Last year was shocking to many in the investment community: It marked the first time in at least 45 years that both stocks and bonds posted negative returns in a calendar year. Battling high inflation, the Federal Reserve and Bank of Canada raised interest rates aggressively. Those hikes hurt absolute results across the board. The usual role of high-quality bonds to provide diversification from stock market volatility — something investors rely on — broke down. Inertia can be a very powerful force, especially 5% cash yield-induced inertia. Investor emotions are real. Past losses can sting for a long time, and today’s seemingly attractive rates on money markets and GICs feel good. If the rate hike regime is coming to an end, it is time for investors to get off their cash piles. After the final hikes in the last four cycles, both equity and fixed income returns were strong in the year that followed. Importantly, for long-term investors, these sectors maintained their relative strength over a five-year period. Don't get stuck in cash.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Amazon (AMZN-US) This week Amazon posted a new 13-month high. Amazon has been in a recovery rally this year, overcoming a good part of last year’s sharp sell-off. Any further rally to exceed the 1-1/2 year high posted in August 2022 of 146.57 would support the case that the current recovery rally can continue. Owned in Core, US, and Opportunity Portfolios.

(~) Berkshire Hathaway (BRK.B-US) Warren Buffett's firm said it has sold about 5.5 million shares of HP, undoing part of what has been a large, unsuccessful investment in the maker of personal computers and printers. Berkshire sold the shares this week for about $158 million, reducing its HP stake to about $3.27 billion, according to a filing with the SEC. Buffett's company now owns about 11.7% of HP's shares, down from 12.2% before the sales, SEC filings show. HP's share price has fallen 19% since Berkshire in April 2022 revealed an unexpected $4.2 billion stake in the Palo Alto, California-based company. Owned in Core and US Portfolios.

(sold) Danaher (DHR-US) We are stepping aside on our position in Danaher primarily for Canadian tax implications. They are about to complete a previously announced separation of Veralto Corporation, its Environmental and Applied Solutions (EAS) segment. The board will issue a common stock dividend of VLTO on September 30th. This separation will be a foreign spin-off. For U.S. tax purposes, the distribution will not be taxable. For Canadian tax purposes, this spin-off should be treated as a taxable transaction. The simplest way to avoid the foreign dividend tax consequences was to sell DHR. We do plan on re-entering the name after this event is completed. Was owned in US Portfolio.

(+) Disney (DIS-US) We view DIS’s distribution renewal with Charter positively because the increase in (Direct-To-Consumer) DTC revenue ($650m) will more than offset the decrease in linear revenues ($208m). Achieving full penetration of Disney+ across Charter’s linear ecosystem also sets a precedent and template for more distributors to follow as DIS renews its distribution agreements in the coming years. We like DIS because it has a world-class brand that allows the company to monetize its numerous and growing franchises across multiple platforms - streaming, movies, merchandise, theme parks and musicals. The strong tie-ins between DIS's franchises and its different business lines make it nearly impossible for competitors to replicate. Late in the week, we learned that Billionaire media mogul Byron Allen has reportedly made a bold $10 billion offer to acquire a significant chunk of Walt Disney Co's media empire, including the ABC TV network, local stations, FX, and National Geographic cable channels. In the near-term, the media landscape is facing some headwinds given sustained streaming losses and tough ad environment. However, given the stock's underperformance against the broader market (-5% YTD vs. SP500 +17%) and is trading below its historical long-term valuation (17x vs. 30x), we would be buyers of the stock at this level. Owned in US Portfolio.

(+) Enbridge (ENB-T) We believe Enbridge's discipline and patience have paid off with the ability to capitalize on the current macroeconomic environment to acquire a large-scale regulated utility asset base with above-average rate base growth for well-below precedent transaction valuations. We positively view: (1) Enbridge's more balanced business mix with an increased contribution from natural gas; (2) the enhanced visibility and accretion to Enbridge's overall growth; and (3) the financing plan that aims to keep pro forma leverage "well within" Enbridge's existing 4.5-5.0x debt/EBITDA target range. Shares currently yield 7.46%. Owned in Cash Flow Portfolio.

(+) Enphase Energy (ENPH-US) Solar panels are spreading across the globe at a record pace, fueled by tax breaks and ambitious climate goals. But solar stocks haven’t come along for the ride. Weakness in some key product areas, including residential rooftop systems, has sunk several stocks in the industry. None has fallen from grace quite as hard as Enphase Energy, which entered the year on a six-year winning streak but is now down over 50% this year. Enphase builds inverters, which are high-tech devices that convert the direct current produced by solar panels into the alternating current used in homes. Unlike many peers, Enphase is solidly profitable, so it doesn’t need to tap increasingly expensive debt markets to fuel its growth. Company insiders have lately been buying. An analyst at Evercore, James West, thinks the stock can climb back to $220, or nearly 35% from here. As Americans embrace the electrification of their homes—solar panels, electric cars, heat pumps, and more—Enphase is well positioned to become a central player. Owned in Core ESG+ Portfolio.

(~) Enovix (ENVX-US) engages in the design and development of silicon-anode lithium-ion batteries. The firm's proprietary 3D cell architecture increases energy density and maintains a high cycle life. This week, Enovix debuted the first episode of its “Journey to Scale” podcast. This venue gives Enovix an interesting platform to both create transparency and provide detail on its scale manufacturing path and contribute to investor confidence that the journey is proceeding according to plan. Enovix COO Ajay Marathe joined VP of Corporate Marketing and Communications Kristin Atkins to provide operational and milestone details around the company's Gen2 manufacturing line at Fab 2 in Penang, Malaysia. SPOTIFY Owned in Opportunity Portfolio.

(+) Restaurant Brands (QSR-T) Fueled by their blockbuster chicken sandwich, Popeyes is eyeing a massive expansion. They’ve added over 1,300 restaurants since 2017, and now have 4,300 locations. To help convince people to open more and more locations, Popeyes wants to raise average restaurant-level profits from $210,000 as of last year to $300,000 by 2025. To do this, they’re redesigning their kitchens to automate and perfect the process of making the chicken sandwiches, which had presented a significant burden on some kitchens that were faced with 1,000 orders per day when expecting only 60. The average American visits a Popeyes three times per year, considerably lower than the 18 average visits to McDonald’s. Owned in Core Portfolio.

(+) Tesla (TSLA-US) Shares popped thanks to a glowing research note from Morgan Stanley's Adam Jonas. He raised his price target to $400 per share. Jonas suggests that Tesla's Dojo supercomputer could add as much as $500 billion in value to the company. He expects to see it deployed in the development of autonomous vehicles, factories, humanoid robots, healthcare, and security. The Dojo supercomputer is so big that Tesla couldn’t secure enough GPUs from Nvidia, so they produced their own processors. Morgan Stanley think that Tesla will open a massive lead in autonomous operations technology, allowing them to license those capabilities to a wide range of manufacturers. In addition to the capital-intensive, time consuming process of building cars, Tesla would also make high-margin services sales across the auto industry. In time, they could become a technology company instead of a car company. Owned in Core ESG+ Portfolio

(~) Visa (V-US) The credit card behemoth’s stock traded lower after announcing plans to change its share structure. Visa’s Class A shares are held by the public, its B shares are held by U.S. banks, while C shares are owned by foreign banks. The company wants shareholders to approve an exchange offer that would release transfer restrictions on portions of the Class B stock. Owned in Core and US Portfolios.

Weekend Reading

RBC MacroMemo - September 12 - October 2, 2023 Ukraine / Technology / Canadian wobbles / Mixed signals from U.S. economy / Consumer distress RBC

Could anti-obesity drugs transform healthcare? Jenny Chang, portfolio manager with Goldman Sachs Asset Management, separates the signal from the noise. GOLDMAN SACHS

Canada’s economic engine is gearing down The long-expected 'mild' economic slowdown may have already begun in Canada as headwinds from higher interest rates build and the global backdrop softens. RBC

The Cry Grows Louder — Should Joe Biden Step Aside? The Washington Post’s influential David Ignatius has urged Joe Biden to step aside. And then came the call from Sen. Mitt Romney that the country needs a new generation of politicians. Clearly, age is a dominant issue in American politics. GREG VALLIERE

The Complete History & Strategy of Costco Costco is not only Charlie Munger’s favorite company of all time, but also a fascinating study in how seemingly opposite characteristics can combine to create incredible company value. For instance: Costco has the cheapest prices of any major retailer in America — and the wealthiest customer base. They pay their hourly workers 30% above the industry norm (and give them excellent healthcare + 401k benefits) — and are almost 3x more profitable on labor than Walmart. Speaking of Walmart, Costco stocks 40x fewer SKUs than their Bentonville-based rivals — yet sells an average of 15x more volume of each. And oh yes, practically all of Costco’s C-Suite started their careers as baggers and checkout clerks! Tune in for a mind-bending exploration of one of the world’s most iconic — and iconically unique — companies. SPOTIFY