My trades made March 2018

I had some unexpected time available today to make my first quarter trades (normally made on the 15th of the month, so a day early).

I previously posted some considerations I had in mind for this cycle, and received some helpful feedback in reply to that earlier post (thank you FletcherLynd!). I also posted a related question to 5i Research. (All the feedback and discussion is contained in the replies to my earlier post if you wish to follow along.)

So, in the end I did the following to take advantage of utility stocks for sale at a relative market discount and to address some major holes in our bond ladder:

  • Sold Valener (TSX:VNR) and bought, with the proceeds and a small top-up to a full position, Algonquin Power (TSX:AQN) – this trade is intended to improve the quality of my utility holdings (I still like VNR but I like the total return prospects of AQN better)*
  • Topped up Fortis (TSX:FTS) and Brookfield Renewables (TSX:BEP.UN) to bring them to full positions
  • Journalled the new BEP.UN shares from a Canadian dollar account to a US dollar acount (BEP) to capture dividends in US dollars without incurring currency conversion rates (this will occur on settlement March 16) – I bought in a Canadian dollar account because I didn’t have enough US cash in the account to make the purchase directly in the US account
  • Bought about 25% of my required bond purchases for the year, going short duration to fill holes in my investment grade ladder and in anticipation of higher rates later in the year (I will buy slightly longer duration bonds in June, September and December):
    • FORD CREDIT CANADA LTD SR UNSECURED Maturity Jun 22 2022 Coupon 2.766 for a yield-to-maturity of 2.9%
    • FAIRFAX FINL 6.4% 25MY21 for a yield-to-maturity of 2.84%

The net result is I’ve gone a bit overweight equities (I was slightly over-allocated already before trading). I sit at 49.5% versus 46% target, in part because equities, in spite of the correction last month, are still surging in my portfolio (tracking 17.3% on an annualized basis so far this year).

I’ll keep an eye on equity allocations as the year progresses and may trim a bit in technology if current trends persist. New cash should also help offset this imbalance a bit.

I will be doing my quarterly review at the end of the month and will post it along with my previous reviews here.

*Full disclosure – I’ve been a bit erratic with Valener. I bought it in September 2017 (just six months ago) as a long-term holding. At the time I wanted to buy Algonquin Power but thought it was too expensive. I have traded VNR for AQN opportunistically because of the sector rotation taking place in utilities that has made AQN’s price a more attractive entry point.

My thoughts on trading this quarter (Q1 2018)

I have purposefully set a quarterly trading date for my buying and selling of securities to prevent over-trading and to provide time for reflection between trades.

Mid-March 2018 is my next trading window. What am I thinking?

I have accumulated a fair bit of cash/short-term bonds in our portfolio (almost 21% compared to our 9% target) that needs to be deployed. We are currently underweight bonds in our bond ladder (22% vs. 36% target), slightly overweight in stocks (48% vs. 46%) and about even in bullion at 9%.

I intend to purchase 1/4 of our underweight amount in bonds and will continue along the same path for the remaining three quarters. Yield to maturity in the retail, investment grade bond market, available via my discount brokers is now sitting at about 3.4% on five to six year maturities. So I will seek out positions of that nature. I also need to top up a bit in the three-year and four-year timeframes. So, as March 15 approaches, I will start filling those gaps.

The only other trade I am contemplating is to take advantage of the market’s current lack of interest in dividend paying stocks like utilities. I have been wanting to purchase Algonquin Power (TSX: AQN) for some time, and it now sits at a forward P/E of 16.47 and a growing dividend of 4.67%, rising steadily since 2009, which is pretty good for this “growthy” dividend payer.

FASTGraphs shows a total annual rate of return since January 2010 of 18.5%. YCharts shows it at a cumulative return of 370% in that same time period  and StockRover shows a 102% cumulative five-year total return.

According to YCharts, it is 8.5% under value, and according to FASTGraphs it is 7.9% under value on a P/E basis. FASTGraphs has it at a 16% discount using historical price/operating cash flow measures. It is nearly 10% off its 52 week high.

So, even though this stock will push our equity allocation even a bit more over target, I believe it is a good addition to our portfolio, especially as we get a little closer to retirement. I may look to trim technology stocks again later this year to re-balance down a bit, since they seem to be making the fastest gains again so far this year (buy low, sell high is my thinking). As our savings, dividends and interest payments accumulate over the course of the year, the equity allocation will trend down slightly in relative terms (all things being equal).

I don’t really want to add another position (going to 34 equity holdings from 33), but I can’t see anything else to sell outright at the present time. And I do like AQN.TO, as does 5i Research (“one of our favourites”) who I follow. The latest commentary from 5i on the March 2 quarterly report suggests fundamentals are good (especially earnings). AQN’s recent acquisition seems to be working out fine as well.

Update on the Etobicoke Share Club

I received an update from the Etobicoke Share Club that is getting up and running.

Meeting dates moving forward for the spring are on the 1st & 3rd Wednesday of the month at 6:30pm.

Upcoming meetings:

  • March 21st
  • April 4th
  • April 18th
  • May 2nd
  • May 16th
  • June 6th
  • summers off

Meetings are held at Bloor & Islington,  Centre Tower food court.  3300 Bloor St. W. Toronto.

Tell your friends and family in Etobicoke area (if you have them!)….

If you want more information please contact: etobicoke.investors [at] tutamail [dot] com

Another new ETF to play the robotics and AI secular trend

I wrote an article about robotics/artifical intelligence for Canadian MoneySaver published last November. In that article I mentioned two ETFs: Robo Global Robotics & Automation ETF (ROBO) – which I own – and Global X Robotics & Artificial Intelligence ETF (BOTZ). Both trade on the NASDAQ and each has just under $2.5B US in assets under management. ROBO has a 0.95% management fee and is based on the ROBO Gbl Robotic & Automat TR USD index. BOTZ has a 0.69% management fee and is based on the INDXX Global Robotics & AI Thematic TR USD index.

Since writing the article, a Canadian version of ROBO was introduced on the TSX by Horizons called Horizons Robotics and Automation ETF (ROBO.TO). It is still small with only $51M CDN in assets under management and has a management fee of 0.75%. As it approaches $100M in assets under management, this hedged fund could be of interest to Canadian investors wishing to invest in this theme in Canadian dollars.

But the latest addition was announced on February 22 of this year. It is called First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT), has just $3M US in assets under management and a fee of 0.65%.

According to ETF.com:

The fund tracks an index developed by the Nasdaq and the Consumer Technology Association, the Nasdaq CTA Artificial Intelligence and Robotics Index. The benchmark’s methodology selects stocks at the global level that meet [sic] have sufficient liquidity, at least $250 million in market capitalization and free float of at least 20%. 

While it is not yet a week old, ROBT is one to watch for those wishing to invest in this secular trend. Given the growth in assets under management (ROBO and BOTZ in the last three months combined have seen inflows of $1.7B US) and the growth in the number of funds, there seems to be considerable investor interest in this secular trend.

(If you didn’t see it already, Ottawa Share Club member Jan also wrote about disruptive technologies that include AI and robotics. More here.)

Note: these are not endorsements or promotions – conduct your own due diligence and see our disclaimer.

February 2018 content from the OSC meeting on retirement forecasting is posted

An extensive array of content is now available for planning your retirement courtesy of Fred May and Brad Forden who presented the material at the OSC session on February 13, 2018.

It includes Fred and Brad’s presentation, a link to Steven Brown’s Excel retirement forecasting tool, a link to Brad’s updates to Steven Brown’s tool, and four example forecasting scenarios that Fred and Brad presented at the meeting.

Please see the Ottawa Share Club members and guest page for the material (near top of the page) here.

Note: Brad is looking for feedback on the enhancements he’s made to Steven Brown’s forecasting tool. If you’d like him to work with you to do your retirement forecast and test the changes he’s made, please use the comments feature at the bottom of Brad’s page here and offer a paragraph description of what assistance you need. He is prepared to work with a couple of people only so please submit your request promptly.

Well, what really did happen to markets?

Further to my earlier post about some possible reasons for the recent correction in stock markets globally, I found a thoughtful explanation.

Ben Carlson of A Wealth of Common Sense, who I follow pretty regularly, posted his thoughts yesterday on his site.

Basically he thinks there isn’t a simple and satisfying explanation of causes for the pullback now.  He cautions investors that headlines tend to get blown out of proportion by financial news organizations.

He also makes the important point that anyone in the accumulation phase is now presented with an opportunity to buy good companies on sale.

Further, he predicts that this is not the beginning of a 2008-type crash. It is more likely a correction like we saw in the summer of 2015 (-12%) or the early part of 2016 (-13%).

Ben admits no one can predict what’s next:

The biggest thing to remember is that no one has a clue what’s going to happen next. Short-term market moves are controlled by human emotions, which are impossible to predict.

I couldn’t agree more.

That’s why I have done nothing during the correction and will monitor asset allocations until March 2018, when I reach my next self-imposed trading date. If stocks are still off their highs I may need to add to positions to remain at target weighting.

What just happened to markets?

Headline stories about the stock market pullback this week were largely focussed on the drop in the Dow Jones Industrial Average (less so on other indexes, but they were not immune). The year-to-date total return marked by the DJIA on January 26 was +7.77%. By the close on Friday, the DJIA had settled to +3.34% YTD, a drop of around 4%.

This is a relatively large drop given the low volatility and upward trending we’ve seen in markets in the last couple of years. By historical standards this is a mere blip, and 3.34% YTD total return still represents, annualized, over 35% growth!

I was in my car last night and caught a story on the news radio about the stock market pullback. The commentator didn’t really have a very clear rationale for drop – something about markets and the broad economy not being correlated….. The broad US economy is doing well, creating jobs and growing, but markets took a big pause.  Hmmm. I didn’t find that very satisfying.

A few minutes earlier I had read in WaPo the main reason that markets pulled back, and especially on Friday, was to do with the 10 year benchmark interest rate surpassing 2.8%, on its way perhaps to 3%. The case was made that a 3% benchmark rate will send a signal to some investors that bonds might be more attractive than stocks on a risk-adjusted basis.

I read another article this morning in the NY Times that makes a similar point and goes on to say there may actually be a connection between the pullback and the broad economy: expectations are that the broad US economy is going to grow at, say, 1.5% not the 3% promised by Donald Trump.

So maybe there is a decent connection between stock market indexes and the broader economy after all. Given how expectations affect spending and investment decisions so heavily – both in markets and in the economy at large – this really shouldn’t be a surprise. And the 10-year interest rate moves in large part due to expectations about inflation rates and the cost of money in the future. Inflation expectations may be climbing.

This tells me, perhaps, that expectations could well be shifting to lower future growth rates in the economy and to lower investment returns from markets. Nothing says these expectations will be proven correct, but it is worth noting.

It is also worth reminding that last year’s market performance is no guarantee of future performance. But even at a 3.34% total return YTD, the DOW isn’t exactly off to a bad start.

Three things to watch for markets in the near future

At the time of writing, pre-market stock trading in the US is showing minor declines on the three major stock exchanges.

The US government shutdown is but one factor, even if an extension is voted in for the next three weeks.

NAFTA negotiations are about to start their sixth round on January 29th in Montreal. Reports have it that US/Canada relations are acrimonious and may lead to the US serving notice of withdrawal.  In a recent move, Canada has filed a World Trade Organization (WTO) complaint against the US. Donald Trump is signalling his considerable displeasure with Wilbur Ross as Commerce Secretary.

A third factor coming back on the horizon is the US debt ceiling, which is expected to be reached in early March 2018. Some are expressing concerns that it is aligning closely with budget debates.

With an erratic White House at the “helm” and over-stretched stock market valuations in the US and Canada, what could go wrong?

My December 2017 annual portfolio review is now posted

Our portfolio beat it’s own target return objective in 2017: 7.82% vs. 7.00%, (or about 12% better than planned), and our asset allocations ended up mostly in line with what I expected.

We also beat our benchmark: 7.82% vs. 6.37% (or about 23% better than our benchmark).

See how it worked out in more detail here.

The OSC fantasy growth and income reports as of December 31, 2017 are now posted

The OSC fantasy growth portfolio had a total return of 16.0% in 2017, and features a two-year total return of 26.8%. The 2017 performance beat the portolio’s stated total return objective of 9.1% (as it has for two years).

The OSC fantasy income portfolio had a total return of 9.7% in 2017, and returned 15.4% over the last two years. The 2017 total return exceeded the portfolio’s stated return objective of 5.5% (as it has for two years).

The OSC fantasy growth portfolio report for 2017 can be viewed here.

The OSC fantasy income portfolio report for 2017 can be viewed here.

I’ve updated our household investment plan with some refined objectives

My latest version of our household investment plan is now published (as of December 31, 2017).

As I describe it: “For the first time, this investment plan update includes refining our objectives based on explicitly creating portfolio “buckets” that will guide our target asset allocations and serve to fund our retirement.”

It is not a radical change from previous plans. My rationale for choosing asset allocation targets is evolving though.

This plan and previous versions are all available here.

June’s OSC fantasy growth portfolio trade was recorded in the trade log

I recorded the trade as voted on by OSC members at the December 12, 2017 meeting.

The trade was proposed by June. It was accepted by the Share Club.

Please note the fantasy growth and income portfolios (PDFs) will next be updated as of December 31, 2017 and will be presented at the January 2018 OSC meeting.

More here.

Is Wal-Mart starting to make a dent in Amazon’s juggernaut?

This month, Forbes featured an article about how Wal-Mart is fairing in the e-commerce space. Well worth a read and shows that Wal-Mart is starting to grow its online business.

When I wrote about investing in the e-commerce secular trend for Canadian MoneySaver last January, I mentioned Wal-Mart as a potential value play in the e-commerce space.

“Although Wal-Mart is …not at core an e-commerce company… it remains interesting. It is making a big bet on e-commerce and indications are that its online sales are growing considerably faster than its off-line sales, notwithstanding some hiccups along the way. It sells about one-sixth as much online as Amazon does, at $14B per year, but those sales are starting to grow fairly rapidly. With its purchase of Jet.com, Wal-Mart’s online presence should grow even faster. As a bonus, Wal-Mart pays a 2.86% dividend, has a much lower P/E ratio (about 16) than most “pure plays” and fared better than most businesses during the financial crisis. This could be a good value play.”

Here is Wal-Mart’s chart showing year-to-date total return and stock price performance. Pretty impressive:

My full article from Canadian MoneySaver is available for free here. (Note: below the article link I’ve provided some information about an e-commerce ETF for emerging markets that might be worth a further look.  I also wrote another blog post that discusses a second ETF that lets investors invest in e-commerce called IBUY.)

 

 

 

Jan’s research on ETFs for robotics, artificial intelligence and other disruptive technologies

After the last Share Club meeting featuring the topic of driverless cars, Jan, a Share Club Exec, has kindly provided his research into ETFs following robotics and artificial intelligence and other disruptive technologies.

His material is posted here on his Ottawa Share Club member page.

Don’t forget, much more OSC member and guest content is available here.

 

December 15, 2017 – It’s my quarterly trading day and what did I do?

As is my practice I only trade securities four times a year after reviewing our household portfolio performance, asset allocations, and any new ideas that I wish to act upon.

This quarter was a bit of a watershed. Today was my trading day and guess what? I did not make a single trade. 

Performance is ahead of our targeted 7% annual rate of return. Asset allocations are all close to plan. No new ideas emerged that seemed any better than those I have had before.

As I said before, it may sound boring, but I am pretty excited to be doing what I set out to do and, at least for now, being rewarded for it.

I do think sometimes the best move is no move at all.

I will do a full update on the quarter and year and post it here at money4retirement.ca in early January. Some of my ideas regarding asset allocation are evolving as we get closer to the distribution stage of our portfolio (i.e., retiring from full-time employment in the next couple of years).

 

June’s December 12, 2017 proposal for the OSC growth portfolio was accepted

At the December 12 OSC meeting June proposed selling all of Emera and replacing it with PNC Financial services on the OSC fantasy growth portfolio. The change was accepted by vote of the membership.

Trades will be effective at close of business, per portfolio rules, five business days after the vote was taken.

Her presentation is here.

OSC December 12, 2017 presentations are posted

The presentations from the December 12 OSC meeting are posted.

See John Gosson’s autonomous driving material here. My notes with a few possible ETFs to consider are here.

See June’s OSC fantasy growth portfolio trade material here.

All available OSC member and guest content is posted here.

My article on investing in the water secular trend – now available for free

With permission from Canadian MoneySaver, I am happy to provide a free copy of my article on investing in the water secular trend that was published in June 2017.

The article explores the long-term trend in water-related businesses and some investment opportunities and risks.

Here is my article: Water_Patenaude

The OSC fantasy income portfolio trade from November 21, 2017 has been logged

I recorded the trade as voted on by OSC members at the November 21, 2017 meeting.

The trade was proposed by Dave. It was accepted by the Share Club.

Please note the fantasy growth and income portfolios (PDFs) will next be updated as of December 31, 2017 and will be presented at the January 2018 OSC meeting.

More here.

Jan’s OSC presentation from November 21, 2017 on Foot Locker and his sell strategy is posted

Please see Jan’s member page for his deck on the case of Foot Locker (FL) and his sell strategy considerations from the November Ottawa Share Club meeting.

Foot Locker was in the OSC fantasy income portfolio until members agreed it should be sold on November 21.

Dave’s OSC fantasy income portfolio change proposal was accepted November 21, 2017

At the November 21, 2017 Share Club meeting, Dave proposed replacing Footlocker with Diversified Royalty in the OSC fantasy income portfolio.

The members voted in favour of his proposal. See Dave’s page for the presentation deck.