. We have a son, Sheldon, living in Vancouver with his partner Shannon, and a daughter, Andrea, living in London, England who we want to see more of and a few weeks ago we became first-time grandparents and want our grandson Miles, in Vancouver, to know us and see us on a regular basis. Also, the idea of spending winters in warm climates where my chronic cough condition wouldn’t be subject to the irritating cold and wind of Toronto is very alluring.

I will be here until then and look forward to speaking with many of you, in the near future. In the meantime, I would like to end with a verse from Frank Sinatra’s most famous song, My Way, written by Ottawa’s Paul Anka.

Other Markets

Fixed Income  June 2021  March 2021
Cdn 91 day T-Bills 0.15% 0.10%
U.S. 91 day T-Bills 0.05% 0.02%
Cdn 10 year Bond 1.42% 1.53%
U.S. 10 year Bond 1.45% 1.74%
Commodities (in U.S.$)  June 2021  March 2021
Oil 73.47 59.16
Natural Gas 3.65 2.61
Gold 1771.60 1751.60
Currency  June 2021  March 2021
Cdn/USD 1.2396 1.2560
Cdn/Eur 1.4698  1.4726