Firstly, thank you to our clients for another good year. We appreciate our relationships with you and the trust you’ve placed in our team, Stonehaven Wealth Management, and our firm, Wellington-Altus Private Wealth. You’ve helped Wellington-Altus become the #1 Wealth Advisory Firm in Canada for the third year in a row (2020-2022 Investment Executive Brokerage Report Card). We’re dedicated to making 2023 year four.

While the model portfolios finished lower in 2022, we consider the losses to be manageable, temporary, and recoverable. Each model portfolio has an expected range of normal results year-to-year, and this year’s results, even though lower, are within normal expectations. We reigned-in the portfolios for the first half of 2022 to mitigate much of the volatility experienced by investors in popular stock market indices and balanced portfolios. We made use of cash, avoided stocks with higher volatility, and concentrated on owning stocks in up-trends. Through the second half we selectively and cautiously redeployed for what we see as a revitalized bull market in stocks that we expect to reach new highs in 2023.

Incoming data continue to support our thesis that the bear market of 2022 bottomed last September. Many low-quality stocks are trading well above those September lows, not to mention the many high-quality stocks still making new all-time highs (you can find many examples in our portfolios such as Dollarama, Elevance Health and Clairvest). Some interesting signals supporting our view include 10-year government bond yields turning lower and inflation peaking – both indicative of new bull market turning points in the past. The economy continues to shrug off recession with real disposable income now increasing, industrial production on the rise, sturdy employment conditions, and robust consumer spending. Most notably, the proprietary pessimistic sentiment measures we’ve been tracking through 2022 just recently inflected from generationally high levels. If this newfound kernel of optimism catches on, which we believe is inevitable, we think it could power the market to much higher levels.

Even if we do see a slowdown in the economy or decline in earnings in 2023 (…or beyond), here are five things to keep in mind. First, looking at US post-war recessions, most of the S&P500’s loss associated with recessions happens before the recession actually starts. Second the S&P500 has averaged positive returns through recessions. Third, most recessions last less than one year. Fourth, about half the time the S&P500 is above the level where the recession started by the end of the recession. Finally, and best of all, in the twelve months following the end of a recession, the S&P500 has averaged a 15.5% return.

So this is all to say that if the economy can continue to grow at the current pace, we expect optimism to keep turning higher and stocks to do well. If we encounter a recession, the market already spent 2022 pricing that in, and so stocks should do well as it anticipates recovery. The trend remains up, and we continue to find compelling investment opportunities for income and growth.

Thank you once again and we wish you a prosperous and healthy 2023.

Model Portfolio Highlights

Growth Portfolio
In December we purchased a new position in TMX Group. TMX operates the primary stock exchanges in Canada, including the TSX Exchange and TSX Venture Exchange. The company is essentially a toll road on capital markets activity, collecting trading fees, data and access fees, listing fees and new issue fees from participants. The business shows good long-term revenue growth and consistently growing cashflow. We’ve recently seen the share price stage a breakout higher from a long trading range, suggesting a new uptrend is forming.

American Growth Portfolio
We made no changes in December.

Income Portfolio
In December we took profits on our Canadian blue-chip dividends and global infrastructure stocks to concentrate on new opportunities in US blue-chip dividends. US dividend stocks have demonstrated significantly less volatility lately and are trading at or near all-time highs, indicative of strong uptrends. Canadian and global stocks, on the other hand, are having trouble holding their gains and seeing more volatility, which we avoid when possible. As a matter of balanced precaution, two-thirds of the income portfolio is hedged against moves in the US-Canadian exchange rate.

Small Cap Portfolio
In December we purchased shares of Vecima Networks, a company specializing in networking and video streaming solutions. Vecima continues to demonstrate robust growth and a strong uptrend in share price.

Across all portfolios we 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

Thank you.

Yours,

Ben

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

Office: 416.369.3024
Email: bwk@wellington-altus.ca
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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.