The model portfolios are off to a strong start in January, with Growth up 6.57%, Income up 1.81%, American Growth up 10.62% and Small Cap up 3.94% as of the date of writing, January 24.
Incoming data continue to support our thesis that a new bull market in stocks is underway. Our proprietary indicators signaled an exhaustion in negative sentiment months ago, and now in January we received further confirmation of a bullish change in trading. We saw the number of stocks making new highs solidly outpace those making new lows, a large increase in call option trading, and various other proprietary sentiment measures turn strongly higher.
The economy continues to perform well and sail past the many calls for recession, which we first noted as our base case over six months ago. With inflation now falling and even turning into deflation (falling prices) in some goods and services, a “deflationary boom” is not out of the question. A deflationary boom is a rare period of economic growth accompanied by a decline in prices. In a deflationary boom, falling prices stimulate consumer spending, as they can buy more goods and services for their money. We’ll also note the uptick in the US with respect to new mortgage applications and the sale of new homes, that in the past has served as a reliable leading indicator of economic growth.
With this newfound optimism catching on, we think markets could go to much higher levels. The trend remains up, and we continue to find compelling investment opportunities for income and growth.
Model Portfolio Highlights
In January we purchased shares of Netflix CDRs (ahead of the company’s glowing earnings report). First we’ll cover Netflix, then the “CDR” part… We see an opportunity here to own a solid business with growing revenues, growing cashflow and a growing subscriber base. The stock dropped over 71% from Nov 2021 highs into a bottom last May, and has been recovering higher since then in a very strong uptrend. The stock bottomed well ahead of the market (May vs Oct), a sign of NFLX’s strength from deeply-oversold conditions. We think the shares could easily retake their old highs and keep growing over time.
CDR stands for “Canadian Depository Receipt”. The Netflix CDR is backed by CIBC and is designed to track the performance 1:1 of Netflix common stock. The key difference is that the Netflix CDR is traded in Canadian dollars on a Canadian stock exchange, and comes with a currency hedge. So we get all the performance of Netflix stock, but without the currency exposure to USD. We see this as a positive, as we presently favour the Canadian dollar.
American Growth Portfolio
In January, we bought the common shares of Netflix in USD, for the reasons outlined above.
In January we increased exposure to global infrastructure companies. Global infrastructure has regained a strong uptrend that we expect should carry over into the months ahead. The global diversification added by this holding helps balance the portfolio’s return not just from global stock performance, but also in respect to global currencies.
Small Cap Portfolio
In January we took a profit on Clairvest and reduced our size in KP Tissue to purchase new positions including Canada Goose and New Flyer Industries. Both stocks have gone through the wringer over the past several years and provide what we believe is an exceptionally cheap entry point for growing businesses.
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.
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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.