ADVISOR MANAGED ACCOUNTS: November 2021 COMMENTARY
November was moving along relatively smoothly until the final week of the month where heightened fears of inflation and rising interest rates, coupled with the emergence of the “omicron” COVID variant spooked the equity markets. Declines in the final days of November moved broad equity returns negative for the month in both Canada and the U.S.
Annual CPI rates are topping 4% lead by energy and meat prices of late. While not unexpected, these rates are causing debate as to whether or not the inflation numbers are truly ‘transitory’ (read temporary) or perhaps a more lasting and resilient phenomenon. Central banks in Canada and the U.S. are expected to begin raising interest rates in 2022, albeit from the extraordinarily low rates of today. Markets are eagerly looking for clues in the discussion minutes as to when these rises may occur. Early, mid or late 2022 are the current expectations. 10 year bond rates have been increasing over the past 3 months, as have GIC rates for 1 to 5 year maturities. Our clients are currently benefitting as bonds mature and we are able to capture higher rates for the next purchase. Please click this link for CIBC’s Monthly Market Commentary discussing the impact of higher rates and our economic forecast.
On the equity front our Team view of stock markets outlook hinges on our “Equity Action Call” that remains Green, implying that equities are an attractive and investable asset class. Within equities, our models are showing strength in the U.S. market over Canada, and both stronger than global markets. The financial and real estate sectors are showing strength on both sides of the border and are accordingly represented in our portfolios.
The Equity Action Call (EAC) remains green implying that our portfolios continue to be fully invested to their target equity weights. As always, we remain watchful as events develop and will take appropriate actions in our portfolios as conditions dictate.
The VIX, or “fear gauge” (a forward looking gauge that measures U.S. market volatility) increased to 27, with a monthly range between 14 and 29. These levels are above long term averages, implying a certain amount of uncertainty in the market.
Please locate your specific model from the sections below and read about what activity went on in your portfolio.
BLUE HERON CANADIAN ESG LEADER AND BLUE HERON BALANCED ESG LEADER
November Trade Notes:
We manage this portfolio with the aim of generating a superior total return combining capital growth and dividends while investing only in Canadian companies who score in the top 40% of their peer group based upon Environmental, Social, and Corporate Governance (ESG) considerations. Global companies, who also must score in the top 40% of their peer group, based upon ESG criteria, make up about 30% of the portfolio.
During the month we sold our positions in Ally Financial Inc (Consumer Finance), Applied Materials Inc (Semiconductor Equipment), Shopify Inc (Internet Services & Infrastructure), Algonquin Power Utilities Corp (Multi-Utilities & Unregulated Power), Lightspeed Commerce Inc (Application Software), Snc Lavalin Group Inc (Construction & Engineering) and Trimble Inc. (Electronic Equipment & Instruments).
We added new positions in Algonquin Power Utilities Corp (Multi-Utilities & Unregulated Power), Bank Of America Corp (Diversified Banks), Tesla Inc (Automobile Manufacturers), Advanced Micro Devices Inc (Semiconductors), Cameco Corporation (Coal & Consumable Fuels) and Dream Unlimited Corp (Real Estate Development).
A number of new 52-week highs were achieved in the portfolio including Dream Unlimited Corp (Real Estate Development), Colliers International Group Inc (Real Estate Services), Boardwalk Real Estate Investment Trust (Residential REITs), Bank Of Montreal (Diversified Banks), Firstservice Corp (Real Estate Services), Lithium Americas Corp (Diversified Metals & Mining), National Bank Of Canada (Diversified Banks), Nvidia Corp (Semiconductors), Advanced Micro Devices Inc (Semiconductors), Alphabet Inc. (Interactive Media & Services), Descartes Systems Group Inc (Application Software), Cnh Industrial N.V. (Agricultural & Farm Machinery), Canaccord Genuity Group Inc (Investment Banking & Brokerage), Wsp Global Inc (Construction & Engineering), Ci Financial Corp (Asset Management & Custody Banks), Cameco Corporation (Coal & Consumable Fuels), Canadian Imperial Bank Of Commerce (Diversified Banks), Tesla Inc (Automobile Manufacturers), Bank Of America Corp (Diversified Banks), Nutrien Ltd (Fertilizers & Agricultural Chemicals) and Goldman Sachs Group Inc (Investment Banking & Brokerage).
BLUE HERON DIVIDEND ESG LEADER AND BLUE HERON INCOME ESG LEADER
November Trade Notes:
We manage this portfolio with the aim of generating a superior total return combining capital growth and dividends while investing only in Canadian companies who score in the top 40% of their peer group based upon Environmental, Social, and Corporate Governance (ESG) considerations. Global companies, who also must score in the top 40% of their peer group, based upon ESG criteria, make up about 10% of the portfolio. There is an emphasis on generating dividend income. Blue Heron Income ESG Leader is the balanced version of Blue Heron Dividend ESG Leader.
During the month we sold our positions in Aecon Group Inc (Construction & Engineering) and Innergex Renewable Energy Inc (Renewable Electricity).
We added new positions in Algonquin Power Utilities Corp (Multi-Utilities & Unregulated Power) and Riocan Real Estate Investment Trust (Retail REITs).
A number of new 52-week highs were achieved in the portfolio including Boardwalk Real Estate Investment Trust (Residential REITs), Bank Of Montreal (Diversified Banks), Granite Real Estate Investment Trust (Industrial REITs), National Bank Of Canada (Diversified Banks), Gildan Activewear Inc (Apparel, Accessories & Luxury Goods), Canaccord Genuity Group Inc (Investment Banking & Brokerage), Wsp Global Inc (Construction & Engineering), Ci Financial Corp (Asset Management & Custody Banks), Finning Intl Inc (Trading Companies & Distributors), Crombie Real Estate Investment Trust (Retail REITs), Igm Financial Inc (Asset Management & Custody Banks), Riocan Real Estate Investment Trust (Retail REITs), Artis Real Estate Investment Trust (Diversified REITs), Canadian Imperial Bank Of Commerce (Diversified Banks) and Nutrien Ltd (Fertilizers & Agricultural Chemicals).
BLUE HERON GLOBAL ESG LEADER
November Trade Notes:
We manage this portfolio with the aim of generating a superior total return combining capital growth and dividends while investing in global companies, who also must score in the top 40% of their peer group based upon ESG criteria.
During the month we sold our positions in Ally Financial Inc (Consumer Finance), Applied Materials Inc (Semiconductor Equipment), Agilent Technologies Inc (Life Sciences Tools & Services), Waters Corp (Life Sciences Tools & Services), Darden Restaurants Inc (Restaurants) and Trimble Inc. (Electronic Equipment & Instruments).
We added new positions in Bank Of America Corp (Diversified Banks), Mosaic Company (Holding Company) (Fertilizers & Agricultural Chemicals), Servicenow Inc (Systems Software), Tesla Inc (Automobile Manufacturers), Ameriprise Financial, Inc (Asset Management & Custody Banks) and Prologis Inc (Industrial REITs).
A number of new 52-week highs were achieved in the portfolio including Prologis Inc (Industrial REITs), Nvidia Corp (Semiconductors), Advanced Micro Devices Inc (Semiconductors), Marvell Technology Inc. (Semiconductors), Microsoft Corp (Systems Software), Alphabet Inc. (Interactive Media & Services), Simon Property Group Inc (Retail REITs), Lkq Corporation (Distributors), Cnh Industrial N.V. (Agricultural & Farm Machinery), Ameriprise Financial, Inc (Asset Management & Custody Banks), Cbre Group Inc (Real Estate Services), Regency Centers Corp (Retail REITs), Servicenow Inc (Systems Software), Tesla Inc (Automobile Manufacturers), State Street Corp (Asset Management & Custody Banks), Bank Of America Corp (Diversified Banks), Novo Nordisk A S (Pharmaceuticals), Gartner Inc (IT Consulting & Other Services) and Goldman Sachs Group Inc (Investment Banking & Brokerage).
| We highlight one ESG screened company each month from our Blue Heron Portfolios:
Descartes Systems Group Inc. (Ticker DSG.TO) is a Canada-based technology company that is engaged in providing on-demand, software-as-a-service solutions. The Company is primarily focused on logistics and supply chain management business processes. Its solutions are cloud-based and are focused on the productivity, performance and security of logistics-intensive businesses. The Company's software-as-a-service solutions are used by customers to route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the collaborative multimodal logistics community. Its primary focus is on serving transportation providers (air, ocean and truck modes), logistics service providers (including third-party logistics providers) and distribution-intensive companies. (Thomson One. (2021). Retrieved from https://www.thomsonone.com/)
Descartes has been upgraded to 'AA' from 'A'. The inclusion of Corporate Behavior theme in the company's governance assessment is a key contributor to the upgrade. Descartes leads most peers in initiatives to pre-empt unethical business practices. Notably, it has executive oversight of ethics issues, has policies against bribery and corruption, and conducts annual audits of its code of conduct. An overall strong ESG performance, relative to industry peers in the MSCI ACWI Index (as of March 2021), also contributes to the upgrade. Descartes leads peers in corporate governance practices. It has independent board and key committees--structures associated with stronger management oversight. Further, its pay practices include an executive equity policy, which could help align the management's economic interests with those of the shareholders. About 96% of the company's FY 2019 operations were in the US and Canada, where our research indicates data security norms are stringent. Descartes has strengthened its mechanisms to mitigate potential reputational and regulatory risks related to privacy and data security. Notably, it has executive oversight of its information security management system and conducts training for employees on cyber security. As a logistics systems provider, Descartes relies on highly skilled talent to stay competitive and maintain operational efficiency, and could therefore face challenges in attracting and retaining talents. However, unlike leading industry peers, it appears to have limited talent development and engagement initiatives. (MSCI ESG Manager. (2021). Retrieved from https://esgmanager.msci.com/esgmanager/) |
