Genus Weekly In Focus – Addressing COVID-19 Concerns Week-2

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Leslie Cliff: [00:00:00] Well, welcome to our video, our second weekly video, given what’s going on in the markets and we think it’s appropriate to reach out this way. It’s been an exciting week. A bit of a bounce in the market. The Powell, Powell, the chair of the Fed Reserve, says “the virus is going to dictate the timetable.” And we know the virus is still getting worse. Climbing the curve, yet the market had a pretty good bounce this week. So what is it telling us Wayne?

Wayne Wachell: [00:00:27] Will it telling us that, look at the dynamics of a,of a correction, there are three phases: There’s a downward flash, the panic; a rebound; and then a retest. And the panic was last week (beginning of March). We have the rebound this week. We’ll probably get a retest in April. And there’s, good there’s good news this week. Obviously, the Federal Reserve stepped in hard and we’ve got a package passed this week as well through Congress, for supporting the people that are out of work.

Leslie Cliff: [00:01:01] And we’ve got similar packages in Canada. I guess the, a lot of people, lot of wise people are very worried about the plumbing of the market, as they call it, or the liquidity, the bond market, the high yield market, the mortgage market, the commercial paper market. These things are showing signs of wanting to freeze up, which is not good. And tell us what the Fed and the Bank of Canada are doing it, well you don’t have to tell us the detail. But do you think it’s enough? Do you think what they’re doing will work?

Wayne Wachell: [00:01:29] Well, I think they’ve done enough in the US. They’ve done, the Fed stepping in, Powell, he’ll be there, and buy everything in sight, if he has to. Canada’s a bit slow on the draw. And it’s, you know, one day today they announce they’re coming in to buy bonds, buy government bonds and buy corporate bonds. So they’re getting with the program and our market, our Corporate bond market is very tight. This should hopefully free it up, loosen up. The market, I think the market’s getting a bead on pandemic. You know, there’s lots of modeling going on out there. They can figure out how it’s going to turn out. And I think it’s starting to deal with the other problem we have right now, and this problem in the credit system, obviously. With solvency and those kinds of things. So there’s good news, I think, of the pandemic, too, in terms of what’s happening in Asia. We’re seeing some improvements in China. And it’s it’s pretty optimistic. And actually, Italy is flat and the curve is there. They’re slowing down. You know,.

Leslie Cliff: [00:02:22] You mean, their both slowing down.

Wayne Wachell: [00:02:24] Yeah. So that’s those are good things. But now we have to deal with the credit, the mess and the credit system after the fact.

Leslie Cliff: [00:02:31] Well, at least the we’re getting help from the people account. I don’t want these weekly meetings to turn into, you know what stocks are bought and sold last week. That’s a little too short term. But I do want to review how you re-position the sectors and some of the names that you did buy. And how did our portfolios do last week? Given the report re-position that you did do 10 days ago?

Wayne Wachell: [00:02:57] Well, I think, you know, I believe we are our trading did help us, of course, the past past week. This market is there, sort of the haves and the have-not’s. And there’s a lot of winners in this market and a lot of big losers in this market. And we’ve been doing on the margin when, when the virus pandemic broke in China, we started selling energy stocks and financial stocks and downgrade downgraded Canada. And that was our first thing that we actually did. And of course, we moved that money into into technology, health care and some consumer staples. Companies like Amazon, Wal-Mart selling oil companies like Parex and Gibson and some of the insurance companies which were hit hard.

Wayne Wachell: [00:03:38] Insurance companies don’t do well when you have a yield curve is collapsing right in front of you. So this market, you know, as I mentioned, it has there’s been winners and losers. And one thing about this correction is, as they say, the generals haven’t been shot yet. They bel, there’s this big correction in technology, but not as bad as the rest of the market. And it’s because they’re the winners in this space. And so it’s very different from from previous recessions. There’s actually companies actually winning in this environment. And we’ve been focusing on them and in our growth portfolios.

Leslie Cliff: [00:04:09] What do you mean winning? You mean relative, right?

Wayne Wachell: [00:04:11] Or on a relative basis direction or they’re actually picking up business or actually, you know, there’s a big demand for chips now, for example. Right. And and Amazon’s very busy. They’re hiring people. So they’re.

Leslie Cliff: [00:04:22] It is good to remember in the panic stage, there was no diversification. All stocks were down 20, 25 percent. Didn’t matter who you were. But In this past week or so, there’s been in this winners and losers happening.

Wayne Wachell: [00:04:34] Yes. And we’re also seeing some of the value stocks starting to bounce back, more quality value I’d say. Our dividend strategies start to outperform this week. They didn’t do well because value got too small the course of this whole year with the pandemic, but now we’re seeing them come to life the last three, four days and end up performing quite dramatically. So it’s it’s encouraging to see that our our defensive strategies are performing right now, even in some off the other markets.

Leslie Cliff:[00:04:56] And Wayne, talk about our fossil free accounts, which are a big part of Genus. How have they done through this last couple of weeks?

Wayne Wachell: [00:05:04] They’ve done very well, obviously. They don’t have any and any energy. They have more focus on technology and they’re all performing. And also, we have an impact fund, which the impact the impact fund is you focus is fossil free, of course. You also focus on the winners of an environment where there’s climate change issues. And so it’s really cleaned up. It’s active, you know, probably 8 percent right now of the market right now. So it’s it’s really bearing out. That this metal has been tested and it’s performing dramatically.

Leslie Cliff: [00:05:38] So talk about a little bit so we we. There was a question that came in during the week, which was a great question from a client on Salt Spring Island, and it was “Genus what do you do when I have the policy makes, say, a 60 40 stocks, bonds and the market goes down 30 percent and the bond market, say stays flat?” “Well, with no trades, the new asset mix of the account is 50 50, with no action. And what do you do, Genus , in terms of rebalancing those accounts?”

Leslie Cliff: [00:06:07] And that really comes back to your individual portfolio manager. That’s not done by Wayne and his team. That’s done by the person, the portfolio manager you talk to. And it like like a good lawyer, I’d say the answer is it depends. It depends on your cashflow needs and your liquidity needs. And for clients who take no cash flow out of their accounts, we’ve been more aggressive in getting back to your policy weight. For the clients that are spending their dividends and interest and maybe a little bit of capital, we have not been getting back to your policy weight. So it comes back to your individual plan. And so that’s where I encourage you to talk to your your portfolio manager to to talk about where you are. But yes, for almost all our accounts and for the foundations, we’ve been selling bonds and buying stocks, which we talked about last week, which we’ve done a little bit more this week, but not much. So that was a great question from Salt Spring. And one of things I, that so many Canadians own are Canadian banks. That’s a big part of Canadians portfolios, even if they don’t realize it, any pension plan they participate in. And so on. And I see Royal Bank came out yesterday with the worry we won’t cut our dividend statement. But what do you think Wayne? Do you think the dividends are safe for or a big Canadian banks?

Wayne Wachell: [00:07:37] You know, I do. If a second wave hits later on this year and this thing accelerates, you know, all bets are off. But I think it’s going to be something like 2008. They actually in 2008, they froze or dividends for a couple of years. So it’s that’s probably been my forecast, I’d say.

Leslie Cliff:: [00:07:55] Freezing is much different than reducing. So, yes, that’s a good forecast.

Wayne Wachell: [00:07:59] And also, you know, we have with our client’s portfolios, we have the strongest banks, TD and Royal Bank, Royal Bank, has a lot of exposure in US already so Leslie, or exposure to the oil patch in Canada. They’re diversified into wealth management, insurance and other areas, too. So I think we have to get to the yeah, we have to the best. And so we’re we’re happy with that.

Leslie Cliff: [00:08:19] So Wayne, big picture for the week? What what do you think our clients should know that we’re up to?

Wayne Wachell: [00:08:25] Well, we’re we’re leaning forward and just we’re still watching. There’s a lot of volatility here. We’ve had a nice bounce. I believe we’re going to retest it in April as part of some of the bad news comes out. We’re just we’re on the portfolio daily looking for areas. Our focus of our team right now is to focus on solvency and solvency issues within our portfolio. And that’s that’s going to be our key is getting to the fundamentals, see where there’s any kind of issues and try and avoid those and just know keep our, avoiding any any torpedos.

Leslie Cliff: [00:08:55] Keep the plumbing happening.

Leslie Cliff: [00:08:57] Well, I hope I hope that gives you some insight on what we’re up to. We really appreciate your time. I am assuming everybody’s at home like Wayne and I are self isolating, are children are not letting us near near them.

Leslie Cliff: [00:09:09] And we wish you all the best. And thank you for being such great clients. You guys are really terrific and you’re good at staying rational as we go through this. So it’s a team effort here. And so we appreciate your your help and we’ll talk to you next week.

Leslie Cliff: [00:09:26] Thank you very much.