Water does not resist. Water flows. – Margaret Atwood
January saw some of the highest of high flying new-economy tech stocks finally grounded as concerns over interest rates and economic growth took center stage. As that pandemic-bubble burst, investors moved their capital into the relative safety of old-economy stocks, particularly those with more boring but plainly profitable attributes, including attractive dividend yields, dividend growth, and share-buybacks – exactly the type of high quality companies we prefer to own. Like water, capital always flows in the direction of least resistance. While we did not come away from January’s volatility unscathed, we did realize less volatility than the market, allowing for a smoother ride, and an easier path forward.
Despite the bumpy month, Canadian and US central banks are still considering raising interest rates. Our base case is that only one (or perhaps two) hikes are available this year. Data show inflation is already subsiding on its own, as producer prices level off, bottlenecks are relieved, government transfer payments roll off, and workers are forced back into the job market. In our opinion, as we transition out of what are still early days of pandemic response, there is simply not enough economic growth yet to warrant materially raising rates. We recognize this will be treated as a moving target by news media over the months ahead, particularly in an important US and Ontario election cycle. Our portfolios reflect this balance, as demonstrated by our preference for high quality cashflowing businesses.
Model Portfolio Highlights
In January we took some profits to bulk up our existing positions in Canadian banks, grocery and transportation. As inflationary pressures are relieved there is room for increasing profit margins in these sectors.
American Growth Portfolio
We took advantage of volatility to add to our stake in Berkshire Hathaway, along with Equity Lifestyle Properties. Each company is chaired by a master in their respective fields, Warren Buffett and Sam Zell.
We raised cash in January to protect and buffer the portfolio from excess market volatility. We look forward to the timely redeployment of that cash as soon as volatility subsides and the market uptrend resumes.
Small Cap Portfolio
We realized a significant +75% partial profit on the fertilizer company purchased only last month, and used those proceeds to add to existing positions in energy clean-tech and hydrovac excavation. Although the trajectory of growth remains higher, general small business sentiment is nearing bearish extremes at the moment, which in the past has indicated a good springboard for future small cap returns.
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.
If you have any questions about your portfolio, financial planning or investments please be in touch. Click to book a meeting: https://calendly.com/bwk-wapw
Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth
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.