Jaime Carrasco is director and associate portfolio manager at Bank of Nova Scotia. His focus is resource and utilities stocks and REITs.
Top Picks:
RESAAS (RSS-CN)
RESAAS Services Inc. (the Real Estate Social Network™) continues to be one of my favourite high tech considerations in the portfolio having participated in their recent prospectus offering. The company's real estate platform continues to expand in the U.S. with the recent white-label implementation of the platform by the San Francisco MLS. This is a very important catalyst, as the industry is now recognizing the benefit of RSS's tool and is accelerating their acquisition on users which now sits above 400,000 agents. I think RSS is well on their way to becoming a Canadian high tech success story in the platform space.
BCE (BCE.TO)
BCE is a new addition to the portfolio. I like the direction that BCE management is taking through their relationship with HBO and the Movie Network, which is positioning them into the Netflix model and away from the cable model. I also like the current yield for income clients.
Agnico Eagle (AEM.TO)
Agnico Eagle continues to be one of the cornerstones of my precious-metals strategy, and I continue to recommend that, at the very least, all investors have 10 per cent of their assets in this sector for financial insurance.
Past Picks: Dec. 12, 2014
Pembina Pipeline (PPL.TO)
I reduced my position in PPL in July and I am currently waiting to add.
Agnico Eagle (AEM.TO)
Still holding my position.
Cash
The portfolio is currently in higher cash levels.
Market outlook:
Three of my BNN top picks are beating the Dow year-to-date in U.S. dollars. It's surprising because the industry index (HUI) is down, off 30 per cent during this same period, and they are the three precious-metals producers that I have been consistently recommending for the last three years. Detour Gold is leading the charge, up 30 per cent, followed by both Agnico Eagle and Silver Standard up 10 per cent. In contrast, the Dow is flat for the year, which goes to show that good old fashion stock-picking still works. These numbers are much greater in Canadian dollars.
In the portfolio, I am still recommending that clients hold at least a 10-per-cent weighting in precious metals as a hedge for the monetary experiment of global central banks; this issue should come to a head as the Fed finally begins to raise interest rates after seven years. I continue to stay underweight the energy sector, as well as the interest-sensitive sectors, such as pipeline, utilities and REITs, waiting for better entry points. Energy is beginning to look attractive, and I think that a correction in inventory levels in North America should be near as the U.S. fracking industry finally succumbs to lower prices. Only time will tell. The only sector that I have recently added to is high tech, and I stand ready to increase my allocation in the precious metals sector, as it appears that we are getting to the end of this correction in the price. The level of outperformance of the low-cost producers over the last year is certainly a good indication that the smart money is already positioning itself for the rebound. When we get the buy signal, I look forward to adding to this highly unloved sector. I have identified other gems in the industry with the same criteria as my top pick: low-cost producers with great management in geopolitically safe areas. And sooner or later, the imbalance between the insatiable global demand for physical gold and silverversus a declining paper price will correct, and the producers will be the main beneficiaries. Lastly, since reducing my position in the summer dividend yields on the interest-rate sensitive sectors such as pipelines utilities and REITs are beginning to look attractive, and I will soon be looking to add.
For the new year I plan to continue to hold higher levels of cash, expecting greater volatility as a result of higher rates, and must point out that these are my opinions and not those of Scotiabank. In my opinion, the markets are currently lofty in relation to the global economic reality and I don't think a 0.25% increase is going to help. Since 2008, the Fed has tried to solve a debt problem with more debt which in the U.S. has now accumulated to more than $19-trillion (U.S.) worth. This means that a 0.25% increase will represent a 30-per-cent interest rate expense to a $14-trillion GDP economy which is only growing at less than 2 per cent. This rate increase, if it happens, is also taking place at a time when the global economy continues to slow down and I find it hard that the U.S. will be immune to these deflationary forces with such a break to the economy. As a result, I advise that investors take a cautious approach, lock-in profits and raise cash as the negative effects of a rate increase might not be supportive for the equity and bond markets. On a positive side, I think that the Chinese yuan acceptance into the IMF's SDR basket will also play into the monetary shift that we have been living through. Greater global acceptance of the yuan as well as a readjustment of the SDR basket will put pressure on the U.S. dollar starting in 2016, which should be good for commodity prices.
I continue to focus on building the portfolio by acquiring inexpensive good quality companies with solid financial leverage for future growth, while maintaining flexibility in cash levels to deal with the reality of the volatile times we are living through. During this period of low interest rates, income generation has been challenging; income investors have had to seek cash flow from equity investment, which tend to be more volatile and required a flexible strategy..
It's important to recognize that these are my opinions and not those of Scotiabank. I believe my team provides exceptional investment advice, research, and identifies unseen opportunities while providing unique wealth management solutions. The cost of this high standard of advice and service is fair, consistent, and competitive. We encourage you to give us a call and compare for yourself. My views can best be followed through my LinkedIn page.