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Weekly Investment Update – 1 July 2020 – Investors' Corner BNP Paribas

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US: a rethink of exit strategies

Across the US, 30 June saw more than 48 000 coronavirus cases – the most of any day of the pandemic. Officials in eight states — Alaska, Arizona, California, Georgia, Idaho, Oklahoma, South Carolina and Texas —announced single-day highs.

The record came on the same day as Dr Anthony Fauci, America’s top infectious disease expert, told Congress that the rate of new coronavirus infections could more than double to 100 000 a day if current outbreaks were not contained. He warned that the virus’s progression across the south and the west “puts the entire country at risk.”

The spread of the virus in the US is already forcing a rethink of the exit strategies from the lockdowns. States that had reopened either partly or completely are reversing course. The public appear to be taking matters into their own hands: retreating from public places such as restaurants and bars for fear of catching the virus, even when public policy does not require them to do so.

China: Beijing outbreak contained, but a new spike in Hubei

In China, the outbreak in Beijing has been brought under control, according to the Chinese Centre for Disease Control and Prevention. The lockdown measures imposed on several communities in Beijing have been lifted.

However, new measures have been introduced to control a fresh outbreak in nearby Hubei province. An area with almost half a million people in Anxin county, less than 100 miles from Beijing, has been sealed off under the same strict protocol that was imposed at the height of the pandemic in Wuhan earlier this year.

The news from Germany has been a little more encouraging with the estimates of the effective reproduction rate by the Robert Koch institute now back below one after a brief foray above two.

Containment without lockdowns and with a vaccine?

We think that the message from China and Germany is clear: it is possible to contain the virus outside of lockdowns, but it may require severe quarantine measures or a highly efficient test-and-trace regime that is capable of managing local flare-ups.

We continue to struggle with the idea that exits are straightforward and life can quickly return to normality in the absence of a vaccine. Indeed, we note comments by Dr Fauci that a vaccine might not be sufficient to generate herd immunity in the US because the vaccine might not be entirely effective and a significant minority of the population might refuse to take the vaccine.

Policy: slow progress in Europe

There is steady, but slow progress in Europe. Meeting in Meseberg, Chancellor Angela Merkel and Emmanuel President Macron reaffirmed the importance of a recovery fund that “has to really help those countries that are otherwise at risk of being much worse affected by the crisis”. However, there was also recognition of “some resistance to be overcome”.

Today, Germany assumes the rotating presidency of the Council of the European Union for the next six months. Chairing the meetings of ministers of member states will allow Berlin to shape the agenda more so than usual. Other countries will be looking to Germany to help broker compromises rather than to pursue specific national interests.

These next six months can be seen as crucial for Europe as the continent struggles to cope with the worst peacetime recession ever. If the EU can agree on the most impressive act of cross-border solidarity ever along the lines of the EUR 750 billion fund proposed by the European Commission, the EU and the eurozone could emerge stronger.

Any perception of a lack of solidarity between the lesser-hit north and the worse-hit south could undermine the cohesion of Europe. We expect European leaders to reach agreement on a fund eventually, but we suspect that the plan originally proposed by the Commission will be watered down.

Beyond fixing a course for the EU’s post-pandemic recovery, the region’s future relationship with the UK will also need to be re-defined before the end of the year.

QE challenge countered

The ECB has seemingly managed to defuse the row over the legality of its quantitative easing (QE) programme by publishing a defence of the scheme in its latest set of policy meeting minutes. German parliamentarians appear to be satisfied with this response, although it might be more accurate to say that they want to make the problem go away.

However, it is worth noting that the ECB emphasised the importance of respecting the capital key and issue limits in the design of an appropriate asset purchase programme, and that in turn could constrain the capacity of purchases in the future.

Meanwhile, the Standing Committee of China’s National People’s Congress is reported to have voted unanimously for the controversial national security law covering Hong Kong. In response, pro-democracy opposition party Demosisto has announced that it will disband. The US is revoking Hong Kong’s special status.

Markets and data

  • Economic data continues to improve as lockdowns are eased (selectively). China is leading the way with manufacturing and services purchasing managers’ indices (PMIs) at above 50 and new export orders rising sharply. Levels of mobility are continuing to increase. This could help the real economy to rebound at a faster pace than was originally envisaged.
  • However, concerns about pockets of rising numbers of new infections are weighing on market sentiment. This concern is tempering any move higher, causing markets to drift sideways. At the same time, monetary and fiscal support continue to underpin economies, and by extension markets, and buoy risky assets.
  • In response to the Covid-19 crisis, we have seen USD 263 billion in ‘pandemic bond’ issuance, driven by companies and development banks to counter the negative economic impact of the virus outbreak; 51% of this pandemic bond issuance has come from China.
  • Demand for high-yield (HY) bonds may rise as companies cut dividends. Central bank support appears to be making investors less wary of HY, particularly higher-rated HY issues. The new issue market has surged, with funding costs down significantly. This has dramatically improved the balance sheet liquidity of many HY companies and continues to cause risk premiums to tighten. That said, we expect downgrade and default risks to be higher for smaller and lower-rated HY companies.
  • Outflows out of money market funds are accelerating. This excess cash, which had sought a safe haven during the height of the pandemic, is now looking for better returns. This continues to contribute to demand for risky assets and compress risk premiums.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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This millennial tech worker is meticulous about saving, but his investment gameplan needs work – TheChronicleHerald.ca

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It’s atypical for someone his age, but this 27-year-old tech support worker we’ll call Duke is confident he doesn’t need financial advice when it comes to spending or budgeting.

Duke, who earns $66,000 per year in Toronto, has been meticulously laying out his budget since he started working part-time in 2015. He divides his monthly take-home salary of $3,700 by 4.5 to give him a weekly budget of about $822. Each transaction he makes is placed into a spreadsheet where it’s dated and filtered into a category such as food and entertainment. A final column shows what percentage of his weekly budget was spent.

He’s never spent more than he’s earned, he said. In fact, he’s usually left with $1,000 at the end of the month to pump into his chequing accounts, which total $108,000.

“I don’t feel a financial adviser would be able to tell me anything I don’t already know,” said Duke of his spending.


Are you a millennial who wants to get the most out of your money? Contact Victor at



vferreira@postmedia.com



to appear in future edition of Spent, an entertaining look at the financial lives of real Canadian millennials.

He knows that, despite his budgeting, he could benefit from cutting down his food bill, which totalled $742 in the month Spent looked at his expenses. The bulk of that budget goes to groceries. Duke spent $286.66 over three trips to No Frills, $95.92 at Costco, $25.35 in two trips to Loblaw’s, $8.77 at Fortinos and an additional $100 at a local Chinese grocery store.

As far as the rest of his spending, he said he can’t make any other concessions. He only uses his car for transport — no ride sharing or public transit expenses appear in his monthly spending — and he spends just above $400 on insurance, gas and parking. His entertainment budget is light and so are his bills — $1,000 for rent, $42 for his cellphone and $15 for a gym membership.

Where he could stand to benefit from professional advice is not in regards with how to manage his funds, but how to invest them.

Duke does not have any money in a tax-free savings account and the only space being taken in his RRSP is from a work pension plan. When he first started investing in 2017, he placed $10,000 into a non-registered account and invested in a suite of mutual funds.

Over a year, he quickly grew frustrated with the high management fees he was paying and the heavy losses he was taking.

“I had no faith this person behind the counter could do a better job than me if I just got a little bit more of a background on what to invest in,” he said.

So he waited a few months before breaking even again and pulled his money from mutual funds, redirecting $3,000 into four index funds where he gave Canadian equities, U.S. equities, international equities and Canadian bonds an equal weighting of 25 per cent each.

Duke has had more success with this portfolio, but he wants more. He’s eyeing higher returns and is willing to put $100,000 of his money to work to generate them. He’s willing to take on risk, but at the same time, he wants his portfolio to be hedged against potential danger. Spent asked Frank Ortencio, portfolio manager of Raymond James’ Ortencio & Associates Wealth Management Group to help guide him.

Ortencio describes himself as an asset allocator — not a stock picker. He builds his portfolios by using ETFs to give him exposure to certain geographic regions and sectors.

Duke is still young and doesn’t have a pressing need to use his money over the next five years. He should be looking to take on more risk, Ortencio said.

“If he can live with the volatility he can increase his equity allocation to 90 per cent equities and 10 per cent bonds,” Ortencio said.

The first steps in Ortencio’s plan are to have Duke max out his contributions for both his RRSP and his TFSA. That would mean pumping $20,000 and $63,500 into the respective accounts. The remaining $17,500 would be placed into his non-registered account, joining the $3,000 already in there for a total of $20,000.

As for how he’d invest it, Ortencio said Duke can get all the bond exposure he’d need by investing 10 per cent of his portfolio into a single global bond ETF that would be held in either his RRSP or TFSA.

Duke would then begin slicing up the weightings in his equity portfolio by geographic region. Ortencio knows some investors might balk at the suggestion, but he wouldn’t recommend Duke place more than 12 to 15 per cent of his equity portfolio into Canada. He suggested the iShares MSCI Canadian Minimum Volatility ETF, which has dividend-based bank, utility and pipeline stocks among its top holdings.

“Canada is only about four per cent of the world market,” said Ortencio, who explained that Duke could much more easily diversify his portfolio if he avoids home bias.

Sixty per cent of Duke’s portfolio would then be weighted to global stocks, Ortencio said. Duke could either look for one global ETF that excludes Canada from its holdings or one fund that holds U.S. stocks and another that focuses on international firms. Again, he recommended two low-volatility products in the iShares Core MSCI All Country World Index Ex Canada ETF and the Power Shares S&P 500 Low Volatility ETF.

It’s in the remaining portion of Duke’s portfolio that he’ll take on more risk and expose himself to volatility, Ortencio said. Ten per cent can go to small and mid-cap stock ETFs, another 10 can go to REIT and technology ETFs and the final five per cent would be attributed to emerging markets. Within this section of the portfolio, Duke can also buy individual stocks — he voiced some interest in names like Tesla Inc. and Beyond Meat Inc. — but Ortencio wouldn’t recommend investing more than 10 per cent in one name.

“And 10 to 20 stocks would be too many,” he added.

Duke can keep some of his index funds in his non-registered account, as long as he adjusts their weightings. He can then use a Systematic Investment Plan, which allows investors to make automatic purchases and contribute $700 on a monthly basis going forward.

The important thing for Duke to remember, Ortencio said, is that while this portfolio might fall short of the max growth on the table during a raging bull market, it’ll also better insulate him in a sell-off like the one investors saw in March.

“This portfolio because it has a heavier tilt toward equity … the best-performing market, let’s say it’s up 10 per cent, his returns should be in the seven to eight per cent range,” Ortencio said. “But when the markets are down 10 per cent, because of the diversification, he may participate only on 70 per cent of the downside.”

Ortencio’s portfolio is an appealing one for Duke, who is happy with the opportunity to make more returns than he has in his time as an investor while also ensuring he retains some safety.

“This is definitely something I want to get up and running,” Duke said.


• Email:

vferreira@nationalpost.com

| Twitter:

Copyright Postmedia Network Inc., 2020

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Parkland eyes investment at Port of Oshawa – constructconnect.com – Daily Commercial News

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OSHAWA, ONT. — The Hamilton-Oshawa Port Authority has announced that Parkland Corporation has signed an agreement that could lead to construction of a liquid bulk transfer facility on the Port of Oshawa’s east wharf.

Parkland agreed to a Notice of Permission to evaluate investment, noted a July 30 release. Starting in August, Parkland will use a seven-month due diligence period to complete engineering design plans, prepare for various regulatory filings and conclude economic studies.

“Parkland already plays a leading role meeting the fuel needs of Ontario residents,” said Ryan Krogmeier, senior vice-president at Parkland, in a statement. “As we continue to pursue high-quality growth opportunities and extend our supply advantage, an import terminal in Oshawa would complement our existing transloading facilities in the Greater Toronto Area.”

“Parkland is a responsible operator with extensive experience operating commodity transload terminals in Ontario. The company operates a terminal at the Port of Hamilton where it has maintained an exemplary record of safety and environmental performance,” said Port Authority president and CEO Ian Hamilton.  

In spring 2020, a new grain export terminal, constructed by Sollio Agriculture and QSL, entered its first full season of service in Oshawa. The new facility gives Durham Region grain producers a local option to market their grain for export.

The Hamilton and Oshawa port authorities amalgamated in June 2019. Since then, the new port authority has identified approximately $25 million in work such as dock reconstruction, lighting and dredging that is required at the Port of Oshawa.

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Call for applications – AMF seeking applications for a position on the Investment Products Advisory Committee – Canada NewsWire

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MONTRÉAL, Aug. 6, 2020 /CNW Telbec/ – The Autorité des marchés financiers (“AMF”) is seeking applications for a position on its Investment Products Advisory Committee (the “Committee”).

Committee mandate
The Committee’s core mandate is to discuss issues relating to ensuring efficient frameworks for creating, managing and distributing investment products—mainly mutual funds, exchange-traded funds, non-redeemable investment funds and individual segregated funds—and provide feedback and suggestions for enhancing the development and implementation of those frameworks.

Committee composition
Set up and coordinated by the AMF, the Committee is composed of up to 15 outside members from various sectors and professions related to investment products, as well as AMF representatives. Members must have extensive experience in their respective fields and a solid understanding of investment product regulation.

The AMF seeks to have a Committee composed of members representing manufacturers and distributors of the above investment products in particular, as well as investor advocates. It also wants to ensure that members reflect the various business models within Québec’s investment sector.

Committee members are appointed for a maximum three-year term. This term of office may be extended in accordance with conditions determined by the AMF. The Committee meets three to six times annually and members are not remunerated for their participation.

Profile sought
In order to maintain the appropriate representation of expertise, the AMF is especially interested in applicants who have extensive experience in investment fund creation and management, portfolio management or alternative asset management. Persons wishing to join the Committee should consult the call for applications. The deadline for applications is September 4, 2020.

The AMF favours diversity within its advisory committees and welcomes applications from all qualified persons.

The Autorité des marchés financiers is the regulatory and oversight body for Québec’s financial sector.

Information:

Media only: 
Sylvain Théberge: 514-940-2176

Information Centre: 
Québec City: 418-525-0337
Montréal: 514-395-0337
Toll-free: 1-877-525-0337

Website: www.lautorite.qc.ca 
Twitter: @lautorite 
LinkedIn: Autorité des marchés financiers (Québec)

SOURCE Autorité des marchés financiers

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http://www.lautorite.qc.ca/

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