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November 2022 Pricing Commentary

North American equity markets continued their positive price trend into November, finishing the month at two month highs.

Investors remain deeply fixated on the monetary actions of the U.S. Federal Reserve and its chairman, Jerome Powell. Interestingly, while short term interest rates should rise further into the new year, there is a developing view that these increases will be smaller and subject to any pronounced weakness in economic activity. Additionally, it appears that inflation is trending lower owing to decreasing energy, commodities, apparel, and used car and truck prices, giving investors renewed confidence that global monetary authorities are making headway in the fight against inflation.

With regard to common stock prices, we are now entering the year-end seasonality when the bulk of tax loss selling has taken place. Trading as a result, becomes more subdued as large institutional and retail investors have concluded the majority of their transactions for 2022. Consequently, with little motivated selling and reduced trading, share prices tend to lift upwards.

Reviewing our November performance, each of our three ABC Funds appreciated over 5% for the month. Our main Canadian equity performers were: Brookfield Asset Management, Canadian National Railway, Minto Apartment REIT, Pembina Pipeline, and Royal Bank of Canada. Our American stock outperformers included: Alphabet, Broadcom, Danaher, Home Depot, Honeywell, Meta Platforms, Microsoft, Mastercard, NVIDIA, S&P Global, and Thermo Fisher Scientific.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

Refinitiv Lipper Fund Awards Winner Canada 2022, Best Equity Fund Family Group Over Three Years

We are pleased to announce that the ABC Funds Family was awarded the 2022 Refinitiv Lipper Fund Canada Award for the Best Equity Fund Family Group Over Three Years for the second consecutive year.

We are honoured and motivated to continue our pursuit of investment excellence.

Irwin A. Michael Signature

Irwin A. Michael, Portfolio Manager
I.A. Michael Investment Counsel Ltd.

Disclaimer

The Refinitiv Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information, see lipperfundawards.com. Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Refinitiv Lipper.

October 2022 Pricing Commentary

The North American equity markets after two months of negative returns finally posted positive performance for the month of October.

This recovery was not unexpected given the current oversold market conditions due to rising interest rates and geopolitics. This gloomy environment spawned high stock price volatility and significant negative investor sentiment, which could in fact, quickly reverse course with any positive shift in U.S. central bank monetary policy. Furthermore, we have now entered the habitual late year positive seasonality for common share prices.

Interestingly, with today’s 75 basis point increase of interest rates by the U.S. Federal Reserve, while not unexpected, this action reinforces the negative investor psychology overhanging global securities valuations. By extension, this excessive market sensitivity combined with expected future interest rate increases is penalizing positive company earnings results of many North American businesses. More importantly, this gloom compounds the overhanging financial pessimism and has diminished a positive stock price outlook. Looking ahead, the expectation of the worst outcome is a positive contrarian securities pricing development. In fact, this growing negativity is providing an even heavier discount to the current intrinsic common share valuations.

Among our Canadian common share outperformers during the month included Canadian National Railway, Pembina Pipeline, and TC Energy, and our main U.S. outperformers were Apple, Autodesk, Broadcom, Becton Dickinson, Boston Scientific, Home Depot, Mastercard, NVIDIA, Salesforce, S&P Global, and Visa.

As we approach year end we continue to believe that our ABC portfolio holdings are well positioned with diversified, high quality industry leaders with positive growth prospects in an extremely undervalued security centric marketplace. We expect these selections will outperform with an eventual central bank interest rate pivot.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

September 2022 Pricing Commentary

Entering the month of September, it appeared to many investors that North American equity markets were deeply oversold and due for a positive bounce. This was, in fact, the case as equity markets by early/mid-September were showing positive investment returns between 3.5 – 3.75%.

Notwithstanding the extremely oversold conditions of investment assets including stocks, bonds, commodities, and precious metals, the firming price trend reversed course with North American indices ending the month with meaningful September declines between 4.5 – 10%. No sector was left unscathed as interest rates rose, impacting bonds precipitously and both common stock and commodity prices plummeted.

Having just entered the final quarter of 2022, we believe that securities markets have significantly overreacted on the downside.

Given the extreme negative market sentiment and investor fears, we believe that any unexpected positive economic, geopolitical, central bank or inflation news could precipitate and propel a massive snapback of equity prices. This occurrence could produce a significant revaluation of common stock prices similar to previous market recoveries such as the meltdowns of 1987 and 2008/2009.

More importantly, we are confident with our ABC portfolio holdings and positioning of strong, diversified, large capitalization, dividend paying industry leaders, which can withstand the present market turmoil. We expect our portfolios to outperform with the eventual price recovery.

Moreover, as we enter the month of October, positive seasonal trends now provide a powerful tailwind for common stocks. Historically, the period from October into the spring has produced a significant proportion of the years’ investment return. Positive seasonality combined with the extreme bearish sentiment enveloping the market today should portend meaningful investment outperformance in the near future.

In conclusion, contrary to the present investment doom and gloom we remain optimistic as ever with regard to equities and our high-grade investment portfolios. We expect the recent peaking of inflation will lead to an eventual central bank pivot and a return to material positive investment returns entering 2023.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

August 2022 Pricing Commentary

The positive stock market momentum during the month of July carried into August with considerable optimism. For instance: financial services, large capitalization American technology shares, industrials, and health care stocks enabled the various North American indices to reach new summer highs by mid August.

By the fourth week in August, however, common share prices started to slip with growing fears of a Federal Reserve 75 basis point interest rate increase and the short, but biting, hawkish monetary comments of Fed Reserve Chairman Jay Powell at the Jackson Hole Symposium on August 26th. The seriousness of Powell’s statement enervated investors’ market commitment and both the equity and bond markets tumbled and sold off to month end.

Interestingly, while the primary Federal Reserve motivator is the reduction of inflation, we have witnessed, especially in the greater Toronto area, a sharp decline in gasoline prices, a major inflation component. From the June 2022 high of about $2.30 a litre gasoline prices at the pump have fallen to $1.50 a litre. This is the lowest price in seven months. If the price declines further or even stabilizes at these levels this occurrence could positively impact inflation statistics and soften the North American monetary authorities serious battle to beat down inflation towards their 2% target.

Despite lower prices, a number of our ABC stock holdings did return positive results for this period including: Algonquin Power, Becton Dickinson, Brookfield Infrastructure Partners, Emera, Meta Platforms, TD Bank, Waste Connections, and Waste Management. It should be noted that we are committed to these securities and our equity portfolios, in particular, as we approach 2023.

Now entering the last four months of 2022, we expect: gradually lower monthly inflation reports and greater clarity with respect to interest rates and inflation; moderating weakness in North American GDP growth and stable employment data; respectable corporate earnings results; and more mergers and acquisitions and share buybacks due to relatively low equity prices, albeit, with rising borrowing costs and quantitative tightening.

In summation, we remain optimistic with regard to equities and expect stock selection to remain paramount as an eventual business recovery and a peaking of inflation and interest rates takes hold in 2023.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

July 2022 Pricing Commentary

North American equity markets posted positive returns during the month of July. This was largely due to a substantial rebound in large capitalization U.S. technology stocks and a positive reaction to their Q2 quarterly earnings, which drove equity markets upward and surprised many of the investment pessimists.

Interestingly, this upturn transpired within an excessively negative investment environment with heightened concerns relating to rising interest rates and inflation, recessions fears, and the conflict in Eastern Europe.

The three ABC Funds greatly benefited from this market recovery with significant price appreciation and portfolio outperformance versus their respective benchmarks. This positive outcome was primarily attributed to our meaningful positioning in American equities including: Amazon, Apple, Adobe, Autodesk, Boston Scientific, Broadcom, Mastercard, NVIDIA, Salesforce, S&P Global, and Thermo Fisher.

Most notably, were the quarterly earnings results from ABC Funds’ favourites Apple and Amazon, which reported at the end of the month. Apple delivered a very strong quarter, beating analyst estimates on both the top and bottom line, and exceeding expectations for iPhone revenue. Additionally, Amazon reported better than expected financial performance, showing strength in cloud and advertising revenues and providing the street with robust forward guidance. These quarterly earnings were quite impressive given the challenging Q2 macro environment and in turn, their share prices appreciated substantially to reflect these surprisingly positive results.

Looking ahead, we expect equity markets to continue to climb a “wall of worry” despite relatively weak first half of 2022 economic data, geopolitical tensions, and uncertainty pertaining to interest rates and inflation. We are quite optimistic with regard to equities, however, we believe we are currently in a stock pickers’ environment and that security selection will be particularly important to investment outperformance. Furthermore, we foresee an eventual business recovery and a peaking of both inflation and interest rates that will ultimately lead to higher common stock prices over the next 6-18 months.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

June 2022 Pricing Commentary

While North American stock markets ended the month of June with significant price weakness, we believe that there are a number of positive observations.

Firstly, there appears to be a noticeable disconnect between the weak stock market performance versus relatively good corporate quarterly results and developments. Furthermore, while investors have been concerned with elevated inflation and Federal Reserve tightening activity, it is interesting to note ten year U.S. Treasury yields appeared to have peaked earlier in the month at almost 3.50% to settle in at about 2.88% by June 30th. Additionally, there is tremendous investor negativity overhanging securities pricing with regard to the outlook for the economy, inflation, interest rates, and corporate earnings. We believe a number of individual securities presently offer excellent long-term performance potential.

Overall, we remain confident that markets will recover with any perceived stability and optimism with respect to inflation, the conflict in Eastern Europe, and U.S. Federal Reserve monetary tightening. Most importantly, we are very confident with our portfolio holdings, which offer quality, income, and solid potential for capital appreciation.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

May 2022 Pricing Commentary

The month of May provided remarkable volatility for North American equity prices with considerable mid-month share weakness offset by a late month recovery. As a result, by month end the main North American equity indices closed flat to down slightly.

Although much of this volatility is a consequence of rising global central bank rates, inflation fears, and firming oil and gas prices, we are heartened by positive corporate earnings results, dividend increases, an upward sloping yield curve, and significant investor pessimism. Overall, we remain optimistic and are fully invested.

Of note, our top performing common stocks during the month included: TD Bank, TC Energy, and Enbridge in Canada, and Becton Dickinson, Thermo Fisher Scientific, Danaher, Broadcom, Activision Blizzard, and Autodesk in the U.S.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

April 2022 Pricing Commentary

Equity and fixed income markets declined precipitously during the month of April as investor pessimism grew due to fears of rising interest rates, central bank monetary tightening, and Eastern European turmoil.

Although corporate earnings have been consistently positive, investor skittishness has enveloped the marketplace, putting investment fundamentals, no matter how positive, as virtually irrelevant.

A perfect example is the common stock of Activision Blizzard, held in all three ABC Funds. Activision Blizzard is the object of a $95.00 US cash takeover by Microsoft, which represented a premium of over 45% to Activision’s closing price in mid January 2022. However, the April 29th month end close of $75.60 was a 20% discount to the merger proposal. More importantly, one day later on April 30th, Warren Buffet announced at the Berkshire Hathaway annual meeting that Berkshire had purchased 9.5% of Activision’s shares as an attractive arbitrage deal. At this point, we believe that the takeover, already approved by Activision’s shareholders, will likely succeed.

Overall, it is our view that within the present risk-off financial environment, in numerous cases, the “baby is being thrown out with the bathwater”. Consequently, despite the current market turmoil we are sticking to our optimistic investment stance and our diversified portfolio holdings with the expectation of improved market sentiment and performance by year end 2022.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

March 2022 Pricing Commentary

Equity markets during the month of March posted positive returns having “climbed the proverbial wall of worry”.

Specifically, the investor fears of rising interest rates, tightening central bank monetary actions, continued supply chain disruptions, elevated inflation, and the conflict in Eastern Europe did not impede improved stock prices.

All three ABC Funds provided positive performance during March and this is consistent with our optimistic investment outlook for 2022.

Top performing Canadian share holdings for the month included Algonquin Power, Brookfield Infrastructure Partners, Canadian National Railway, and Enbridge. Our leading American equities were Amazon, Apple, Broadcom, Meta Platforms, NVIDIA, S&P Global, Thermo Fisher Scientific, and Waste Management.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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