We are in the final stretch of 2020, a year entirely unlike any other. Today (Monday) is the 33rd anniversary of the October 1987 crash: so severe that Time Magazine announced an eye-catching “death of investment markets”. This week also marks my “silver” quarter-century in financial service, which I find most gratifying because it speaks of the trust, resilience, and friendship we have built together. Shorter anniversaries include 7 months since February’s investment-market highs, and 6 months since these markets’ 2020 lows. Covid’s resumption or second-wave is hitting more people now than ever (40 million now) yet we can be grateful the death rate has fallen to a tenth of what it was earlier (pictured below).
In your mail.
You now have official notices on the consolidation or transition from custody, trusteeship, and portfolio teams in London Life, Great West Life, and Quadrus Investment Services, into the rebranded and nicely patriotic name, Canada Life Investment Management. Overall this changes nothing in your existing accounts – a few names, new options added, and reports will be in the name of Canada Life instead of Quadrus. Reach us if you have any questions on this or other aspects of your portfolio.
Covid, Economy, U.S. Election.
Have there ever been times when you were driving an especially twisty piece of road? And how did you stay focused and keep safe? Such roads in my life include the following. Outside Victoria there’s an old road to Sooke where many have held their stomachs with care. The old Fraser Canyon highway, barrelling downhill into Golden (from the east, especially when a transport truck is closing the space from behind). Lovely stretches of the north shore along Lake Superior where the landscape and rich geological colouring beckon our admiration. Nova Scotia’s Cabot Trail as it winds and weaves among compelling views that could tempt even careful drivers over a calamitous cliff (sample picture below).
So where do we focus through a deeply contentious election, severe health warnings, business closures, international trade tiffs, and our parliament’s posturing on a multitude of issues? Always it is best: keep focused where we want to end up. That is the lesson. Focus not on the daily distractions or cumulative commotion, but on the goal.
People have strong views about Trump versus Biden, but neither of them cares particularly what Canadians want. We’d like a decent person in the White House, and in either case we hope they get a clear result, one which can rebuild honest and honourable relations between our two countries.
Similarly, moving into 2021, we believe therapeutics and vaccines will continue to save lives. That will allow closer contact with each other, children to be back safely in schools, and economic growth to accelerate. On this note we already have good news. Manufacturing for example has suffered surprisingly small loss of activity, both in Canada and also abroad. I discovered this locally when touring a manufacturing plant with 180 employees who have been steadily at work all this year. Everyone wears face masks. Hand sanitizer stations are close at hand. Offices include shields and safe-ventilation. Thus we’ve learned how to keep significant parts of the economy moving while protecting our people from covid.
Whatever comes – covid, elections, trade trauma, employment and social change – our key investment strategies and mandates will reach through winter, spring, summer, and all seasons ahead. As summer-vacation drivers and even formula-1 racers keep eyes and minds firmly on the road and free of distraction, we too stay focused to protect your wealth and wellbeing for Life.
Road Map and Next Steps.
There is a division in today’s markets between high-income versus high-growth investments. The roots of this division go back to 2010 (similar to 1996-1999) as growth has outpaced value/income, in stark contrast to the normal leadership and safety of value and income. It begs the question of our “twisting roads” analogy, how do we map the way forward? To see the contrast right now: in a global universe of 10,000 investments, ten names have rocketed beyond all the rest – with or without earnings – while markets as whole have lagged. Echoing 1998-1999 information technology, social media, and semi-conductors are up 50% (even some with zero earnings) while real estate and financials/banking are ascending more slowly to recover January pre-covid valuations.
Well known author and retired bank executive, Sherri Cooper, was interviewed last week and admitted her investments are primarily in banking and real estate. Reason? These represent solid value, low risk, strong future earnings, viable recovery, sustaining and increasing dividend pay-outs over the years ahead. She said as you’ve heard often from me, that when people hear markets are falling (as when Royal Bank this year dropped $109 to $72 per share) many only see the fear and they sell everything. Far more prudent and comforting is to watch the dividend pay-out which in this case rose from 3.8% to 5.7%. Ultimately it’s better to own things we know will last, with earnings to rise, and dividends to provide plump rewards. Focus on fear? No, but focus on a rich portfolio yield which can assure a rewarding future.
Our client accounts intentionally balance growth and value to fit each person’s long term comfort. Growth generally ranges from 0 to 35% of a portfolio, with value and income comprising the rest. Specific mandates for dividend, real estate, and infrastructure (Canadian and globally) outperform growth in most periods, and are a permanent foundation amid the storms and turbulence that hits the world at times. So in addition to such “income mandates” (or pension-style mandates) we also include “growth” not so much like Amazon, Netflix, Alibaba (collectively the FAANGS and BATS) which may rise or fall 50% in a heartbeat. We have portfolio teams focused on highest-conviction mid-sized companies (Canadian, US, and worldwide) with optimal management, barriers to replication, expanding markets, low risk of litigation, safe debt, accelerating earnings, and top ratings for environment, sustainability, and governance. Such a time is headed by Dina DeGeer and David Arpin in our MF Canadian Growth fund: with hefty growth even in 2020, Dina ranks in the top 2% of global managers for three decades. (At times we’ve named a few of the holdings in this unique portfolio.)
Focusing Forward – Results for Life.
“Life Income Mandates Plus” continually adapts but never goes out of style: tangible strength, high income, rising dividend/yield, and sustainable future growth. No other approach offers such confidence for the future and sustaining income through the seasons of retirement. As equity markets twist and turn, and bonds now paying real-returns well below zero, our personal financial security depends entirely on the strategic income and growth we touch here in this letter.
Happy anniversary! Pause for the scenery but as money is concerned, we stay laser-focused on your personal safety and financial freedom always.
PS: a new metaphor for 2020 … kidney stones. What more could happen this year? Two stones in the left, one in the right, 0.8 cm to 1.3 cm. With some surgeries coming, I’m grateful as always that you can reach members of our SWM team. In particular, copy Ben whenever emailing me (and cc me when emailing Ben). We could worry about the kidney stones or stay focused on the solution — focus on market turbulence or the sustained high-yield and our confident recovery. … AND now, better than a picture of kidney stones here’s our happy family addition, ten-week old “Oreo” — he makes frequent appearances on my Facebook account.
For kidney stones or twisting highways we have wonderful advances to help keep us safe. For life-long financial security we have “life income mandates plus” surviving every turbulent market, rewarding us with Financial Security for LIFE!
Reach me with any questions, and freely connect us with a friend or family needing help with financial goals, lifelong comfort, and a rewarding retirement. Share this letter today.
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.