The massive growth in video gamers includes some troublesome sociological elements but as an investment theme, the data make the stocks in the sector too attractive to ignore.
Ben Carlson, a portfolio manager at New York-based Ritholtz Wealth Management wrote a post called "Something I Changed My Mind About Recently” which listed stunning statistics on the popularity of video games and eSports,
· More people in the 18-25 years old age group regularly watch and play esports than any other traditional sport.
· A small town in Poland hosted an event this year that was watched live by people from 180 different countries. The audience was three times as large as it was for the most recent [baseball] World Series. More people attended this event in person than the last three Super Bowls combined.
· The esports audience in Asia is four times larger than it is in the U.S., so this is truly a global phenomenon.
· One event in a tournament called the League of Legends was viewed by 80 million fans.
· Twitch is one of the streaming services that allows people to view these events. The service already has a bigger audience than CNN or MSNBC. They get more than 15 million daily unique viewers. They’re owned by Amazon (because of course, Jeff Bezos was on top of this trend before anyone else).
· The video gaming audience is five times the size of Netflix subscribers.
The ETFMG Video Game Tech ETF holds most of the relevant stocks for the theme. The ETF generated a total return of 25.1 per cent for the past 12 months and has climbed from US$25 at inception in March of 2016 to just over US$50 per unit now.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.
Stocks to ponder
TORC Oil & Gas Ltd. (TOG-T). This stock is 3 per cent away from appearing on the positive breakouts list (stocks with positive price momentum). The stock offers its shareholders a monthly dividend, equating to an annualized yield of over 3 per cent. This stock has a unanimous buy recommendation from 16 analysts with expectations lifted after the company announced an acquisition that was completed at the end of June. Calgary-based TORC Oil & Gas is oil-weighted, focused on light oil assets in southeast Saskatchewan, a Cardium play in central Alberta, as well as its Torquay/Three Forks light oil resource play in southeast Saskatchewan. Jennifer Dowty explains (for subscribers).
Maxar Technologies Ltd. (MAXR-T). There is a company, with a long history of Canadian success, widely owned by our institutional investors, and highly recommended by Bay Street analysts. Its name? Maxar Technologies Ltd. You are forgiven for your puzzled look. For nearly 50 years, it was called MacDonald, Dettwiler and Associates. Then, the company bought a Colorado satellite-image company called DigitalGlobe, changed its name, and said its new headquarters would be on the DigitalGlobe campus in the Denver suburbs. It’s kept its Canadian corporation status – for now – and its Toronto Stock Exchange listing, but the company has a distinctly different approach, postmerger, to its place in the world. David Milstead takes a look at its prospects (for subscribers).
SilverCrest Metals Inc.(SIL-X). This stock is on the cusp of appearing on the positive breakouts list (stocks with positive price momentum). The share price has rallied over 60 per cent year-to-date and analysts are forecasting a potential further 40 per cent gain for this stock. This stock has a unanimous buy recommendation from six analysts with several potential near-term catalysts identified. Given the company is currently not generating any earnings with production several years out, this stock may be best suited for consideration by investors with a high risk tolerance. Headquartered in Vancouver, SilverCrest Metals is a gold and silver exploration company with all of its properties located in Mexico. SilverCrest is a relatively newly formed company. It was formed in late-2015, spun off from SilverCrest Mines Inc., which was acquired by First Majestic Silver Corp. Jennifer Dowty reports (for subscribers).
The Rundown
Investors, got a case of the trade jitters? These four numbers will help calm your nerves
Many investors seem worried about the devastating consequences of a global trade war. But before surrendering to pessimism and selling everything in your portfolio, you may want to consider the surprisingly matter-of-fact conclusions from economists who have pondered such a potential conflict. If nothing else, the forecasters can help quell fears that we’re teetering on the brink of another Great Depression. Many people have drawn comparisons between the current surge in protectionism and the similar wave of nationalism in the 1930s. However, even an all-out trade war would probably result in a downturn more like the 1973 oil crisis or the early 1980s recession than the Dirty Thirties or the financial crisis, according to a Capital Economics report published on Monday. Ian McGugan explains (for subscribers).
Trump is not a bluffer on trade and trouble is ahead for stocks
The U.S. launched a trade war with China on Friday as President Donald Trump’s threats continue to turn into reality. Somewhat surprisingly, the stock markets didn’t blink, with both New York and Toronto finishing higher. But that bravado may not last much longer. Investors will eventually realize that Mr. Trump is not bluffing when it comes to trade. So far, he has followed up every threat with action. If he continues – and there is no reason to expect him to stop any time soon – he’ll wreak havoc with the world economy. Gordon Pape looks at the implications for stocks (for subscribers).
Value investing strategies that could make for sunny outcomes
Common wisdom has it that sunny summer afternoons are best enjoyed on the beach, picnicking, or otherwise frolicking in the great outdoors. Such activities work for balanced souls, but Norman Rothery think there’s nothing better than spending the day exploring financial databases and testing investment strategies. He recently indulged in his passion by focusing on back-testing concentrated value strategies using the S&P 500 index of large U.S. stocks. The idea being to sort the 500 stock index by a value ratio, select an equal-dollar amount of the 20 stocks with the lowest ratios, hold them for a year and then repeat the process to see how the portfolio fared over the long term. Here’s what he found.
Who says growth stocks can’t be value investments?
Stocks of high-growth companies can help investors beat the market but there are some downsides. Often the fast-growth trajectory is already reflected in the price of the stock, making it difficult to distinguish between the real opportunities and the overpriced. And then there are the growth stocks that have morphed into value plays. People tend to look at value and growth strategies as opposites. But they are not as mutually exclusive as that. In some ways, they are phases on the same spectrum. John Reese explains.
A $100-million fund manager unravels the mystery of corporate credit
Corporate credit can be a mysterious part of the investment world. For Fulcra Asset Management, an independent Vancouver-based investment-management firm, it’s a way to generate returns for investors willing to make bets on a lesser-known part of a corporation. “Corporate credit is an opaque thing for a lot of people. We try to unravel the mystery as best we can,” says Matt Shandro, portfolio manager at Fulcra, who oversees more than $100-million in assets under management. Fulcra’s return over the past year, as of the end of May, was 6.7 per cent, after fees. Its annualized return since the firm was founded in 2009 is 8.3 per cent, after fees. The Globe and Mail recently spoke with Mr. Shandro about Fulcra’s strategy and the opportunities he sees in the corporate credit market. Brenda Bouw explains (for subscribers).
RBC thinks these four small-cap stocks are set to soar within six months
Expert opinions on unfamiliar small-cap Canadian stocks should make investors want to take notice. Given that smaller companies tend to be followed by fewer analysts and professional money managers, perhaps investors can benefit from knowledgeable insight. RBC Dominion Securities suggests investors can indeed benefit and it has an impressive track record to back up the claim. In a quarterly update to its Small Cap Conviction List, consisting of 20 stocks with a market capitalization of less than $2-billion each, RBC reviewed its track record. David Berman looks at their track record and four stocks that RBC highlights. (For subscribers).
This fund could help you turn oil’s rebound into investment income
Oil prices are trading at their highest levels in more than three years. For sure, the sector is a lot healthier than it was a couple of years ago when the price of a barrel dipped below US$40. Still, it’s understandable that many risk-averse investors don’t want to buy shares in even the higher-yielding oil companies because of volatility concerns. One way to mitigate the risk is to use a covered call ETF as a proxy for the industry. Gordon Pape takes a look at the First Asset Energy Giants Covered Call ETF and explains why he likes it (for subscribers).
A yacht may not be the best financial investment – but it comes with its own worth
Alex Kade knows he won’t make money off his 35-foot sailboat when he decides to sell it, but when he jumps on board at the end of a long workweek, that’s the last thing on his mind. “I’m just focused on my boat, I’m focused on getting somewhere, on things going wrong, the weather,” said Mr. Kade, who works in technology at a major bank in Toronto. “I come in Monday and I’ve had 48 hours of not even thinking about work, which is actually incredibly healthy.” Romina Maurino looks at the investment case for buying a yacht.
How investing in real estate can easily go sideways
For many high-net-worth individuals, investing in real estate – whether commercial or residential – seems like a sure bet, particularly after years of double-digit price increases in hot markets such as Toronto and Vancouver. But sinking money into property can also be a disaster for those lacking experience and expertise. Novice investors can be overwhelmed by market fluctuations, maintenance costs and even tax considerations that can turn can’t-miss investments into money-losing albatrosses. Chris Atchison explains.
Top Links (for subscribers)
Most accurate equity strategists of 2018 predict difficult second half for investors
Others (for subscribers)
Tuesday’s Insider Report: Companies insiders are buying and selling
Tuesday’s analyst upgrades and downgrades
Tuesday’s small-cap stocks to watch
Monday’s small-cap stocks to watch
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Companies insiders are buying and selling
John Heinzl’s model dividend growth portfolio as of June 30, 2018
The Globe’s stars and dogs for last week
Morals over money: Low-cost options for socially responsible investors
Others (for everyone)
Stellar U.S. earnings season turns sideshow with traders fretting trade war
Sea of red in Treasury market may signal bond boom is over
Large-cap biotech stocks will just tread water as sector sizzles
This earnings season’s biggest winners are those with the most to lose in a trade war
Why you should actually consider Amazon a value stock
Number Crunchers (for subscribers)
Fifteen Canadian stocks with lower sensitivity to market swings
Ask Globe Investor
Question: I invest, among other things, in my daughter¹s RESP. She is three. I have decided to make things easy and invest in TD¹s e-series index funds, specifically the Canadian, European, and U.S. e-series indices. My money is spread roughly evenly across the three. My question is, are all such index funds created equal from bank to bank? I have not been pleased with my overall returns the last three years and would consider a switch but if I¹m switching to another company¹s index funds, will the return should be exactly the same, less fees? They all follow the same index, is that correct?
Answer: The basic answer to your question is yes. All index funds that track the same index should generate approximately the same result before fees and expenses.
Having said that, not all index funds are created equal, even those that may appear to track the same basic index. For example, some use an equal weighting process, others use the same ratios as the indexes themselves, some select the top dividend payers from an index, some focus on low volatility stocks, while some use a variation of the main index. With all these variants, you can end up comparing apples to oranges.
The TD Canadian Index Fund (e-units) posted a three-year average annual return of 5.04 per cent to the end of May. It tracks the basic S&P/TSX Composite Total Return Index.
You would have done better with the iShares Canadian Fundamental Index ETF (TSX: CRQ), which is based on a different Canadian Index. It aims to replicate the performance of the FTSE RAFI Canada Index, net of expenses. So, it invests in Canadian stocks but not in the S&P/TSX Composite as such. The three-year average annual return is 7.21 per cent.
Among other Canadian index funds that did better than your TD fund were the BMO Low Volatility Canadian Equity ETF (three-year gain of 6.54 per cent) and the iShares Jantzi Social Index ETF (7.2 per cent). The latter invests only in socially responsible stocks.
TD’s U.S. Index Fund e-units, which track the S&P 500, posted a three-year average annual return of 12.01 per cent to May 31. That was quite good. The BMO S&P 500 Index ETF was only a hair better at 12.06 per cent. You could have received a better return by using a Nasdaq ETF, but with more risk. U.S. funds based on the Dow Jones Industrial Average also tended to do better than those that tracked the S&P 500. The e-units of the TD Dow Jones Industrial Average Index Fund averaged a 14.23 per cent return over the past three years.
--Gordon Pape
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
A number of economists and market watchers believe that the nine-year-old bull market may be sputtering into its final year, a soon-to-be victim of rising interest rates and an aging economic cycle. But if running into cash seems like a harsh response to a vague threat and a foolhardy belief that we can time the market, then what are the best Canadian stocks for awaiting a downturn and perhaps profiting from it? David Berman has surveyed the investment pros for some suggestions.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
Want to subscribe? Click here to sign up or visit The Globe’s newsletter page and scroll down to the Globe Investor Newsletter.
Compiled by Gillian Livingston