Show me? (TWTW – Apr 12-16, 2021)

Several strategists recently suggested markets had some digesting to do … as far as recent gains, in order to validate the record levels recently reached.

With S&P earnings reporting now in full swing, we’ve so far had the best earnings growth since the third quarter of 2010 according to FactSet (+30.2%). Obviously good news, but clearly on rather depressed comps …

Anyway, amongst these, US Bank earnings stood out, prompting Canadian firm BCA Research to urge investors to “favour an overweight allocation to bank stocks in their portfolios as a number of factors support continued strength in financials”. Where results failed to impress, however, was in the loan portfolio area – but this should improve as the vaccine rollout efforts continue to proceed. BCA notes that a steepening yield curve is further boosting the outlook for banks. And, of course, … there are … “releases” aka the monies set aside as far as expecting the Pandemic to translate into significant losses … which, well, if the losses fail to turn up … the banks can then unwind and bring back into earnings by effectively holding less in reserve.

Strategists – BMO Strategist, Brian Belski, appeared on BNN, highlighting his continued bullish stance toward stocks, and suggesting there is a strong probability of seeing Canada outperforming the US in 2021 => Click HERE for a listen!

The Canadian Real Estate market got you “worried”? A good look at the dynamics from TD’s Economist Beata Carancy => Click HERE!

Chinese stocks fared rather poorly in March, on accounts of expectations of tighter liquidity conditions going forward (iShares China Index ETF XCH was off 5.57% in March; BMO China Equity Index ETF off 15.21% … ouch … with the heaviest weight in that one at over 20%) – Alibaba getting fined $2.8 Billion by Chinese authorities for violating anti-monopoly regulations.

Crypto – This weekend, Bitcoin got hit – pulling back some 10% on … apparently … rumours that the US Treasury is planning to charge several institutions for money laundering using cryptocurrencies…

This, interestingly, after Coinbase debuted to great fanfare on NASDAQ this week – with Cathie Wood’s ARKinvest immediately proceeding to purchase shares (funded in part by sales of Tesla shares).

While on the Bitcoin “page”, this past week Horizons ETFs launched their futures-based version of providing exposure to bitcoin for ETF investors, while also launching an “inverse” bitcoin ETF.  Here again, ETFs are “innovating”, in that now, investors can readily take a short-term bearish view of the cryptocurrency. Read more => Click HERE!

ETFinsight – My ETFinsight database is now up-to-date with regards to the iShares ETFs line-up. Perusing recent performance across the line-up, the relative performance of value versus growth stood out for me, and I wrote “rarely seen: huge gaps in relative performance (Large Cap Canada; Value; Growth) read more => Click HERE!

Two other things stood out – (1) Min Vol and Low Vol experiencing a relative performance rebound in March, (2) dividends looking to be back in favour as far as performance showing some decent traction. On the Volatility reducing strategies front, ZLB was up 8.13% in March 2021, while XMV was up 6.73%.  When looking at these … keep in mind their underlying exposure can vary quite significantly. For instance, with ZLB, you get the top 3 sectors (Financials, Utilities, and Consumer staples) representing just over 50% of the ETF’s assets. With XMV, the top 3 sectors add up to 53.4%, but with meaningfully greater weight in financials (32.21% versus 22.44%) AND the number 2 and 3 sectors being Materials and Industrials. Net on Net, what does that imply? Perhaps that ZLB is the more “conservative” of the two for Canadians that already are heavily exposed to Financials, for instance, and that might be looking for the defensive attributes of Utes and Staples, while Canadians looking for possibly greater participation to the upside of the “reopening” might be more inclined to play the Materials and Industrials cum higher financials weight angle. Checking back to look at the performance of these ETFs versus the broader Canadian market in the past 5 months (Oct 31-Mar 31 – recall the vaccine news came out November 9th), this is what has transpired: ZCN: up 21.6%; ZLB: up 16.2%; XMV: up 17.2%. Interestingly, flows, which initially moved into Min Vol and Low Vol went into reverse in recent months, with os for ZLB off 5.6% since Oct 31, and XMV’s off a more meaningful -24.5%.

Switching to Airlines –  while US airlines reported results showing that the cash bleed had finally come to a stop (hard to believe how many people in the US currently fly … while we here in Canada, or at least Ontario … are basically subjected to renewed restrictions associated with the COVID-19 third wave …), in Canada, the Government (finally?) took action with regards to Air Canada, resulting in all Canadians now being shareholders in the airline. Read more => Click HERE!

Canadian Telcos – earlier this week, I exchanged some tweets with the folks at Morningstar, looking at some dividend stocks in Canada, as I question the “narrow moat” Morningstar assigned the Telcos. The reply related to regulatory risk, which … granted … could prove headache-inducing for the Bell’s Telus, and Rogers of this country. Later in the week, the CRTC issued a ruling related to network access – and all-in, it looks like … well narrow as the moats maybe … it doesn’t look like the Canadian Telcos fortress is at risk of imminent demise. Here is what analysts had to say:

Analyst reports say two of Canada’s publicly traded, mid-sized regional telecommunications groups will likely have more room to grow, given the CRTC’s new restrictions on BCE’s Bell Canada, Rogers Communications Inc. and Telus Corp.

But analysts from RBC Capital Markets and Canaccord Genuity say the three big national wireless carriers will likely be able to manage the new CRTC rules.

“We view this decision as ‘constructive-enough and manageable for national operators while at the same time ‘extending a helping hand’ to existing regional wireless operators,” RBC analyst Drew McReynolds wrote in a report for clients.

Patrick Horan, portfolio manager with Agilith Capital, said, on the whole, the proposals were “well balanced” between the interests of big companies, smaller rivals, and consumers, but added, “I don’t think it changes much at the end of the day.”  

“This isn’t really going to hurt the Big Three at all in terms of a market share standpoint,” he told CBC News.”

Talking of which … Morningstar … not Telcos, I really enjoyed the chat between Morningstar’s Christine Benz and Vanguard’s Joe Davis – including some insights into Bitcoin … BUT also, and perhaps more importantly, the Value versus Growth outlook => Click HERE!

The week ahead:

Aside from the Federal Budget coming out on April 19th, market participants will keep an eye on the unfolding earnings season, and I look forward to hosting a webinar focusing on “Clean, Green Energy”, featuring Clean Edge’s Founder and Managing Director Ron Pernick. Ron’s expertise underpins several Nasdaq indices, amongst which CELS (NASDAQ Clean Edge Green Energy), that investors can access in Canada via First Trust Portfolios QCLN (already a multi Billion $ ETF in the US). Register HERE!

History – One Bernie Madoff left us this past week, having served some 12 years out of a 150-year prison sentence received for running the world’s biggest and longest-running Ponzi scheme, which all came crashing down in 2008.