We have many reasons to be grateful these days. Families walking, playing, learning together. Social distancing even on the highways as traffic has eased. Respect and caution among all our neighbours to keep in touch even while keeping a distance. First day now without ANY new infections in China, where 70% of the work force is back in gear and their market has been rising. Friends returning from trips abroad and getting home safely: even if self-quarantine seems a burden it’s best at home rather than anywhere else in the world.
I have been drinking a daily deluge of reports from all our portfolio management teams. While markets have fallen we were never idle or watching from the sidelines. Since the current “bull market” began on March 9th 2009 there have been at least fifteen major market disruptions. As early as 2010 people would reach me to reduce or sell the equity side of their investments, and this continued nearly every year. It has long been proven that “time out of the market” or attempts to “time the market” is far more expensive in lost gains and yield, compared to “time in the market”. Markets falter frequently. Tea leaves and crystal balls forecast neither the depth nor duration of such events. By staying invested we avoid costly knee-jerks which would sabotage our steady income yield, and put us on a sidetrack going nowhere until one felt safe re-entering (when things would “feel better” – ie. at a future high).
As mentioned we’ve not been idle. In 2019 with a macro perspective we increased fixed-income for those nearly or already retired. In the past 30 days our portfolio managers have guided a greater turn-over than in an average 18 months because the recent indiscriminate selling (as I mentioned last week) has provided incredible bargains. First then, managers had been raising cash. Second, they sold down certain assets which would struggle somewhat in a virus pandemic. Third they already had an active list of prime assets and have been buying these at lower prices. Such targets enjoy strong balance-sheet, vigorous continuing supply-chains, increasing business demand, low debt, and an appealing picture of dividend growth and capital expansion. As much as 25% to 30% of the assets have gone through such process in the past four weeks alone.
Examples can shine a specific light on this broad picture. For a glimpse then, one of our funds has 4% weighting in a firm excelling in technology research and online events management (recently priced at $160/share). Growth is exponential in the two business lines, providing $4 Billion annual revenue. The portfolio team with Phil Taller re-ran the numbers making every possible negative assumption for 2020. Result of that negative assessment suggests a fire-sale low at $140/share yet panicked markets have been offering this company near $100. Taller and team have been buying more shares at these lower costs. This will ramp up returns splendidly on the coming market recovery and the years ahead.
With China’s labour force 70% back on stream another holding to note is the biggest North American distributor of children’s clothing. While retail is suffering everywhere right now, children won’t stop outgrowing clothes. This is a steady marketplace, whether in bricks-and-mortar or online. China’s factories are approaching full steam again and anticipate a three-week delay in fulfilling orders. Our leading N.Am. distributor in children’s apparel also has dominant pricing power throughout Canada and U.S. A terrific asset to own, and it’s useful to see our managers adding more of this firm while it’s on sale.
Our MF Global Equity and Income team (McKeirnan) notes similar process over recent weeks, dropping eight former holdings and increasing sixteen others, strengthening balance sheets and business models for each asset they continue to own.
Like my Jane Doe story last week (in 1930 selling off the car but keeping the sink, toilet, and family dog) we can perhaps illustrate the above as follows. Imagine you’re at the grocery store and everything is selling at the lowest prices in years. Imagine leg of lamb, sirloin steak, lean ground beef, and liver are all selling for next to nothing. Well, liver is always next to nothing. So which will you buy. You can choose any of them and any combination you wish, but realize that next week or next month prices will be far higher again. What will you put in your cart? (Vegetarians and vegans can insert their own preferred foods, or we could compare ice creams such as Parlour, Kawartha, and Haagen Dazs.) Get the picture? When things are on sale you may get ridiculous bargains … and that’s what our portfolio fund managers have been putting in their carts over these recent days!
Our fund managers include Royal Bank, Mackenzie Financial, CIBC, Franklin Templeton, Dynamic Funds, GLC which is the combined Canada Life, Great West Life, London Life, beside research we gain from other groups and sources. We are on top of what’s happening day-to-day. Present stresses can certainly feel uncomfortable … wouldn’t it be nice if investments would just rise in a straight line 7% a year but they don’t. They jiggle and zag, so each season we continue to re-tailor our clients’ allocations while at the same time our portfolio teams are forever revising and optimizing specific holdings.
It’s worth remembering: our first job is understanding and providing your “certified financial plan”. Second we establish the “mandates” or allocations to align your investment to your financial plan. Third, we have chosen the portfolio management (PM) teams which can best optimize results in such mandates over a period of time. Fourth, the PM teams themselves remain fully active every day, every week, every month and season. This in total is how and why we have been able to reduce risk while preserving and growing income for our clients ongoing safety and lifestyle.
It’s a bit like the duck swimming across the pond in Beacon Hill Park where I will visit this May if travel is permitted. Those ducks seem to have it easy, just coasting along. Under the water however there is a lot of action … especially if there’s a wind, or if children are throwing bread crumbs from the edge. Activity under the water can be intense and the result will be keeping the duck where it needs to be. Not unlike the four stages mentioned above of keeping YOU and your plan moving safely through the years ahead.
Reach me with any questions, and connect us with anyone who needs help to secure financial goals, lifelong comfort, and a rewarding retirement. Share this letter with anyone who can benefit.
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
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 GLC, RBC, CIBC, Mackenzie, Franklin Templeton. Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.