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June was another remarkable month for our portfolios, with many of our stocks reaching new all-time highs once again. Recent economic indicators suggest a resilient economy backed by falling inflation, steady employment, robust consumer spending, improving household net worth, rising incomes relative to debt payments, and positive GDP growth. The substantial inflows of new money from government deficit spending are being efficiently absorbed by the economy, hinting at an entrenching growth dynamic. This stability reduces the immediate need for the U.S. Federal Reserve or Bank of Canada to lower interest rates. In fact, the robust economic performance suggests that bond yields could even trend higher as economic growth solidifies.

For the first time since the pandemic in 2020, new data illustrate that banks are now loosening lending standards, once again issuing loans to households and businesses. While that may seem surprising given the current level of interest rates, it is important to recognize that higher rates have been directly stimulating economic growth, not restricting it. The current strength in the economy is likely to support the onset of a new credit cycle, particularly as fiscal policies and deficit spending continue to contribute to economic momentum. The recent positive inflection in bank credit growth, along with positive domestic investment and wage growth on both sides of the border, suggests that more lending is likely to be added to the economy in the coming months and years ahead. Historical parallels to the late 1940s and early 1980s, periods marked by high deficit spending and credit growth, suggest the potential for an extraordinary economic expansion ahead.

In this evolving landscape, we believe high-quality stocks will be the primary beneficiaries of massive government spending and credit growth. Stock prices are poised to rise significantly from current levels, offering excellent opportunities for our portfolios. We remain confident in our strategies and optimistic about the future.

Model Portfolio Highlights

Growth Portfolio
We made no changes in June.

American Growth Portfolio
We made no changes in June.

Income Portfolio
We made no changes in June.

Small Cap Portfolio
Despite our successes in other portfolio models, our small cap portfolio continues to lag in performance. The current environment for small cap stocks displays an increasing gap between the quality of their business operations and stock performance compared to their large cap peers. Much of this shift can be attributed to the rise of passive investing, which now constitutes a significant portion of the average daily transactional flow in North American markets. This trend shows no signs of slowing down, instead creating a positive feedback loop that systematically accelerates the growth of larger public companies while exerting downward pressure on small caps.

To strategically respond to these market conditions, we will transition our small cap holdings to the Income Portfolio. The Income Portfolio focuses on high-quality large cap companies, which have been benefiting tremendously from the current market dynamics, achieving a 35% return over the last year. We are confident that this adjustment will position us to take advantage of the ongoing trends and deliver stronger, more consistent returns over the long term.

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.

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.

Performance reporting disclaimer: Performance results reflect the returns of each representative model portfolio. Returns are calculated using each model portfolio’s monthly performance, including changes in securities values, and accrued income (i.e., dividend and interest), against its market value at the closing of the last business day of the previous month. Performance results are expressed in the stated strategy’s base currency and are calculated on a net of fees basis. Individual account performance may materially differ from the representative performance history set out in this document, due to factors such as an account’s size, the length of time the strategy has been held, the timing and amount of deposits and withdrawals, the timing and amount of dividends and other income, and fees and other costs. Investors should seek professional financial advice regarding the appropriateness of investing in any investment strategy or security and no financial decisions should be made solely on the basis of the information provided in this document. This is not an official statement from WAPW. Please refer to your official WAPW statement for your specific performance numbers.