Market Commentary

December 2020 Update

The greatest thing in this world is not so much where we stand as in what direction we are moving. – Johann Wolfgang von Goethe

November was a good month in the markets. My October prediction played out as expected, with stocks experiencing their best post-election performance on record. To recap, a generally smooth US election caused volatility hedges to lose value and unwind quickly, which in turn catalyzed a jump in stock prices. Many of our individual stock holdings are now up double-digits over the past few months. We’ve had many strong winners this year and I expect that to continue into 2021.

As I look out towards 2021, I am seeing the increasing influences of inflation take hold. Real assets such as gold, real estate, and cryptocurrencies are picking up on this trend, as are certain sectors within the stock market. To that end you’ll notice our investments are moving towards companies with strong cashflows, inflationary pricing power, and a strong capital presence. Each of these elements helps our performance in an inflationary period.

For obvious reasons it is true that strong and stable cashflows are always a good thing, irrespective of economic conditions. I’m always looking for growth on that front.

Pricing power, the ability of a business to easily raise prices in line with inflation, is especially helpful in periods of rising prices. We own businesses that can charge more if inflation picks up, which protects our businesses over time, and increases the value of their shares. Some businesses have annual price increases built into their long-term contracts, and others can raise prices without loss of consumer demand. Both are equally attractive in my book.

The last element, a strong capital presence, can be found in businesses with a real “footprint” – those working in the world of atoms as opposed to the world of bits. Businesses that own large amounts of immovable assets, like railways, farms, infrastructure, mines, and energy, can increase in value as the replacement cost of their assets increases with inflation. One cannot simply build a new railroad, or open a new mine, or build a new port, without a huge amount of capital and labour. This gives existing structures a quasi-monopolistic advantage over new entrants, while their scale and permanence prevents their economic disruption.

When I can find all three of these elements in a single business, I believe that business stands a better chance than others at succeeding through inflationary periods. And if inflation doesn’t show up for some reason, we’re no worse off, as our businesses are intrinsically higher quality than most. The ample cashflow continues, and patient shareholders reap the benefits.

Bearing these inflationary influences in mind, I remain optimistic on our future and look forward to the year ahead. We are positioned well for growth.

Financial Planning
This month I want to point you to an excellent series of articles written by our WAPW financial planning team about retirement planning, income tax planning, work from home expenses, and estate planning: These articles were posted by the team in honour of financial literacy month. Please be in touch with questions on these topics.

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Model Portfolio Highlights

For Model Portfolio Performance information please visit here (updated quarterly).

Growth Portfolio
We recently bought shares of Canadian large cap Toromont (TIH). Toromont is best known as the largest Canadian dealer of Caterpillar machinery, the world’s most instantly recognizable brand of heavy duty vehicles. Beyond construction, Toromont’s for-sale and rental fleet services agricultural, trucking, materials handling, paving, power systems, mining, forestry and landscaping sectors. The company has a long history of consistently profitable earnings growth and shareholder-friendly management.

American Growth Portfolio
In November we took a position in US large cap Broadridge Financial Solutions (BR). Broadridge provides public companies with shareholder services such as proxy statements, filing financial documents, and shareholder communications, including virtual annual meetings. Given their scale, Broadridge’s services are crucial to the proper functioning and governance of capital markets. With the shift to everything online, Broadridge stands to grow several business lines, most notably their virtual annual meetings solutions. The company is already a cashflow powerhouse, and I expect that to continue well into the future.

Income Portfolio
We recently bought a basket of utilities and infrastructure companies. Most of the companies are in the renewable power business, but there are also some traditional utilities, some operators of ports and transportation infrastructure, and some data centers as well. Utilities tend to do well in times of uncertainty because everyone, for the most part, pays their utility bills. In utilities we see a pretty rare opportunity in this market where you get to own companies that pay big dividends, and those dividends are growing. That’s a good combination given just about everyone else is dealing with a ton of uncertainty.

Small Cap Value Portfolio
In November we purchased shares of US small cap Dolby Labs (DLB). Dolby is a technology company specializing in audio signal processing. If you look at your home stereo equipment or the credits to your favourite movie, for example, you’ll likely find Dolby improved what you’re listening to by reducing noise and increasing audio fidelity. Dolby makes money when it’s users, the home stereo designers or the movie production studio, pays a licensing fee to Dolby for their technology. It’s an asset-light business model that generates high cashflow for stock holders. I expect Dolby’s revenues and cashflow to grow over time in line with the accelerating growth of online content. There was more content produced in the last year than all of human history. I expect this bullish trend to continue, and benefit Dolby shareholders.

Across all portfolios I look for mispriced opportunities, considering only those with a significant margin of safety and minimal risk of permanent capital loss. After identifying such opportunities, patience is the most important factor in realizing our expected long term return.

The Reading List
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If you have any questions about your portfolio, financial planning or investments please be in touch. Click to book a meeting:

Thank you.



Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth

Office: 416.369.3024
Email: [email protected]
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Ben Kizemchuk offers full service wealth management for high net worth Canadians including families, business owners, and successful professionals. Ben and his team provide investment advice, financial planning, tax minimization strategies, and retirement planning.

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