1. Positioning For A Year With Two Distinct Halves: I believe that a dovish Federal Reserve, along with the continued strength of the U.S. consumer and underlying U.S. economy, will allow for additional upside potential for U.S. stocks during the first half of 2020. However, as we begin the second half of the new year and enter the thick of the election cycle, periods of intermittent volatility and overall investor apathy, will be likely based on changing predictions of who may, or may not, be in the Oval Office and which political party may, or may not, be in control of Congress after November 15. As a result, having a strategy positioned for this “Tale of Two Cities” outlook that provides exposure to dividend-paying U.S. equities with some element of downside protection may be worthy of consideration.
2. Demand For Tax-Free Income Remains High: As the yield curve remains challenged and changes to the current cap in place for state and local tax (SALT) deductions unlikely, demand for attractive sources of tax-free income will remain high in 2020. This demand will likely be highest among residents impacted most by the SALT cap in states such as New York, New Jersey and California. For those who are not aware, the SALT deduction is related to the Tax Cut and Jobs Act (TCJA) of 2017, which limited the total SALT deduction to $10,000. Demand for tax-free income overall was high in 2019 as well as evidenced by the 47 consecutive weeks of positive net inflows to U.S. municipal bond funds.
3. Biotech M&A Activity Likely To Continue: Biotech is on the mindsets of many investors heading into 2020 as M&A announcements were in the headlines throughout 2019. According to the Chimera Research Group, there were 28 biotech mergers & acquisitions announcements in 2019, including the recent announcement of Novartis’ planned acquisition of The Medicines Company. Margin compression, threats of drug price control and patent expirations, will challenge large pharmaceutical companies in the new year to find revenue replacement alternatives. One of these alternatives in 2020 will likely involve the acquisition of smaller capitalized biotech companies with innovative drugs nearing the final stages of FDA approval.
4. Preferreds Continue To Become A Preferred Source Of Income: Dependable distributions are important for income-oriented investors and preferred securities can help provide such distributions. Preferred securities, also commonly referred to as preferred stocks, represent a hybrid security type combining different features of both equities and debt. While most issuers of preferreds are banks, there are also other issuer types, including insurance companies, utilities, REITs, industrials and diversified financial services. As a result, investors may want to continue using preferred securities as they did in 2019, while also considering the use of portfolios of preferred securities incorporating different types of issuers to help meet their income needs in 2020.
5. ESG-Based Strategies Gain More Prominence: Sustainable, responsible and impact investing is an investment theme growing in popularity across the globe. Strategies associated with this theme, which often incorporate environmental, social and governance (ESG) rating criteria, along with the investment merits of a given company’s stock, continue to attract more investment assets. According to the Forum for Sustainable and Responsible Investment, global assets under management in the strategy grew to $11.6 trillion in 2018 from $178 billion in 2005–a 6,417% increase! I anticipate the continuation of this trend in 2020, provided that the investment performance of these strategies remains strong on a relative basis.
6. Finding Value In Dividends: Dividends have long been a critical part of the total return investment equation for investors in common stocks. I tend to view companies that make regular dividend distributions and have a consistent track record of growing distributions over time in a more favorable light. In other words, I view such companies as possessing a higher degree of financial health. Moreover, stocks that pay dividends also tend to have characteristics favored by value over growth investment approaches. If the yield curve remains challenged in 2020 and stock market volatility returns during the second half of the year, look for consistent dividend payers and value-oriented investment strategies, which have taken a back seat to growth-oriented investment strategies over the last decade, to outperform.
7. International Equities Attract Investment Flows: Though many uncertainties remain for international economies and international markets in 2020, including Brexit (which now appears likely) and further trade agreement negotiations, the outlook for global economic growth has improved with J.P. Morgan forecasting 2020 global GDP growth of 2.5% vs. a 1.7% GDP growth forecast for the U.S. I anticipate emerging markets outperforming developed markets internationally in 2020, provided that Phase 2 trade talks between the U.S. and China do not take a wrong turn towards a new round of tariffs.
8. Strong Consumer Fuels Further Growth In E-Commerce: Evidence of the strength of the U.S. consumer can be found in sales data from the 2019 holiday shopping season. According to a CNBC article entitled, Record online sales give U.S. holiday shopping season a boost, overall holiday retail sales, excluding autos, increased by 3.4% when compared to 2018 with online sales leading the charge.
E-commerce sales made up 15% of total retail sales and rose 19% versus the prior year to a new record high according to MasterCard’s retail sales data from November 1–December 24, 2019. I anticipate further online commerce growth in 2020, which should benefit not only e-commerce companies but also companies that derive a significant amount of revenues from activities performed within the e-commerce ecosystem.
9. AI Implementations Increase Across Multiple Industries: Applications of artificial intelligence (AI) will continue to take place in 2020 across multiple industries ranging from finance to health care to automobiles, disrupting how many companies operate and, in certain cases, transforming the bottom lines of these companies. Also referred to as machine or deep learning, AI is typically associated with companies whose technologies are focused on the automation of cognitive processes such as speech recognition, deep learning and visual navigation. Another innovative technology that should also experience implementation growth in 2020 is cybersecurity, thanks in part to new regulations as well as the heightened risks of malware attacks, data breaches and hacking in general.
10. Counterbalancing Consensus With Contrarians: Whenever there is an overwhelming one-sided sentiment, whether positive or negative, among investors, and assets are flowing in the direction of that one-sided sentiment, it may be time to consider adopting some form of a contrarian approach. The same can be said for less favorable analyst consensus opinions on the stocks of certain companies that may otherwise appear healthy and positioned to grow. Coming off a year where seemingly everything worked, it may be worthwhile to consider investing in a stock portfolio of attractive companies that did not work in 2019 or that analyst consensus suggests will not work in 2020, despite strong fundamentals.
Investment required in Niagara's airports: Report – StCatharinesStandard.ca
CBRE predicts record $50 billion investment for commercial real estate this year – Times Colonist
TORONTO — Canada could see a record-breaking $50-billion worth of investment in commercial real estate this year as economic tailwinds and immigration policies support the booming sector, according to a report by CBRE, but it says the strong economy is also creating challenges of affordability and supply.
The commercial real estate services firm said Tuesday that total investment would be about $5 billion higher than 2019 and about a billion dollars higher than the record set in 2018.
Growth comes even amid low vacancies in major markets as tech companies in particular continue to prize downtown locations. Other strong areas include investments in rental apartments as home affordability gets out of reach for many Canadians, and industrial growth driven by e-commerce demand for logistics centres.
“Canada has so many advantages, and so many underlying fundamentals that are positives over the long-term, that we certainly think that growth in the Canadian commercial real estate market is going to continue,” said CBRE Canada vice-chairman Paul Morassutti.
Those trends, along with strong population growth and stable banking and governance, would help steer the sector if a recession hits, said Morassutti.
“The wild card is a recession. My feeling is we’re very well positioned to weather a recession, and I think we’ll continue to flourish after that because of those attributes.”
Heightened interest in the market is also creating challenges, including rising rents and limited office and industrial space, while climate change is creating its own issues.
CBRE says prime office rents jumped 20.9 per cent in Vancouver between 2018 and 2019, 14.2 per cent in Montreal, and 10.1 per cent in Toronto, while national industrial rents rose by 12.3 per cent between the two years for the largest increase on record.
Rents still form a small portion of company budgets and don’t seem to be a major constraint on growth yet, said Morassutti. He noted that in the industrial sector, costs savings in transportation from better locations more than offset costs from higher rents.
Rental rates for apartments are also climbing in major centres as home ownership becomes more expensive, which has helped drive investment in the multifamily. The sector could see about $11.9 billion in investment this year, up from $8.3 billion in 2018, to see the most of any commercial sector, CBRE expects.
The upward trend in residential rental rates is however putting pressure on income inequality, said Morassutti.
“Partially because of that lack of home affordability, you have all these people becoming renters, so on the one hand that’s a good thing. On the other hand, it’s not great for society that our two major cities are becoming unaffordable, it’s not great for the income divide, which is already a large social issue.”
Along with affordability, CBRE says the lack of investment in transit infrastructure, and increasing pressures of climate change on the construction sector and land values are also structural issues of concern for the year ahead.
More immediately, the impacts of the coronavirus outbreak also loom as a big unknown, but could be short-lived if it is contained, said Richard Barkham, global chief economist at CBRE said in a statement.
“If the coronavirus outbreak is relatively contained sometime in March, impacts on the Canadian economy and most commercial real estate sectors will be noticeable in the near term but less substantive over the year.”
He noted that short-term impacts would largely hit the hotel and retail sectors. He said the global property market should be able to weather the effects of the virus as anticipated today, but that a clearer picture of the epidemic should materialize sometime in March.
This report by The Canadian Press was first published Feb. 25, 2020.
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