2020 vanquished all predictions for the year that has been. The Economist says “2020 was a chastening experience.” Covid’s fastest-ever recession led to the greatest-ever stimulus aiming to preserve homes and businesses. Investments rebounded on the hope of recovery. News of vaccines then put this recovery on steroids. If today ended the year we’d have modest growth for the year, but that ignores the storms our world has come through (railway blockades seemed tough but that was nothing), and rocketing growth since April 1st with many assets gaining 20% or 30% and more. November alone gave enormous gains in real estate, banking, and other sectors.
THREE AREAS OF RECOVERY.
Dividends are a vital focus for growth and life-income which we hold through thick and thin. This theme can stumble one or two years out of ten but inevitably helps us win the marathon of financial security for life. When bank values brutally fell 35% in March, we realized the compelling valuations, continuing commitment to paying dividends, and confidence that much of the “loan loss provisions” would eventually be credited back to earnings. Banks now have nearly regained earlier values, and as vaccines reach wider distribution in winter and spring, banking and other dividend payors could together rise 15-25% from where they are today.
Real Estate Income is another mandate, either as a group of specific properties, or a fund of real estate entities worldwide. As covid closed malls and offices many holdings dropped 40-60% as the bullhorn of daily news spread panic and fear. In fact though, diversified real estate (industrial, office, multi-unit residential, some retail) largely maintained dividend payments (rising in some cases to 12%). Occupancy slid and yet 95% of rents are being paid. Work-from-home will continue, yet people say they need the collaboration and structure of an office, while they’ll need more space (not less) for safe ventilation and air-flow. Nine years out of ten, real estate cuts risk while helping to ensure a rising income for life.
Global Infrastructure saw similar dynamics as above. People who stayed home paid less in tolls for highways and bridges, stopped flying, bought less gas. Yet ports, ships and railways continued a roaring business transporting goods, while regulated utilities in water, gas, and electricity remained enormously profitable. Infrastructure was falsely painted with covid: whatever moves people, products, and data is vital to our world, and this will only continue. Infrastructure offers lucrative dividend yields plus capital growth. Income rises with time, and assets reach new and higher valuation. Vaccines and improved immunity in 2021 will make infrastructure even more profitable.
GROWTH OR VALUE?
I’ve touched this in recent letters but a few points are worth emphasizing as we close this year. (1) There are changes in our world that will not be reversed: how people buy things, how we connect with each other virtually, and wider processes of innovation in every field. Where overhead costs are low, supply chains remain vigorous, and sustainable earnings keep rising, “growth” remains a vital focus in our portfolios. (2) Some growth companies however have shown negligible earnings, are threatened by rising costs and and regulations that may break apart their business models: clearly we aim to avoid those companies. (3) Cyclical businesses, especially energy and materials, should do better in the early seasons of this new business-cycle, plus they are vital to expanding all kinds of infrastructure as needed for the years ahead. (Without it our world cannot move, cannot heat or cool our homes, cannot transport goods, cannot communicate with each other.) Cyclicals suffered like Cinderella in recent years; now in deeper “value” territory they offer promise of outstanding returns.
REBALANCING (GROWTH & INCOME).
Each of us has unique goals and personal needs. So as we look at your current and future situation, we aim your portfolio to achieve the growth and income you need. These reviews are ongoing, and 2020 has been particularly active for us rebalancing client accounts. If you have any questions … or if you know someone needing a fresh perspective on their financial wellbeing, reach me directly as we are always here for you.
SEASON OF LOVE AND LIGHT.
When the sun is at its lowest we have so many ways of celebrating love and light, sharing wishes for kindness and peace. For me this speaks of Merry Christmas. Equally for many of our friends it brings sincere wishes for a happy Hanukah, Diwali, or other such festivals of light. This year we cherish all heartfelt greetings as we’ve stood against the shadows of 2020. Many lost employment. We had to delay important family times, even birthdays, weddings, and funerals due to covid. My family has gone through a cluster of health events the past two months – a last gasp of 2020 – and we look forward to a new year of promise. Meanwhile now, with so many charities experiencing 50-60% drop in donations, if you and I can afford to do a little more, let us do so. Help a neighbour whether seen or unseen. As days have sped by (and myself in hospital, then recovering at home) I missed deadlines to send Christmas cards, then felt you would accept we are thinking of you now and always – and instead of cards I’ve added to certain gifts which help lighten the shadows from our vulnerable neighbours.
HAPPY NEW YEAR . . .
It feels fresh and promising to reach from the old into the new. With the worst of times behind us, some best-of-times are ahead. Social-distancing mutes the “old year’s night” but we reach for new heights that 2021 can bring. We send you our heartfelt wishes – peace and health, prosperity and happiness to you and all your dear ones now and in the year ahead. Meanwhile if there is anything you need to brighten the days or lighten the evening shadows call me anytime and let’s chat. (Cell 905-330-2548)
Yours in Financial Security for LIFE!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Certified Financial Planner, Certified Retirement Coach
Author: A Lifetime Of Wealth — And How Not To Lose It (2013). Protecting Life, Loved Ones, and Future Dreams (2013). Your Business, Your Retirement: Halton Retirement Study (2015).
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N… Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.