Friday Market Insights – Continued rotation into economically sensitive sectors

Jill Bester : [00:00:04] Welcome to our Friday Market Update. My name is Jill Bester. I am an Associate Portfolio Manager with Genus Capital Management, and I’m joined here this afternoon with our Chief Investment Officer and CEO, Wayne Wachell. Good afternoon, Wayne.

Wayne Wachell : [00:00:20] Hi.

Jill Bester : [00:00:21] What a week we’ve had. Share with us what we’ve seen in the market this week.

Wayne Wachell : [00:00:26] Well, this week the market went sideways, but there was a lot of internal rotation. And I would say the risk on trade is is still there. The economic cyclical stocks did did better than the tech companies. Energy financials all did well, as did the commodities. And it was about kind of a week where more risk on small cap did did well as well. And for the week, it’s still more of a risk on environment discounting the positive news from the back seat of last week.

Jill Bester : [00:00:57] All right. That’s interesting and exciting news with the vaccine announcement. I see this afternoon the FDA is looking into their approval of the Pfizer vaccine and they’re going to make their decision, it looks like, around December 10th. So with that news, I expect we’re going to see continued rotation within the market until they get that approval through. What are your thoughts?

Wayne Wachell : [00:01:23] There’s there’s good good news out there. It’s always, as they say, there’s it’s always darkest before the dawn. And with the current spike in covid, there are some concerns, but generally that the market is discounting a recovery in the overall market next next year and also the coming advent of vaccines. And so we’ve seen a big pop in the value trade to speed up companies that were hurt by covid and growth slowed down and actually come off a bit. And there could be that kind of volatility, I think, until we get more visibility through through this whole current outbreak here. But longer term into next year, we still see you see the value stocks doing a bit better and the smaller caps doing better with risk on tech environment. It’s a longer term play with volatility along the way, and that’s just the way it is. But I think the market is discounting a recovery and a vaccine coming to bear on the economy and the population.

Jill Bester : [00:02:18] Right. So what kind of changes have we made to the portfolio based on on this movement we’re seeing between the dividend, which would be kind of the covid losers, and then the Ken Global Fund with our covid winners overconcentrate in the growth?

Wayne Wachell : [00:02:36] Well, we made some some changes and in two ways. Number one, we’ve actually purchased more of the dividend strategy with our balance mandates, took it from cash, put it into there. And we also within our with our CanGlobe Fund, our growthy fund, we did some rotation out of technology into the more economic sensitive areas like financials, industrials and some materials. So some rotation. They were getting ready for longer term, we think, improvement in the economy and some of these areas as we push through the this pandemic.

Jill Bester : [00:03:09] Right. We also saw, obviously, Mr. Ford in Ontario make the call this afternoon in regards to a lockdown of Toronto. With that news, obviously, that’s going to have major impact on small business and they’re doing additional funding, federal and provincial funding. With that though, that’s going to increase our deficit long term. And obviously with a little bit of inflation pressure that we’re seeing, the consumer price index rose this week based on the cost of food. How how do you forecast that work actually see through this after the pandemic has come to a manageable position?

Wayne Wachell : [00:03:54] Well, this is like going through a war in some ways. And to fight that war, the government spending a lot of money as they do in most other wars, and it’ll take a long time to pay the debt off. Tax will probably go up somewhat, but you never solve your problems with taxation. We’re going to grow our way out of this problem. That’s usually what happens to being sort of buckling our belts, tighten our belts and growing the economy and longer term, getting the ratio of debt to the economy down by just by growth and not in less spending. So it’s going to be a long term proposition. But that’s what happens during these kinds of events.

Jill Bester : [00:04:28] Right. We call our Canadian dollar the petro currency, obviously based on our overweight in the energy sector, on the TSX. Where do you forecast, if you can forecast this based on the slowing intentionally the economy where oil will set long term? We’re over forty two dollars a barrel still. But with the slowdown potentially based on Lockdown’s, where do you think long term we’re going to look to see where the the oil ends?

Wayne Wachell : [00:04:56] Well, I still think the pandemic has changed the game completely in terms of travel business travel. Folks are going to spend more time working at home using Zoom to go into work. I think there’ll be less business travel because of bad consumer, how we changed our practices. So the demand for oil has definitely peaked and that’s what we’re seeing some forecasters out there saying. And so I think it’s going to put a lid on oil during tight spots. Well, could spike up to maybe sixty dollars in this range here. I think longer term, you’re looking at futures four or five years out there. Forty five to forty seven dollars in that range. So I think that this pandemic has changed the game for energy longer term. And there’s also more technology out there as well. That’s renewables are changing demand as well for oil. So I think it’s longer term, it’s it’s less optimistic for oil than it was before the pandemic.

Jill Bester : [00:05:50] Right. And with that, I actually had a client pose the question, where is the Canadian dollar to US dollar? Do you think it’s going to go over the next short term?

Wayne Wachell : [00:06:00] Well, typically, when the economy, the global economy improves, it’s more of a risk on environment and international trade improves. Canada does better in that kind of environment. I would say, and the oil makes it better. How what happens with oil? But oil should do well this year reasonably well this year as the economy improves. So we see some strength into it into into next year. I’m not sure how far I can go, maybe to 80 cents of that, but it should do a bit better in the next year. There might be some chop along the way through this COVID spike here, but through through next year it should do OK.

Jill Bester : [00:06:37] Right. Are we currently positioned at holding Physer or Moderna and of course a large health care sector waiting still?

Wayne Wachell : [00:06:45]  We overweight those overweight that sector. We went overweight. We’re still overweight in our sector. And it didn’t have a great week because Amazon came out this week with an idea of actually starting to sell drugs. And so that that definitely hurt a lot of drug companies. And so they’re also get squeezed, we think, through new and improved some of the new proposals we’re seeing in the US health care industry. But we have an overweight net in that sector. We don’t have much Pfizer. We have some Merck, Regeneron about generally overweight that space.

Jill Bester : [00:07:20] Right. On that note, obviously, Dr Barney Henry has put down further restrictions across the province, not just in the Lower Mainland and Fraser Valley. So with that, I’d like to wish everyone well, obviously, it’s a time of great concern for many of us. And at this point, I think we’ll call it a day. Wayne, thank you again for your time. And we’d like to thank you as our customers as well as our prospects. If you have any questions, please feel free to reach out to your portfolio manager. Thank you very much and stay safe home. Thank you, Wayne.