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How a resistance to ESG investing is hurting your portfolio. Plus, why Enbridge is a buy, and top stock picks from portfolio managers – The Globe and Mail

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Morgan Stanley published a report entitled Key Investor Debates Likely to Drive Stocks in the Coming Year and I read all 75 pages so you don’t have to. By far the most stunning data point was provided by U.S. electric utilities analyst Stephen Byrd: “Clean tech stocks have surged in 2020, with our coverage up between 60% and >600%.” The worst performers in the pure play, clean power technology sector were higher by more than 50 per cent.

There is a good chance I lost a bunch of readers with that first paragraph. Renewable power and other ESG-sensitive (Environmental, Social and Governance) investments don’t generate huge page views for us at The Globe and Mail. Many readers perhaps prefer the comforts of the established dividend-paying giants of the stock market, or the technology and mining sectors.

But that resistance to delve into ESG investment opportunities could be coming at a cost to portfolios given their strong performance. And it comes as a bit of a surprise given the ease with which asset management firms are raising billions of new investment through ESG investment vehicles this year (ESG investment inflow chart posted on social media here).

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The global transition to renewable power is certainly not slowing. Mr. Byrd has short-term concerns about the clean energy sector, notably profit margins for solar panel manufacturers and excessive optimism regarding U.S. clean energy legislation. On the whole, however, he sees significantly more upside for renewable energy stocks in large part because of continued capital inflows from ESG investors.

Mr. Byrd’s top stock choices for 2021 are AES Corp. and American Electric Power Corp Ltd. In the first case, the analyst believes the company’s renewable power business is not yet fully reflected in the stock price despite a more than 90 per cent appreciation in the past year. He sees the possibility of a spin-off of the renewables operation that will unlock shareholder value.

American Electric Power has not enjoyed strong performance in 2020, but Morgan Stanley expects management to restructure operations to emphasize its growing wind power business. His 12-month price target implies 20 per cent upside from the current price.

Those resistant to joining the ESG bandwagon will be happy to hear that Morgan Stanley as a firm is bullish on oil stocks too. Energy analyst Martin Rats sees oil producers as a direct beneficiary of the post-pandemic economic recovery.

In a Monday research report, Mr. Rats noted that the free cash flow yield for U.S energy stocks will exceed the market average in 2021 for the first time in over ten years. Despite this, the sector trades at a 45 per cent discount to the market by EV/EBITDA (enterprise value to earnings before interest, taxation, depreciation and amortization charges).

Morgan Stanley also upgraded the Canadian oil sector recently thanks to capital discipline and attractive valuations. Mr. Rats’ top Canadian stock picks are Suncor Energy, Canadian Natural resources and MEG Energy.

I strongly suspect that most Canadians will own exposure to renewable power or other ESG investments eventually. Hopefully it happens before ESG stocks are fully valued and it’s too late. Just like the Morgan Stanley research department, ESG and oil investment bullishness can easily co-exist in investment portfolios.

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— 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 or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Granite Real Estate Investment Trust (GRT-UN-T) Over the years, this REIT has provided investors with price appreciation combined with an attractive yield and distribution growth. Its unit price has rallied 20 per cent year-to-date, making it the top performing REIT in the S&P/TSX composite index. The unit price is less than one per cent away from its record closing high. The REIT also provides investors with reliable income. Management has announced distribution increases for the past nine consecutive years. Granite has a unanimous buy recommendation from 10 analysts. Our equities analyst, Jennifer Dowty, has this profile of the company. (for subscribers)

Enbridge Inc. (ENB-T) The pipeline operator’s high dividend yield has been flashing red throughout most of 2020, beckoning dividend investors but also signalling discomfort with the company’s connection to a depressed energy sector. The stock’s rebound over the past month suggests that investors are at last warming up to the stock, and there are several reasons why the rally could continue. David Berman looks at the investment case. (for subscribers)

MDF Commerce Inc. (MDF-T) This stock shot up more than 20 per cent on Monday after the e-commerce company disclosed a deal with a U.K. retailer Aldi to provide ‘click and collect’ grocery services amid the rise in contactless shopping during the pandemic. Analysts are calling the contract a “nice win” and are raising their price targets. Brenda Bouw reports. (for subscribers)

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The Rundown

TSX stocks are back to hiking dividend payouts after pandemic shock ignited a slew of cuts and cancelations

Canadian companies are spending the fourth quarter in confident, dividend-raising mode after a spring and summer of pandemic-related caution, cuts and cancellations. Giants like Enbridge Inc., Dollarama Inc., Mullen Group Ltd. and AltaGas Ltd. all joined the list of hikers in just the past week-plus. But they have plenty of company: A search of dividend-related announcements in the S&P Global Market Intelligence database shows 47 companies with their primary stock listing on the TSX announced dividend increases since Oct. 1 alongside reporting third-quarter results. David Milstead has the full list of Canadian stocks that have returned to raising payouts. (for subscribers)

The returns of this $335-million fund manager are almost twice that of the TSX this year. Here’s his top picks in the sectors he likes right now

Portfolio manager Stephen Takacsy says it was part design, part luck that his Canadian equity fund was relatively “COVID proof” when the markets plummeted this year after the pandemic forced the widespread closing of businesses. Some of his biggest positions were in sectors that surged amid the market uncertainty, including renewable energy and e-commerce. So what’s he buying now? Brenda Bouw looks at his picks across three of his preferred sectors. (for subscribers)

This $150-million fund manager expects ‘a very strong push’ for stocks in the next six weeks – and these are three of his favourites

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Jason Del Vicario sees another Santa Claus rally shaping up this holiday season, driven by continued low interest rates and market hopes the COVID-19 vaccine will help economies recover in the new year. “Whether it’s a Santa Claus rally before Christmas or after, I do think things are lining up for us to have a very strong push in equities in the next six weeks or so,” says Mr. Del Vicario, a portfolio manager and investment adviser at HollisWealth in Vancouver, a division of Industrial Alliance Securities Inc. He oversees about $150-million in assets. Brenda Bouw had a chat with the portfolio manager to find out more about his latest market views and top stock picks. (for subscribers)

Laurentian Bank Securities reveals its top TSX stock picks for 2021

Laurentian Bank Securities’ 2020 preferred stock picks returned 13.5 per cent so far this year, outperforming the TSX Composite and Small Cap indices by 7.1 per cent and 4.2 per cent, respectively. So what stocks are the bank’s analysts recommending for this year? David Leeder introduces us to the eight names they consider as their best investment ideas for 2021. (for subscribers)

CPPIB CEO says equities ‘fully valued’, sees five years of depressed returns for stocks and bonds

The head of the Canada Pension Plan Investment Board, Mark Machin, suggests Canadians need to plan for a slow economic recovery coming out of COVID-19, with global economic output not returning to prepandemic levels until the end of 2022. And given current valuations, he’s seeing very little upside for both stocks and bonds in the years to come. David Milstead reports. (for subscribers)

How my pandemic stock picks performed in a year unlike any other

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When the pandemic hit home in March, investors had to move quickly to navigate the rapidly evolving stock market environment. Gordon Pape at the time looked at stocks that he felt were positioned to do well in the face of new challenges arising from the devastating impact of the pandemic. Not all performed as expected but his track record was quite respectable. Here are some of the pandemic-related picks that were introduced. (for subscribers)

A mutual fund company where loyal clients pay lower fees

Steadyhand clients with five to 10 years at the company have their fees cut by 7 per cent; after 10 years, fees are cut by a total 14 per cent. Loyalty to long-term customers – what a concept. If they understand what Steadyhand is doing, maybe more people will be inspired to ask their banks and investment firms for a loyalty discount, says Rob Carrick. (for subscribers)

Market weakness in these top 20 five-year performers of the TSX may signal it’s time to buy

Norman Rothery crunches some numbers to highlight 20 candidates that sport the highest five-year total returns in the S&P/TSX Composite – and he provides some key valuation metrics for each. Bargain hunters will keep an eye out for the firms with low price-to-sales and low P/E ratios in the list. After all, profitable firms trading at bargain prices that are trending higher can be attractive investments. (for subscribers)

Others (for subscribers)

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Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CEO is buying this beaten-down high-yielding REIT

Number Cruncher: Six Canadian stocks poised to do well during Santa Claus rally

Number Cruncher: Which of these top 10 Canadian biotech stocks are undervalued?

Others (for everyone)

Funds flock to base metals, but will they stay?

Globe Advisor

Inflation debate looms large over U.S. market outlook

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: To take advantage of lower stock prices that may occur because of the tax-loss selling season, I would like to purchase a stock in my tax-free savings account on Dec. 30 or Dec. 31. Then, on Jan. 1, I would make my annual TFSA contribution of $6,000 to pay for the trade in time for the settlement date, two business days after the purchase. Is this possible?

Answer: I doubt your broker will let you buy a stock before there is sufficient cash in your TFSA. But there’s an easy workaround: Purchase the stock in your non-registered account now. Then, after Jan. 1, call your broker and contribute the stock in-kind to your TFSA. The fair market value of the shares at the time of the transfer will be your TFSA contribution. Be aware, however, that if you buy $6,000 worth of shares they could appreciate and exceed your TFSA limit by the time you transfer them. So consider buying less than $6,000 of stock. Alternatively, you could create additional TFSA contribution room for 2021 by withdrawing some cash from your TFSA in December. The value of the withdrawal will be added to your contribution room as of Jan. 1. So, for example, if you withdraw $500 in cash now, you will be able to make an in-kind contribution of up to $6,500 in shares as of Jan. 1. (This assumes you have maxed out your TFSA contributions in previous years and have no additional TFSA room.)

–John Heinzl

What’s up in the days ahead

Jennifer Dowty checks in with Kurt Reiman, BlackRock’s senior strategist for North America, on his market outlook for 2021.

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

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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A new era of low-cost investing has arrived for Gen Z and millennials – The Globe and Mail

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Words they live by in the investment industry: Small accounts get small consideration.

So it follows that the record of investment firms in welcoming young people as customers was pretty terrible until recently. The rise of digital investing – taking orders and sometimes providing advice online or via mobile device – has changed all that for the better by making small accounts more economical to serve.

Suddenly, there are all kinds of ways for young adults to get started as investors while keeping their costs to a minimum. There’s a free stock-trading app, and another app with zero commissions for investing in exchange-traded funds. Several online brokers offer special pricing for young clients that can reduce their costs significantly, and there are also robo-advisers to consider.

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With a six-figure portfolio, paying $5 to $10 to buy stocks or exchange-traded funds is nothing to complain about. But for a young investor with a small portfolio, these costs are prohibitive. Biweekly purchases of a balanced ETF (more on these in a moment) at $9.95 per trade works out to an annualized fee of 1.7 per cent on a $15,000 account. For context, the bonds or bond funds in a portfolio might yield about 1 per cent these days.

Further costs for young investors might include annual administration fees of $100 or more for registered retirement savings plan accounts or $100 in account maintenance fees per year (often charged on a $25 per quarter basis).

Special deals for young investors are available at several online brokers, but they’re not well-publicized and thus easy to miss out on. Some examples:

  • For students, CIBC Investor’s Edge reduces its regular flat $6.95 commission for trading stocks and ETFs to $5.95 and waives the $100 annual fee on registered and non-registered accounts.
  • For investors 30 and younger, National Bank Direct Brokerage provides 10 free trades a year and then lowers its regular price of $9.95 per trade to $4.95; also, account admin fees are waived.
  • For investors aged 18 to 30, Qtrade Investor offers a flat commission of $7.75, down from the usual $8.75, as well as waiving quarterly admin fees.
  • For clients 25 and younger, Scotia iTrade will waive the $100 annual admin fee on RRSPs and the $100 per year maintenance fees on small non-registered accounts.
  • The Kick Start Investment Program at Virtual Brokers allows an investor to buy (or add to) up to five ETFs each and every month, for no commission. Normally, the cost is $50 a year for this service, unless you’re a student or have graduated within the past two years.

Do-it-yourself investing happens to make great sense for young investors. Investment advisers are notoriously uninterested in young clients for the most part, unless they happen to be the kids of rich clients. Also, the needs of young investors may be too small-scale to justify the fees advisers charge.

Bank mutual funds are an easy way to get started investing, and they’re friendly to rookie investors because they can be bought at no cost. On the negative side, bank mutual funds too often combine lacklustre returns and hefty fees.

The ideal product for young investors? Consider the balanced ETF, with fees as low as 0.2 per cent (mutual fund management expense ratios are typically in the 2-per-cent-plus range).

Balanced ETFs hold underlying funds that produce blends of stocks and bonds suitable for conservative, middle-of-the-road and aggressive investors. A twentysomething could easily choose an aggressive approach, with the understanding that there will be rotten years on the way to good long-term results. Long term, by the way, means 10 years or more.

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The Wealthsimple Trade app is a zero-commission way to buy and sell balanced ETFs, as well as other ETFs and stocks. The lack of commission costs invites frequent stock trading that eventually does more damage than good, but a disciplined investor could use it to stuff money into balanced ETFs on a regular basis.

TD GoalAssist, from Toronto-Dominion Bank, is another app for mobile devices that offers a cost-effective way for young people to invest. Pick one of TD’s own balanced ETFs and contribute money whenever you like with no commissions to pay. GoalAssist also lets you set investing goals and track how you’re progressing.

Robo-advisers are another way for young adults to get help in building diversified ETF portfolios. For a fee starting at roughly 0.5 per cent, a robo-adviser will assess your needs with an online questionnaire and then suggest a diversified grouping of ETFs. Investing is a simple matter of electronically transferring money to your robo-adviser, which then contributes it proportionally to the ETFs in your portfolio.

Robo-advisers typically have lower fees for larger accounts, but a young investor still gets a fair deal.

Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.

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Enforcement Notice – Decision – IIROC Sanctions Montréal Investment Advisor Naghmeh Sabet – Canada NewsWire

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MONTRÉAL, Jan. 22, 2021 /CNW/ – On January 19, 2021, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a Settlement Agreement, with sanctions, between IIROC staff and Naghmeh Sabet.

Mrs. Sabet admitted that she recommended the purchase and holding of securities that were unsuitable for a client, pursuant to this client’s investment objectives, and that she engaged in personal financial dealings with a client by accepting the offer of a short-term loan by the client for an imminent real estate transaction.

Specifically, Mrs. Sabet admitted to the following violations:

(a) In March and April 2016, the Respondent recommended the purchase and holding of securities that were unsuitable for a client, pursuant to this client’s investment objectives, thus contravening IIROC Dealer Member Rule 1300.1(q);

(b) In December 2015, the Respondent engaged in personal financial dealings with a client by accepting the offer of a short-term loan proposed by the client for an imminent real estate transaction, thus contravening IIROC Dealer Member Rule 43.

Mrs. Sabet agreed to the following penalties:

a) An aggregate fine in the amount of $25,000, as follows:

  • a $10,000 fine for Count 1;
  • a $15,000 fine for Count 2.

b) The obligation to pass the Conduct and Practices Handbook Course exam, within sixty (60) days following acceptance of this Settlement Agreement by the Hearing Panel.

c) Costs in the amount of $2,000 payable to IIROC.

The Settlement Agreement is available at:
http://www.iiroc.ca/documents/2021/7a39019a-2815-4091-b5e9-13b90167e182_en.pdf            

IIROC formally initiated the investigation into Mrs. Sabet’s conduct in August 2017. The alleged contraventions occurred while Mrs. Sabet was a registered representative with the Montréal branch of Scotia Capital Inc., an IIROC-regulated firm. Mrs. Sabet is still employed with Scotia Capital Inc.

Documents related to ongoing IIROC enforcement proceedings – including Reasons and Decisions of Hearing Panels – are posted on the IIROC website as they become available. Click here to search and access all IIROC enforcement documents.

*  *  *

IIROC is the pan-Canadian self-regulatory organization that oversees all investment dealers and their trading activity in Canada’s debt and equity markets. IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while supporting healthy Canadian capital markets. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of 175 Canadian investment dealer firms of varying sizes and business models, and their more than 30,000 registered employees. IIROC also sets and enforces market integrity rules regarding trading activity on Canadian debt and equity marketplaces.

IIROC investigates possible misconduct by its member firms and/or individual registrants. It can bring disciplinary proceedings which may result in penalties including fines, suspensions, permanent bars, expulsion from membership, or termination of rights and privileges for individuals and firms.

All information about disciplinary proceedings relating to current and former member firms is available in the Enforcement section of the IIROC website. Background information regarding the qualifications and disciplinary history, if any, of advisors currently employed by IIROC-regulated firms is available free of charge through the IIROC AdvisorReport service. Information on how to make investment dealer, advisor or marketplace-related complaints is available by calling 1 877 442-4322.

SOURCE Investment Industry Regulatory Organization of Canada (IIROC) – General News

For further information: Enforcement Contact: Claudyne Bienvenu, Vice-President, Québec and Atlantic, 514 878-2854, [email protected]; Media Contact: Andrea Zviedris, Manager, Media Relations, 416 943-6906, [email protected]

Related Links

www.iiroc.ca

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European start-ups are attracting record levels of investment – Innovation Origins

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Investments in European start-ups rose to record levels during the final three months of 2020. In the fourth quarter of last year, a total of US$14.3 billion was invested in European start-ups. This was revealed in a report brought out by KPMG.

Seventy percent growth

This figure corresponds to an increase of seventy per cent compared to the last three months of 2019. It also marks the highest quarterly increase in 2020, although the other three have also fared extremely well. Total investment in European start-ups reached US$49 billion last year, that was US$7 billion less in 2019.

However, emerging start-ups and even companies that are already generating a certain amount of turnover are struggling to raise funding.”
Karina Kuperus, KPMG

The figures highlight a number of developments. While investments were up, the number of deals made fell sharply, from around 7,500 in 2019 to just over 6,000 in 2020. “Investors have focused on technology-driven solutions and on start-ups that are highly capable of responding to the changing needs of employees and customers. This means that early-stage start-ups and even companies that are already generating some revenue experience great difficulties in securing funding,” says Karina Kuperus, a partner in KPMG’s Emerging Giants advisory group.

Late-stage start-ups are most in demand

Financiers have been particularly interested in late-stage start-ups that have a proven business model. In a number of sectors, including fintech, logistics technology and educational technology, this has led to consistently higher valuations. In general, technology, healthcare and biotechnology are popular with investors.

There is no shortage of funds. Due to the availability of a lot of ‘unused money’ among investors ( as a result of low interest rates, among other factors), there is a lot of competition. Although this is mainly concentrated on promising start-ups in their later stages. For example, during the last three months of 2020, a number of companies managed to attract more than US$100 million, including Germany’s ATAI Life Sciences (US$125 million).

Investments are also set to increase in 2021

Globally, there has also been an appetite for funding start-ups. KPMG tallies a total of US$300 billion that has been invested in start-ups around the world. That is US$18 billion more than in 2019. The tendency towards a decline in the number of deals also applies beyond Europe’s borders. By the way, the United States accounted for more than half of all global investments last year.

The volume of investments is unlikely to drop in 2021. “The pandemic has also revealed the pressing need to modernise key aspects of the existing healthcare system and to harness new technologies, such as artificial intelligence in the development of new medicines,” Kuperus stated.

More information can be found in the latest version of Venture Pulse, KPMG’s report on their research into global investments in start-ups. 

Atomico, another European tech investment company, also recently came to a similar conclusion.

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