Canada’s benchmark stock index has been a persistent underperformer for most of the past decade compared to the much larger and flashier equity market south of the border.
But that’s starting to change. An expected robust global economic recovery has beaten-down cyclical and other value stocks that are found in abundance in the S&P/TSX Composite Index on the comeback trail. The Canadian benchmark is up 7.5 per cent so far this year - well ahead of the S&P 500 composite’s 5.4-per-cent rise.
For some insight on whether this trend will continue, let’s turn to a new survey of 65 of the world’s largest pension, mutual and hedge fund managers conducted by Citi.
The money pros were asked about their expectations of S&P 500 performance. They now see financials, energy and materials as the sectors holding the most promise - stocks that the TSX just happens to have in abundance. Three months ago, by contrast, the most favoured sectors were consumer discretionary and industrials.
Meanwhile, those surveyed have turned noticeably more bearish on tech stocks - not entirely a surprise given valuations in the sector are still at staggering heights. Utilities and consumer staples remain as the least liked sectors.
Banks tend to benefit when interest rates rise, and the survey respondents saw little risk that the recent surge in bond yields will reverse any time soon. More than 90 per cent saw the 10-year U.S. Treasury yield staying above 1.5 per cent this year (It was hovering just below 1.70 per cent as of midday Monday).
Most also believed that energy prices will stay firm; less than 20 per cent of respondents believed West Texas Intermediate prices would slip much below the current price of US$60 a barrel in coming months. Almost a quarter believed we’d soon see prices of US$70 or higher.
Overall, the survey demonstrated the appetite for risk is alive and well among money professionals, even as the S&P 500 and Dow Industrial Average flirt with record highs. The majority expected the S&P 500 to exceed 4,100 by year end.
The survey didn’t specifically canvass opinions on Canada’s TSX, but more than 80 per cent said they were keen on value stocks in general. Take it as a sign that if the market pros are right, the Canadian benchmark’s foray into record high territory will continue.
-- Darcy Keith
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Stocks to ponder
Algoma Central Corp. (ALC-T) With a unanimous buy recommendation from analysts, this stock offers investors modest potential price appreciation along with an attractive 4 per cent yield. Algoma operates a fleet of vessels, carriers and tankers, travelling through the Great Lakes – St. Lawrence Waterway. The company raised its dividend earlier this year and shares are trading slightly below historical levels. Jennifer Dowty has this profile.
Knight Therapeutics Inc. (GUD-T) Shares in this Montreal-based global specialty pharmaceutical company have been rising lately thanks to its fourth-quarter revenues beating expectations. But the stock is below its highs after being hit with COVID-19-related challenges in its core Latin American division. Brenda Bouw reports.
Why your investment adviser hates bitcoin
Rob Carrick recently asked advisers on LinkedIn if they were starting to use bitcoin ETFs in client portfolios and, if so, what was their allocation and rationale? The responses were striking on two counts – sparse replies from a group that usually loves to chime in, and strongly negative responses from several of the people who did reply.
Don’t let rising rates derail your dividend plan
You’ve heard it a million times: When interest rates rise, dividend stocks drop. It seems to make perfect sense. When rates rise, companies that carry a lot of debt – including classic dividend payers such as utilities, pipelines and telecoms – face higher borrowing costs, so you’d expect their stocks to underperform. There’s also a valuation element at play. As bond yields rise, yields on dividend stocks would also be expected to rise to remain competitive. That means dividend stock prices – which move in the opposite direction to their yields – must fall. Well, that’s the theory, anyway. As John Heinzl reports, dividend growth stocks during periods of rising yields over the past 30 years actually performed surprisingly well.
Investors weigh outlook for utilities after sector’s run up
Investors looking for ways to protect themselves from a potential market downturn and rising inflation have been warming to utilities, sometimes seen as bond substitutes, as attractive alternatives. The S&P 500 utilities index has outperformed the broader market this month, rising nearly 9 per cent so far and leading gains among sectors for March. Caroline Valetkevitch of Reuters reports.
Others (for subscribers)
Monday’s Insider Report: CEO invests over $1-million in this rebounding stock with a forecast return of 49%
The Financial Times: Why inflation isn’t as much of a threat to markets as many investors think
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Compiled by Globe Investor Staff