REVIEW
The summer was a humbling experience, markets often do that when you get an air of confidence, it’s the markets job to take that away and make you earn it back. We gave back a lot of our out performance over the market over the summer, with losses in Maxar and Facebook. Globally, most markets are continuing their January corrections, which is normal that corrections take six months or longer, sometimes up to a year or two. Canadian markets are doing very little, and Europe and Asia are languishing, so all of our performance year to date is coming from the USA. The leading market, however, the Nasdaq continued its bull run and we believe will lead us higher.
We are experiencing a real “Techlash” in the mega cap tech companies, as Facebook and Google find themselves in front of congress continually this year. Privacy and loss of trust are the primary concerns that markets, governments, and investors are debating. We conflict on that outcome within our own team, but ultimately these are good companies, with great growth and balance sheets, that may be a bit of dead money for a time period. That said, our smaller tech company Twilio has become our best performer in recent years, going up 260% year to date.
Our Twilio upside year to date and our sales @ $53.65 and $76
(Source: Bloomberg and Stuchberry Group)
Outlook
We wrote in May that we think sell in May and go away was the wrong approach and we were right with regards to the US stocks, but wrong with regard to Canadian and Global stocks. The latter stocks have continued to struggle and we continue to see further opportunity in the lagging stocks.
The chart below shows that only the US Indexes are higher and Canada, Germany, England, and Hong Kong are all negative Year to Date.
Source: Bloomberg
Year to date we have reduced a couple of our US winners and bought more global companies. We sold Starbucks, Loblaws and some Twilio to pay for purchases in China’s Tencent and more recently a bit of Box Inc in the USA. Box is a leading company in Cloud Content Management that is making inroads into Artificial Intelligence. It consistently grows revenue in the mid teens to early 20% range and will become earnings break even in the fourth quarter. Box trades at a far lower valuation than Twilio and we hope it will have a similar run.
In an unexciting update, with all the interest rate increases in 2018 we have invested capital into lowest risk government of Canada T-bills and US T-Notes at yields of 1.91% and 2.01%. We have taken many profits over the last couple years and now that we are running a bit of structural cash, it is nice to get a bit of a return on that capital in the risk-free world. We haven’t been able to do this for nearly five years, so this is a minor win, but we take all wins.
We sound like a broken record mentioning the fact that interest rates must move higher. Year to date the US Federal Reserve has had three rate hikes good for 75 bps, good to take us from 1.5% to 2.25%, or a 50% increase. We think the other global central banks are going to have to play a big game of catch-up. The chart below shows the massive difference between a US and German Bond on the short term to 10 years. The German bonds must go out six years before yields turn positive.
The German Bonds are negative until out six years; we think this spread must fall quickly over the coming years, so we own European banks to take advantage.
(Source: Bloomberg – Stuchberry Group)
Stuchberry Group Highlights within the Quarter:
- The move to exit Richardson and join Wellington is a life changing move, since joining, the firms assets have grown over 60% from three billion to nearly five billion in less than a year- our one year birthday of joining is October 13th.
- The firm is nearing completion of the US Platform.
- We have upgraded our online access for you to view your accounts- contact us if you need assistance, you can go to our website and click through to the new site.
- We launched our Healthcare app Maple for eligible clients- contact us if you need assistance.
- We had an excellent summer hire with Sophia, and her work on the website and social media functions has resulted in the best web and online structure we have ever had, with measurable results. We are getting over 500 views on our website per month.
- The loss of Steve has been absorbed and we are ready to go with Rebecca. We hope to get back to business as usual and growing early next year.
- The Team has now doubled it’s media exposure with both of us on BNN regularly.
Goals to close the year:
- Rebecca to be fully trained by year end.
- Realized gains losses assessed and taxes addressed for all clients
- Rebecca has been tasked with reducing mail, we will attempt to get all the mail problems sorted in Q4.
- Obviously do our best to get portfolios to close the year at all time highs
Have a wonderful Thanksgiving with Family,
Chris, Rick, Rebecca
