Portfolio Positioning: A Railway with Momentum to Ride Out a Possible Downturn
Cameron Scrivens
Portfolio Manager and President
Kai Lam
Chief Investment Officer
REGIONS IN FOCUS
CANADA
Headline inflation has been cut nearly in half, to 4.3%, versus last year’s peak of 8.1%, but expect a significant lag for monetary policy to adjust lower.
The Canadian job market shows no signs of slowing down; 35,000 jobs added in March, and trend fundamentals (hours worked and wages) are proving resilient.
Retail spending data suggests some softening in the consumer, a trend we’re watching closely.
U.S.
With a couple of notable exceptions (Disney), job cuts are primarily coming from just two sectors: technology firms who over-hired and financials.
Recession risks remain, but timing has been delayed. We expect positive growth over the full year of 2023.
Markets are mostly convinced that the Fed will follow through with a final 25 bp hike at the early May meeting.
INTERNATIONAL
European labour markets remain tight and may limit the scope of a regional recession later this year or early next.
A second- and third-quarter acceleration of China’s rebound should elevate Emerging Markets’ overall economic performance.
Growth expectations from China’s reopening have tempered, but there are opportunities to gain indirect exposure to discretionary consumption stocks.
Read More | Copper and Canadian Bonds – Two Assets we’ve added. Find out why.
MARKET WATCH
What we’re adding – “High Visibility” Stocks
The risk of a recession later this year or early 2024 means we’re looking for holdings now that provide sustained operating visibility that can effectively withstand a broader slowdown. Stocks with a clear throughline on revenues and earnings that is sustainable will be market leaders, in our view, through a recession or downturn.
What we’re underweight – Fixed Income vs. Cash
Despite adding additional bonds throughout the first quarter, our overall fixed-income position is still underweight, relative to cash and cash equivalents. If you look at the yield curve, short-dated instrument yields remain very attractive by historical standards. We're content getting 4.5% interest on cash. If yields come back up enough, we'll deploy more capital to bonds then.
Read More | Get additional commentary from JCIC Asset Management
A look at some of the companies we’ve been buyers, holders or sellers of in the past month:
| Company or issue | Buy, Sell, Hold | Thesis |
|---|---|---|
| Canadian Pacific Railway (CP:TSX) | Hold | Canadian Pacific Railway (CP) has combined with Kansas City Southern (KCS) after the US Surface Transportations Board's final decision in March. This will create the only North American rail company that spans Canada, the United States and Mexico. Once fully integrated, over US$1 billion in synergies are expected to be realized over the next three years. |
| LVMH (MC-FR:Euronext Paris) | Hold | LVMH remains one of our China recovery stocks. Pre-pandemic, Chinese sales represented 35% of sales which dropped to 21% during COVID. Recent quarterly sales results demonstrated growth that was much higher than expected with strong recovery seen from China. We expect this to continue as tourism picks up from Chinese travellers. |
| Novo Nordisk (NVO:NYSE) | Hold | NovoNordisk offers both a defensive business into a recession but also secular growth tailwinds from type 2 diabetes and weight loss treatments. With improved supplies of Ozempic (once a week injection for diabetes) and Wegovy (weight loss), the visibility of growth has improved significantly, prompting a large upgrade to 2023 growth guidance in revenues and profits. |
NEWSLETTER
Disclosure:
Although we obtain information contained in our newsletter from sources we believe to be reliable, we cannot guarantee its accuracy. The opinions expressed in the newsletter are those of JCIC Asset Management, its editors and contributors, and may change without notice. Any views or opinions expressed in the newsletter may not reflect those of the firm as a whole. The information in our newsletter may become outdated and we have no obligation to update it. The information in our newsletter is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. It is provided for information purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor or a group of investors. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. We strongly advise you to discuss your investment options with your Relationship Manager prior to making any investments, including whether any investment is suitable for your specific needs.
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