Our three ABC Funds significantly outperformed their index benchmarks during the month of May. This positive result can be largely attributed to the Funds’ portfolio overweighting in two top performing sectors – information technology and communication services – and notable geographic concentration in American equities accounting for 70-85% of our common stock exposure.

Apple, Alphabet, Broadcom, Meta, Microsoft, and NVIDIA were key contributors to our success due to stellar quarterly earnings results and the market’s realization of their significant future growth prospects in generative AI. This is understandable given our front page editorial in our January 2023 ABC Perspective which emphasized that:

“… we believe that we are presently on the verge of a Cambrian explosion of innovation that will dramatically alter our lives and elongate the secular bull market in equities for years to come. In particular, we see artificial intelligence (AI) as the principal agent of technological advancement and the overarching theme in the next leg upward for common stocks. In this regard, AI technology has the potential to reshape the world, boost productivity, and elevate corporate profits. For instance, AI will power self-driving cars, robotics, virtual/augmented reality, simulations, genomic sequencing, and new drug discoveries. Our portfolios are well positioned to take advantage of secular themes in technology, including AI, via core holdings such as Apple, Microsoft, Amazon, Alphabet, NVIDIA, and Thermo Fisher Scientific.”

Capitalizing on a number of common stock outperformers, we tactfully rebalanced our portfolios to add new positions in ASML, ServiceNow, and Canadian Pacific Kansas City. Looking ahead, we remain extremely confident with our three well-diversified portfolios and expect their positive performance to continue throughout 2023.

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

During the month of April, the North American equity markets continued their impressive climb upwards, defying the predictions of many investment pessimists who had forecasted lower corporate earnings results, higher U.S. Federal Reserve administered rates, and an impending economic recession.

The equity markets instead showed remarkable resilience, with this overhanging investor pessimism appearing to have been a contrarian market indicator, as the major stock market indices have ascended the proverbial “wall of worry”.

Interestingly, the indices were driven higher in April due to the outperformance of large cap information technology stocks and ABC Funds’ favourites including: Microsoft, Meta, and Alphabet, which all delivered better than expected corporate earnings results.

Additionally, our portfolios benefited from the impressive performance of Becton Dickinson, McDonald’s, Zoetis, S&P Global, Mastercard, Honeywell, and Boston Scientific in the United States, and TC Energy and Enbridge in Canada. In a number of cases, these holdings are reaching new 12-month and all-time highs.

This outperformance led to our three ABC Funds posting positive returns during the month of April, but more importantly impressive year-to-date investment performance.

With the completion of the first four months of 2023, we remain fully invested, expecting a continuation of the positive market trends to year end and beyond.

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

In March, global securities markets were influenced by substantial financial and economic news flow, such as the unforeseen regional banking crisis, which triggered massive deposit withdrawals resulting in a concerted rescue action by several big money centre banks and various U.S. government authorities.

This precarious setting, along with the pre-existing interest rate uncertainty, enervated investors and compounded the gloomy investment sentiment, despite a benign macro economic outlook. As a contrarian indicator, this bearish overhang presented as a bullish bellwether.

In the face of the overall market negativity, our ABC Funds exhibited exceptional outperformance for the month of March and their year-to-date benchmarks. This performance can be attributed to four appreciating sectors and specific ABC Funds’ holdings in consumer discretionary, healthcare, communications and information technology. ABC Funds’ standouts included Amazon, McDonald’s, Becton Dickinson, Boston Scientific, Thermo Fisher, Activision Blizzard, Alphabet, Meta, Adobe, Apple, Broadcom, Microsoft, and NVIDIA.

As we enter the second quarter, we anticipate the stock market recovery to continue, underpinned by economic resilience, strong corporate earnings, and moderating inflation.

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

Despite the early month optimism, North American equity indices slid into negative territory by the end of February. This decline was mostly due to lingering concerns about elevated inflation, U.S. 10 year treasury bond yields creeping towards 4%, and ongoing restrictive central bank monetary policies. Surprisingly robust North American economic activity and employment data also contributed to the decline.

Notably, with growing investment interest in large language models and generative artificial intelligence (AI), our three ABC Funds outperformed their respective benchmarks in February. This was due to the exceptional performance of two key investment holdings: NVIDIA and Meta, held in all three ABC Funds.

During NVIDIA’s earnings call on February 22nd, CEO and company founder, Jensen Huang made a significant statement regarding the current state of artificial intelligence: “AI is at an inflection point, setting up for broad adoption reaching into every industry. From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.”

While our portfolios are well-diversified, they are positioned to capitalize on AI’s tremendous growth potential, anchored by industry leaders leveraging the power of AI to drive transformative innovation, increase productivity, and boost corporate profits.

Looking ahead, our outlook remains optimistic regarding the North American economic and investment prospects for 2023. As a result, we expect common share prices to saw-tooth their way to higher levels.

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

The month of January produced remarkable investment performance, carrying forward a significant recovery from the lows of 2022. In retrospect, common stocks ended December unduly depressed and this past month’s extraordinary recovery was a powerful snapback, with the technology sector providing robust investment torque.

The investment shift to a more positive sentiment during January was largely the result of unexpectedly good corporate earnings results, steady economic growth, decelerating inflation, and lower market interest rates.

Interestingly, it appears investors have begun a meaningful migration out of commodities and defensive stocks and back into information technology, growth, and high beta securities. We expect this rotation to continue, which should provide a positive tailwind for our ABC portfolios.

Reviewing our January performance, all three ABC Funds outperformed during the month. Our main portfolio outperformers included Adobe, Alphabet, Amazon, Apple, Autodesk, Meta, NVIDIA, S&P Global, Visa, and Zoetis.

In fact, following yesterday’s market close, Meta announced exceptionally strong financial results and positive forward guidance. Consequently, Meta closed up 23% in today’s trading session.

Additionally, we believe there remains a substantial pool of uncommitted cash on the sidelines, which we expect to be deployed into equities within the year. In summation, we remain very optimistic about the economic and investment prospects for 2023.

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

Volume 34, Issue 1

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After two consecutive months of positive equity returns, the North American stock market indices declined across almost all industry sectors in December.

As we previously commented last month, investors have been deeply fixated on the monetary actions of the U.S. Federal Reserve and their data-dependent approach to combat inflation. Interestingly, the December economic data produced both strength, weakness, and confusion. For instance: November unemployment payrolls, factory orders, and new home sales all improved, whereas retail and vehicle sales, durable orders, housing starts and existing home sales all declined.

Despite the U.S. inflation rate’s second monthly reduction to 7.1%, the Federal Reserve continued to apply its aggressive inflation-fighting policy and increased the benchmark Federal Funds rate by 0.5% at their December meeting. Consequently, this central bank action rattled securities markets causing price weakness into year end.

In looking back over 2022 and into 2023, investors’ heightened concerns over global central bank monetary tightening has enervated any appetite for common stock and fixed income securities. In fact, investors are so focused on elevated inflation and fears of an impending recession that they are overlooking a resilient economy, respectable corporate earnings and profit margins, and declining energy prices.

With pervasive negative sentiment overhanging the securities markets, we believe that investors are “throwing out the baby with the bathwater”. In our view, investors are over-reacting with their bearishness. We believe that the glass is half full rather than half empty. As a result, we anticipate that 2023 should bring forth lower interest rates, a more accommodative central bank interest rate environment, and solid corporate earnings. We expect increased company share buybacks and mergers and acquisitions due to severely undervalued common stock prices.

We are confident with our three ABC Funds portfolio holdings which encompass numerous larger capitalization and dividend-paying beneficiaries of any market recovery in 2023.

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

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, President
I.A. Michael Investment Counsel Ltd.

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, President
I.A. Michael Investment Counsel Ltd.