January 11, 2018

A new year has officially begun, and 2017 ended with strong returns in Markets around the world. The Emerging Markets lead the way, with a more than 25% return in Canadian dollars. The MSCI World was up more than 14%. The Canadian Market was the weakest of the major markets, yet still delivered a total return of more than 9%. Needless to say, these are excellent rates of return and should be viewed with caution. While this type of performance is likely the exception and not the rule, it shows the importance of being “in the Market”.

Just as important as being in the Market is having a solid and repeatable process for determining how much you should have in the Market. In my last post I discussed our approach to selecting investments. This month I wanted to start to highlight the many facets of our overall Wealth Management approach.

Before you can reach your destination you need to determine where you stand today and where you want to be. While this will likely change over time, setting a game-plan for the coming years will give you clarity of purpose and the peace of mind of knowing that you are being proactive and planning ahead.

Please feel free to call or email me directly to get started on a plan. I can be reached at 416.231.6528 (office), 416.855.9512 (cell) and/or jeff.ker@rbc.com.

Wealth Management

In my last blog post I introduced my Investment Approach. This was important because investing is usually the first thing that anyone’s mind turns to when I tell them I am an Investment Advisor.

The truth is that I offer so much more than just investment advice. Specifically, RBC Dominion Securities have been leaders in promoting Professional Wealth Management to clients for many years. This includes not only investment advice, but also encompasses:

1. Financial Planning;

2. Credit and Lending;

3. Taxation;

4. Retirement Planning;

5. Education Savings;

6. Charitable Giving;

7. Insurance; and,

8. Estate Planning

I am going to tackle each of these areas individually in the coming months’ blog posts and I felt it was important to first introduce all of these topics together under the banner of Wealth Management.

Before I can make an investment recommendation, I need to understand the complete picture. In year’s past, I would look at investment decisions purely from a risk/reward basis or in the context of an overall asset allocation decision based on the portfolio in front of me. While that worked (especially in light of having a well-defined investment approach), adding an overall Wealth Management approach takes things to the next level.

There is a deeper understanding of the client, their needs and how I can help them to achieve their goals. Taking into account all of these areas results in a better, more all-encompassing investment recommendation by considering some new questions. Is your Overall Portfolio tax efficient? Is it being driven by a written plan? Do you have a charitable giving goal? Would your family be taken care if you had died yesterday? There can be a lot more at stake in a client portfolio than just the dollars and cents.

I would appreciate the opportunity to help you take your portfolio to the next level. RBC Dominion Securities has a deep roster of professionals that I can tap into to reach that goal including Credit and Lending Specialists, Insurance Specialists, Certified Financial Planners, Lawyers and Accountants.

Please feel free to reach out to me directly about any of these items if I do not call you first!

Investment Spotlight: EdgePoint Global Portfolio

EdgePoint Global Portfolio is a Mutual Fund that I have consistently recommended for years. The Fund is a great example of how I seek to find “value for your dollar”. This Fund Company has defied the theory that Mutual Funds are too expensive and “Managers cannot beat the Market”. The EdgePoint Global Portfolio Fund has a long-term track record of doing just that.

While past performance is not indicative of future results and cannot be guaranteed, the one thing I have been able to count on is a consistent, focused and repeatable process.

The folks at EdgePoint say their “approach is deceptively simple. We buy good, undervalued businesses and hold them until the market fully recognizes their potential”. Click Here for a link to the EdgePoint Wealth Management website, where they discuss the “EdgePoint way to invest”.

It is noteworthy that they have executed their process and delivered results at a relatively low fee. For fee-based accounts the Management Expense Ratio is 1% (F Series Funds). Click Here for a link to all of the details of this Fund, including Fees and Investment Results.

Managers can and should be viewed in the same way one views any security. In my view, I need to consider a Fund to be an absolute best idea to stay invested. I have found the best way to evaluate a fund is to understand the investment approach to determine if it is consistent and repeatable and continually monitor the Managers to ensure they stick to their process (especially when there are bad times in the short-term). Since inception all of the fund managers at EdgePoint are the same, and they have maintained a stable group of only four mutual funds to choose from. This is the kind of consistency I am looking for.

What Worked in the last Month

Google: Shares of Google were up more than 4% in December. After posting very strong Q3 results in late October, the stock continued to rise through the year-end, outpacing the S&P 500 over that time-frame.

 

From the RBC Capital Markets report, dated October 27, 2018 entitled “Internet Staples”:

 

Ever Heard Of Internet Staples?: This was a very impressive quarter, fundamentally speaking. 31 Straight Quarters Of 20% Revenue Growth… and 25%+ Operating Margins. Google, along with a few other select Internet companies, is an Internet Staple. You know Consumer Staples? Those companies that deliver low-to-mid single digit % Revenue Growth and trade at Market Premiums because they are considered to have extremely reliable future EPS growth because they are Consumer Fixtures? Internet Staples is the same thing…except with growth rates 4X, 5X…10X higher. Internet Staples. We do worry about Government Risk, esp. for GOOGL. But we continue to believe GOOGL to be one of the strongest, most consistent fundamental stories out there. And the valuation pitch remains constructive: @ $1,019, GOOGL trades at 17x Core Google ‘19 GAAP EPS of $51, adjusting for $130+ per share in net cash.

 

RBC Capital Markets rates the shares Outperform, with at $1,125 Target Price.

 

What Did Not Work in the last Month

Kraft Heinz: Shares of Kraft Heinz fell approximately 4.5% in December, and fell more than 8% for the year 2017.

 

In the short term, the company has not performed as well as most analysts had predicted, and significantly lagged the Market. That said, In a November update RBC Capital Markets expressed the belief that better times lay ahead in 2018 due to the potential for Merger Synergies bringing down expenses, and revenue growth from brands that were repatriated from Mondelez in Europe and Australia (Kraft Mayo, Ketchup, and BBQ Sauce licenses).

 

RBC Capital Markets rates the shares Outperform, with at $94 Target Price. Notably, the risk/reward appears favourable, as our downside scenario is $70 (down 7%), while the return to our Target Price is 24% and the return to our “upside scenario” (if everything goes very well for the company and the economy) is 50%.

 

Update on Newell Rubbermaid (What Did Not Work in November): we removed Newell Rubbermaid from the portfolio and made a replacement. Please feel free to call to discuss the changes.