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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.

February 2022 Pricing Commentary

As we entered the month of February, investors’ primary macro financial concerns were higher interest rates, pending U.S. Federal Reserve tightening actions, and inflation.

The current geopolitical tensions at hand have caused considerable volatility in the financial markets, producing a major mispricing of common stocks.

We believe the present negative sentiment for equities will wane and investor rationality will be restored. Consequently, we are retaining our portfolio positioning with the expectation of improved investment markets this year.

Irwin A. Michael Signature

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

January 2022 Pricing Commentary

Common stock prices started the month of January quite weakly and remained at these low levels until the last two trading days when they rallied significantly to record a strong finish. Despite this recovery, however, all major indices posted negative performance for the month.

On a positive note, we were very pleased with the solid gains of a number of our Canadian holdings including Royal Bank, TD Bank, CIBC, Enbridge, and TC Energy along with two ABC Fund favourites, Mastercard and Visa.

Of particular relevance to our present and future investment performance was the proposed takeover of Activision Blizzard (held in all three ABC Funds) by Microsoft (also held in all three ABC Funds) at a substantial price premium. We believe this takeover is not only extremely positive for both companies, but more importantly, adds credibility to our very optimistic investment outlook on gaming, the metaverse, and our portfolio positioning for 2022.

Irwin A. Michael Signature

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

December 2021 Pricing Commentary

North American equity markets rebounded from the November decline to register positive returns for the month of December and 2021.

Consequently, in December the ABC Funds recorded new 2021 price highs with their positive performance. More importantly, the Funds’ 12 month net returns enabled all three portfolios to outperform their respective index benchmarks for the year.

This achievement was largely due to several factors:

1. A fully invested equity position throughout 2021

2. Diversified and larger capitalization common stocks within each portfolio

3. Canadian/U.S. dollar currency hedge which reduced monthly price volatility

Of particular relevance during the month of December was the common share outperformance of about a dozen ABC Funds’ securities including Canadian holdings of Royal Bank, TD Bank, Algonquin Power, Brookfield Asset Management, and Brookfield Infrastructure Partners and the following U.S. stocks: Apple, Broadcom, Mastercard, McDonalds, Thermo Fisher Scientific, Visa, and Zoetis.

As we enter 2022, we are optimistic on the outlook for the North American economy and common stocks. This stance is based on our view that equities remain in a secular bull market bolstered by continued low interest rates and improving corporate earnings. As a result our portfolios are fully invested and will remain so for at least the first half of 2022.

Irwin A. Michael Signature

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

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