The rally in Canadian real estate prices and the accompanying explosion in household debt levels has lasted so long that many investors believe it has to end soon, that economic disaster is right around the corner.
The truth is that the domestic economy has been generating numerous positive surprises in recent weeks. There are risks to growth out there – the U.S. is under volatile stewardship and Ontario’s economy would be in deep trouble if auto tariffs are implemented – but by and large things are pretty good.
The Citi economic surprise index for Canada tracks data releases relative to consensus expectations. If all data came in right at the estimates, the index would stay at zero. On July 20, when month over month retail sales growth was reported at double economists’ forecasts at 2.0 per cent, the surprise index moved significantly higher.
I posted the chart for the economic surprise index on twitter here. Since June 22, the index has moved in a sharply positive direction as economic reports continually came in above expectations. As group, economists have under-estimated the strength in the Canadian economy.
The mood for Canadian investors, judging by news flow and my interactions with Globe readers, remains fearful and dour despite the constructive economic data reports. The contrarian perspective it seems is to be bullish on Canada.
It’s possible that investors are being more forward-looking than usual. At some point domestic households will stop borrowing and start paying down debt, a process that will provide a major hurdle to national consumption levels economic growth.
Even with that said, there appears to be a large number of Canadians who are willfully ignoring good news, and this has implications for both the economy and equity markets.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Hess Corp. (HES-N). Hess Corp.’s status as the most expensive stock in the S&P 500, by price-to-earnings ratio, shows the value of using multiple measures to assess whether shares are pricey or cheap. Hess’ forward P/E of 929.6 is a reflection of a US$65 stock that’s expected to generate just a few cents in earnings next year — roughly 7 US cents, to be precise. But investors, and the analysts who cover it, are expecting more, later. David Milstead reports (for subscribers).
Parkland Fuel Corp. (PKI-T). This security appears on the positive breakouts list, (stocks with positive price momentum). There are positive dynamics, both industry and company specific, that may result in the company reporting strong quarterly earnings results yet again. The company is scheduled to report its second-quarter financial results next Thursday. Red Deer, Alta.-based Parkland Fuel Corporation is a marketer of fuel and petroleum products such as gasoline, diesel, propane, and heating oil to residential and business customers across North America. Jennifer Dowty reports (for subscribers).
The Rundown
Mutual fund giant Fidelity to launch six dividend ETFs in Canada
Almost a year after it first began exploring the Canadian exchange-traded funds market, Canada’s fourth-largest mutual fund firm, Fidelity Investments Canada ULC, is set to launch its first set of ETFs this fall. Fidelity has filed preliminary documents with regulators to launch six new smart beta dividend-yield strategies for Canadian ETF investors: Fidelity Canadian High Dividend Index ETF (FCCD), Fidelity U.S. Dividend for Rising Rates Index ETF (FCRR), Fidelity U.S. Dividend for Rising Rates Currency Neutral Index ETF (FCRH), Fidelity U.S. High Dividend Index ETF (FCUD), Fidelity U.S. High Dividend Currency Neutral Index ETF (FCUH), and Fidelity International High Dividend Index ETF (FCID). Clare O’Hara reports.
Rogers outperforms Telus and BCE despite their numerous dividend increases
A growing payout not only puts more cash in your pocket, but is often a sign of a thriving business. When a company goes without an increase for a long period, on the other hand, it can sometimes be a sign of trouble. As with any investing rule of thumb, however, there are exceptions. Case in point: Rogers Communications Inc. John Heinzl explains.
Who will get to $1-trillion first: Alphabet, Amazon or Apple?
It’s a three-horse race, and the finish line is drawing closer: sometime in the not-so-distant future, the world’s first US$1-trillion public company will be crowned. But will it be Alphabet Inc., Amazon.com Inc. or Apple Inc.? Matt Lundy takes a look at the charts.
Top Links (for subscribers)
‘Tariffs are the greatest!’ (risk to your portfolio and the economy)
Don’t believe the hype: U.S. GDP growth will be weaker than it appears
Others (for subscribers)
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: Companies insiders are buying and selling
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Companies insiders are buying and selling
Others (for everyone)
Fine wine as an investment vehicle yields ever-bigger returns
No conference call means more mystery for top Canadian stock
Surprise outlook cuts at GM, Fiat ‘catch bulls offsides’
Ask Globe Investor
Question: Since we moved our money to a new adviser in April, 2014, we have earned an annualized total return of about 4.5 per cent. In the past year to May 31, our return was just 1.7 per cent. I am not happy with that. We have about two-thirds of our money in domestic and U.S. stocks, with the rest in guaranteed investment certificates, mutual funds and a small amount of cash. We pay the adviser a flat fee of 1.1 per cent. What do you suggest we do?
Answer: The first thing you should do is compare your return to a benchmark. For the period from April 1, 2014, to May 31, 2018, the S&P/TSX Composite Index posted a total annualized return – assuming all dividends had been reinvested – of about 5.7 per cent. So, you’ve trailed the index over that period by 1.2 percentage points. The difference could be explained by your annual fee of 1.1 per cent and the fact that you have a chunk of your portfolio in GICs (which isn’t necessarily a bad thing, because people buy GICs for safety, not growth).
Your total return of 1.7 per cent for the year to May 31 is a bit more troubling. The S&P/TSX posted a total return of about 7.8 per cent over that period, so you’re well behind the index – even after accounting for the adviser’s fee and your low-yielding GICs. I suggest you make an appointment with your adviser and ask why your portfolio has lagged. Did certain stocks or funds do very poorly? Is there another explanation? Don’t let your adviser dismiss your question with a general explanation such as “markets are unpredictable” or “don’t worry, the portfolio will bounce back." You are paying him for his services and he owes you a detailed explanation so that you can take corrective action, if necessary.
--John Heinzl
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What’s up in the days ahead
Brenda Bouw will have a Q&A with a Canadian fund manager who’s a big investor in pot stocks.
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Compiled by Gillian Livingston
Scott Barlow