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We present our Matco Outlook & Opportunities for 2013 in this concise presentation. Enjoy!
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Outlook and Opportunities In a “V.U.C.A.” World
October 2012
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Outlook = Global Economy Slowing
Modest Growth – Not NO Growth
Source: The Economist – Estimates based on 52 countries representing 90% of world GDP. Weighted by GDP at purchasing-power parity
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Outlook = Global Deleveraging
Source: International Monetary Fund
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Outlook = Commodity Bull Market Over?
Going Back to 1800
Source: Ned Davis Research
Average bull market lasts 16 years and gained 202%.
Today we are in year 11 (13) and 178%
???
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Outlook = Soft Landing for Commodities
Hard or Soft Landing?
Source: Ned Davis Research
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Outlook = US Consumer In Better Shape
Trend continues to improve
US Household Debt to Income Ratio and Savings Rate
Source: FRB, BEA
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunities
TSX Energy vs. Composite Long term still outperforming
Opportunity = Equities
Stock Dividend Yields Still Attractive
Source: BMO Capital Markets, Bank of Canada
Dividend yield = 3.2% 10 Year bond yield = 1.81%
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunity = Valuations Compelling
Price to Earnings Multiple for S&P500 & TSX
Current Trailing P/E = 14x
Source: BMO Capital Markets, TSX, Global Insight
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunity = Natural Gas
Growing Global Demand
Natural gas demand growing at 2.8% annually (twice the speed of oil)
Source: BP Statistical Review
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunity = US Corporate Profits All Time High
Source: Federal Reserve Bank of St. Louis
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunity = US Housing Market
Trend continues to improve
???
Source: BMO Capital Markets
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
Opportunity = Auto Sales Recovering
Consumer Confidence and Manufacturing
North American Light Vehicle Sales and Production has rebounded from low Source: The Conference Board, WardsAuto.com
Themes
• Moderate Growth World – Global deleveraging – Commodity bull market flattening out – Headwinds remain (China, Fiscal Cliff, EU) – US recovering - Canada can benefit as largest trading partner
• Opportunities Exist Within Slow Growth World – Equities vs. Bonds (Sector specific)
• Canada and US
– Natural Gas (Canada and US can benefit) – US Recovery Gaining Traction
• Housing • Autos
Summary
Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years
US Election – Does it Matter?
2nd Half of Election Years Generally Positive
We are here
Source: Ned Davis Research
Matco’s Approach In a Slow Growth World
Matco’s Asset Classes 1. Fixed Income
A. Cash & Cash Equivalents B. Bonds
2. Canadian Equities A. Energy B. The Blue Chip Era (big & small)
3. Global Equities A. US B. International C. Emerging Markets
Security Selection Process
• Bonds
Security Selection Process
• Stocks
Fixed Income • Global credit boom hangover has resulted in low rates…
Fixed Income
The Great Paradox of Low Rates
Fixed Income
How to navigate the shallow Bond waters? 1. Manage risk, don’t avoid it 2. Corporate bonds continue to offer best value 3. What the BOC’s mixed signals & high CAD $ mean for bonds
TOP IDEA • Brookfield Asset Management 5.30% 01MR21
– Infrastructure, asset management, & commercial R/E – Akin to a long term private equity fund – ~8 year term remaining – Rated two notches above investment grade (A) – +3.93% annual yield to maturity (YTM)
Canadian Equities
• Diversification – who needs it?
• The Canadian Advantage – Strong oil prices – High Canadian dollar – Top AAA rating – Lower unemployment – Overvalued housing
• Blue Chips are back!
– The Income Trust renaissance? – Don’t fight the baby boomer bulge (read: need for income)
Canadian Equities
TOP IDEAS • Telus (T-T) – Income & Growth
– Smartphone secular growth continues globally – Cable business market share opportunity – Earnings & dividend growth – Dividend Yield = 3.89%
• Tourmaline Oil (TOU-T) - Growth – Low cost Natural Gas & NGLs exposed – Natural Gas bottom in – Strong production growth profile – Duvernay 2.0?
Global Equities
• United States – Already had their lost decade – Sleeping Giant re-awakening – Winning the Race to the Bottom
• International – Extended global credit & spending hangover for the EU – The EU hampered by a high Euro – Too many cooks in the kitchen
• Emerging Markets
– BRIC growth & urbanization normalizing (read: slowing) – China’s low cost advantage waning – Globalization vs. Protectionism
Global Equities
TOP IDEAS • QualComm (QCOM-US) – Income & Growth
– US-based chip manufacturer exposed to global smartphone growth – The ‘not trying to pick the winner’ strategy – Dividend Yield = 1.70%
• Tesco Plc (TSCO-LON) – Income & Growth – UK-based international retailer exposed to global staple industry – May benefit from weaker input prices looking forward – Cheap valuation ~1/2 the multiple of the markets – Dividend Yield = 4.62%
Themes Asset Mix • Small Overweight Stocks • Small Overweight Cash Bonds • Small Underweight
Canadian Equities • Market Weight
Global Equities • Small Overweight (US & Multinationals)
Strategic Asset Class Calls
Why a Balanced Approach in a Slow Growth World?
1. Income, Income, Income (but not at all costs)
– Low inflation – Negative real yields – Slow growth
2. Diversification – Reduces volatility – Compliments the Canadian Advantage – Hedge black swan risk in uncertain & complex world
Thank you
Questions
Disclaimer For your information: MATCO FINANCIAL INC. is a privately owned and independent wealth management
office. The material presented is intended to provide information to Matco Financial clients, contacts and affiliates. Readers should not act on this information without first consulting their investment advisor, tax advisor, financial planner or lawyer. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
Management fees, commissions, and expenses may be associated with investment management services and mutual fund investments. Before investing, please read the applicable information such as the prospectus, which contains detailed investment information and is available from your advisor. Most marketable securities such as mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.