There’s one overriding message in the latest batch of global fund-flow data: investors want to be anywhere but Europe.
As Rome’s political upheaval spurs gyrations across the continent, $17.5 billion has been yanked this quarter from mutual and exchange-traded funds that invest in European stocks, according to data compiled by Stanford C. Bernstein. The portfolios are now heading for their 11th week of outflows, the longest streak since 2016.
The rush for the exit has laid to rest a narrative about the attractiveness of Europe that emerged among strategists from Citigroup Inc. to Goldman Sachs Group Inc. to start 2018. The argument then was that economic growth and attractive valuations compared to U.S. peers would spur a strong rally this year.
In practice, the opposite has taken place, with all regions outside of Europe in both the developed and emerging world benefiting from the money rushing out of the single market, according to the data. The trend is bad news for hedge funds because European financials was one of their most commonly-held long positions going into May, according to data from Credit Suisse’s prime brokerage platform.
Despite the fact that earnings season resulted in upside surprises for companies in Europe, “we recognize that economic growth is no longer as synchronized as last year and may have peaked,” the strategists from Bernstein, headed by Mark Diver, wrote in a note published Tuesday. “Geopolitical risks look to be on the rise once again.”
-- Dani Burger, Bloomberg News
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
Aecon Group Inc. (ARE-T). As everyone knows by now, the federal government has turned thumbs down on a deal to sell construction giant Aecon Group to a subsidiary of China Communications Construction Co. Ltd. (CCCC). Aecon reported a backlog of $4.6-billion at the end of the first quarter ended March 31. That included $910-million of new contract awards booked in the quarter. The backlog position is encouraging but Aecon’s first-quarter results were underwhelming. Given the financial numbers the company is generating and the uncertainty over a new CEO, Gordon Pape says he thinks it will be a while before we see the stock at $17 again. Aecon has to improve its financials significantly before it’s worthy of that price. Tempting as the sell-off may be, he suggests staying on the sidelines for now and seeing how this plays out. (for subscribers).
Canadian Pacific Railway Ltd. (CP-T). This stock appears on the positive breakouts list, yet is trading at a meaningful discount relative to a main industry peer due to a looming potential strike by its workers. However, this uncertainty over a potential deal being reached may present long-term investors with a buying opportunity. Calgary-based CP Rail is a North American railway providing rail service across Canada and the United States. Jennifer Dowty reports (for subscribers).
TDb Split Corp. Class A (XTD-T). A reader asked Gordon Pape about the TDb Split Corp. invests in common shares of TD Bank. It’s technically a mutual fund but it trades on the TSX. There are two classes of shares: Class A (XTD-T) and a preferred (XTD.PR.A-T). Both pay regular monthly dividends. The split-share concept looked good on paper. But it really amounts to leveraging a stock, with all the pluses and minuses that come with that strategy. That explains why split shares never gained traction and they are rarely used any more. If you like TD Bank, just buy the stock. Ignore the gimmicks. (for subscribers).
Linamar Corp. (LNR-T). This stock appeared on the negative breakouts list. The stock is technically nearing an oversold condition, and, from a valuation perspective, is trading at a forward price-to-earnings multiple that is near the bottom end of its three-year historical trading range. Earlier this month, the company reported weaker-than-expected first quarter financial results that sent the share price down 6 per cent the following day. Investors may opt to sit on the sidelines, waiting for the company to report an earnings beat before accumulating shares. Analysts expectations are mixed with nearly half of the analysts covering the company having buy recommendations and the other half having hold recommendations. Guelph, Ont.-based Linamar is a global manufacturing company serving the automotive and industrial markets. Jennifer Dowty reports.
Suncor Energy Inc. (SU-T). When Suncor Energy Inc. announced earlier this month its intention to buy back more than $2-billion worth of its own shares, some investors were no doubt perplexed: With the share price approaching a 10-year high after a 45-per-cent rally since July, surely management is demonstrating awful market timing. If Suncor is buying high, should investors sell? David Berman takes a look.
‘Something slightly scary this way comes’: Rise in bond yields ignites concern for what lies ahead for global markets
Will the world choke on rising interest rates? A modest move up in borrowing costs is already rattling global markets and causing some observers to worry about what lies ahead for the mighty U.S. economy. To date, the biggest casualties have been emerging-market countries with large amounts of U.S. dollar loans. As rising U.S. rates have propelled the greenback higher in recent months, the loans have become more expensive to service in terms of local currencies. At least a couple of developing countries are struggling to keep up. All of this is eerily reminiscent of the 1997 emerging-markets crisis, when money stampeded out of developing countries, leading to a chain reaction of defaults and near defaults that threatened the global economy. Ian McGugan reports (for subscribers).
Robo-adviser Wealthsimple seeks to broaden services by partnering with wealth managers
Robo-adviser Wealthsimple is broadening its online offering for financial advisers in hopes of building stronger partnerships within Canada’s investment community. Last week, the online portfolio manager – which investment giant Power Financial and its subsidiaries have more than 81 per cent combined ownership in – appointed prominent wealth-management executive Jean-François Courville as chief executive officer of Wealthsimple for Advisors, the company’s business-to-business platform designed specifically for financial advisers looking to offset some investment-management tasks. Clare O’Hara reports.
How stock picker and blogger David Zanoni is outperforming nearly everybody
By day, David Zanoni is a humble operations manager working in the retail sector. But on evenings and weekends, he dons his investor’s cape and morphs into a mighty stock picker. The proof is in the recommendations published in his seekingalpha.com blog since 2008. They have outperformed 99.6 per cent of the 6,474 financial bloggers tracked by TipRanks.com since 2011. He outlines to Larry MacDonald his investing strategies.
Have Vanguard’s new balanced ETFs made robo-advisers obsolete?
The breakthrough of robo-advisers is to offer a way to instantly turn the cash you want to invest into a properly diversified, well-tended portfolio. The three new balanced exchange-traded funds from Vanguard do pretty much the same thing. So have robos been outflanked? The answer is no. Robos still rule for the investor with minimal financial savvy, other than an understanding of how important it is to take a sound, disciplined approach to investing. If you’re comfortable investing with ETFs and want a simpler approach, definitely take a look at Vanguard. Rob Carrick reports (for subscribers).
What CIBC portfolio manager Craig Jerusalim is buying and selling
CIBC Asset Management’s senior portfolio manager Craig Jerusalim, who oversees about $5.5-billion in assets under management, is betting Canadian markets outperform their U.S. peers in the coming quarters, thanks in part to rising oil prices, a lower Canadian dollar that helps exporters, and strong employment. He talked with Brenda Bouw about what stocks he is buying and selling. (for subscribers).
Adopting a factor-investing strategy for a little extra return
All of this stock-index investing has been a boon in a strong bull market, even with the recent pullback. But inevitably, people are hunting for ways to outperform. Lately, the focus has been on selecting factors such as the market value of a company or the relatively low value of its shares and other anomalies that are thought to offer a little extra return. Factor investing isn’t a new concept. John Reese outlines the Momentum Model on Validea Canada to see how it has performed.
Decoding the key dates for dividends
John Heinzl takes a look at what the dividend dates mean and what it means to you as an investor.
Top Links (for subscribers)
Others (for subscribers)
Others (for everyone)
Number Crunchers (for subscribers)
Ask Globe Investor
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
Ian McGugan takes a look at whether beaten down consumer stocks are worth a look, and Scott Barlow examines oil price trends.
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.
Compiled by Gillian Livingston