To my clients:
First an announcement. I will be taking two more weeks of vacation this summer from July 31st through August 7th (inclusive) and August 14th through 21st (inclusive). No updates will be sent on the Friday of each week. As always, Brenda will be available for urgent client inquiries.
It was an up week for North American stock markets with the Canadian TSX finishing up 1.4%; the U.S. Dow Jones Index up 2.1%; and the U.S. S&P 500 up 0.7%.
There was a modest transaction in client portfolios this week with the partial sale of Microsoft shares. Microsoft was first added to client portfolios just 6 months ago at USD $238.65/share and has appreciated rapidly ever since. This week the share price spiked above our analyst’s $350/share target price and I took the opportunity to take profit and trim the position back to a more representative weighting. Shares were sold at $365.51 for a nice 53% gain. While I normally would heed our analyst’s target price and be inclined to sell the whole position, it’s undeniable that there is momentum in the tech sector amid burgeoning prospects for AI (in which Microsoft has a significant stake) and, further, I suspect that our analyst may be inclined to revisit his target price after Microsoft reports its quarterly earnings next Tuesday.
On broader portfolio management, it’s interesting to note that in just the past 24 hours, three separate clients have asked me about a greater inclusion of bonds and other fixed-income investments in their portfolios. As I told these clients, the queries are timely since I am actively considering a greater allocation to fixed income investments for all clients. Interest rates are elevated right now and unlikely to go significantly higher, so attractive yields can be locked-in. Further, if/when interest rates decline (as I’d suspect in the medium term future), this will result in an uptick in bond prices which would further boost returns. As such, the prospect of a modest allocation shift toward fixed-income seems timely. That said, I MUST EMPHASIZE that I believe, as always, that a well-diversified portfolio of blue-chip dividend paying equities will produce the greatest returns over the long-term (albeit at the expense of greater volatility in the short to medium term), so my tendency will continue to be to skew client portfolios toward an overweight equity position. But balancing the risk/reward prospects, modestly reducing the overweight equity position is front of mind.
Lastly, on interest rates, the Federal Reserve policy announcement looms next week. As clients well know, given ongoing declines in inflation, I don’t believe it should raise rates… but it seems likely it will.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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