Crude’s remarkable rebound this year has put the Toronto Stock Exchange on the cusp of hitting 14,000. The composite index closed yesterday at its highest level in six months. It’s a rally that’s been fuelled in no small part by oil’s 70 percent surge since its February low. And now Canada’s benchmark stock exchange is sitting on the brink of a threshold it hasn’t seen since last August.
I was a mutual fund analyst for 10 years and I'm eternally grateful for the employers – primarily Merrill Lynch Canada and CIBC Wood Gundy – who made it possible. The ability to call virtually any portfolio manager with a fund available in Canada, and have them explain their investment methodology and answer questions formed the best investment education anyone could ask for.
But a decade was long enough. A big disconnect emerged between the analysis, which was designed to predict the best performing funds over a full market cycle, and investors who bought the previous years' top performers in droves.
Different investment approaches work best at different stages. Value-oriented funds, for example, have underperformed terribly in the post-crisis period while momentum strategies have done well. This doesn't mean that investors should abandon value funds, or stockpicking methods based on valuations. They still offer the advantages of downside protection and, if chosen correctly, long-term price appreciation. It's just that the recent market backdrop doesn't suit them.
What has worked market-wise in the recent past is less likely to outperform in the future. Richard Bernstein, founder of RB Advisors and still my pick as best strategist to follow, recently wrote, "Investors' rabid fervour for bonds and income during 2016 might ultimately prove to be the bond market's equivalent of March 2000's over-enthusiasm for technology stocks or 2007's for housing stocks."
Things change, they always do. Investment themes fall in and out of favour. The investment strategies that will perform best in the next five years are far more likely to be in the list of worst performers in the past five. It might not be value (although my suspicion is that it will be) but one thing I did learn in funds is that buying the previous years' top performers is a recipe for portfolio pain in the longer term.
--Scott Barlow
Three big numbers to note
15,385.27 Tuesday's close of the Toronto Stock Exchange. It's highest level this year is 15,414.57.
19,911.21 Tuesday's close of the Dow Jones industrial average - less than 90 points away from the key 20,000 level.
155 The number of S&P 500 companies Monday with dividend yields that exceeded the intra-day 10-year treasury rate of 2.50%. On the Friday before the U.S. election, there were 287 stocks with dividend yields that exceeded the 10-year treasury rate of 1.78%, according to S&P Global Market Intelligence.
Stocks to ponder
Student Transportation Inc. This stock has been trading sideways for several months, and as a result, has failed to appear on either the positive or negative breakouts lists, writes Jennifer Dowty. It's an industrial stock featuring a 7.4-per cent yield. Student Transportation is a North American provider of school bus transportation with more than 13,500 vehicles. The average one-year target price is $8.45 (Cdn), implying the share price may appreciate more than 8 per cent over the next 12 months. In 2016, six analysts issued research reports, four analysts have 'buy' recommendations and two analysts have 'hold' recommendations.
Cott Corp., Maple Leaf Foods Inc., and BRP Inc. These three stocks have made the top three on Canaccord Genuity's list of consumer stocks to own in the new year, writes Jennifer Dowty. Analyst Derek Dley favours consumer staples stocks over consumer discretionary stocks, noting several concerning industry conditions. "Consumer confidence remains volatile, household debt to income levels are elevated, and the overall consumer spending environment appears cautious," he said.
The Rundown
Pot stocks surge following federal task force recommendations
Canadian-listed pot stocks surged Tuesday after a federal task force released its long-awaited recommendations on the legalization of marijuana for recreational use, writes Brenda Bouw. Stocks such as Aphria Inc., Canopy Growth Corp., Mettrum Health Inc., and OrganiGram Holdings were up by as much as 5 per cent before the recommendations were announced mid-morning, and surged higher after the proposals were outlined in a press conference.
Nine TSX stocks with notable insider buying and selling
Jennifer Dowty examines the stocks on the Toronto market that have had significant actions by insiders, which includes Badger Daylighting Ltd., Canadian Tire Corp. Ltd., CI Financial Corp.
Fintech's fizzle: Online lending stocks are off to a rocky start
Emerging fintech companies, which combine cutting edge technology with finance, are supposed to be disrupting traditional banks with their smooth, low-cost online services. Their sinking share prices, though, suggest otherwise, writes David Berman. As bank stocks surge, the shares of U.S. and Canadian-based online lenders have fallen to a fraction of their debut prices, following a number of relatively recent initial public offerings from the likes of LendingClub Corp., On Deck Capital Inc. and Mogo Finance Technology Inc. Is disruption ever going to get started?
Online broker survey: Seeking the 'wow' factor
For the 18th consecutive year, Rob Carrick has issued his ranking for online brokers, and he finds that this sector is facing its greatest challenge ever. The old binary world of full-service and do-it-yourself investing is dead. Robo-advisers have created a midway point, and it's a safe bet that innovations to come will offer even more choice. This ranking is designed to highlight the brokers that are most effectively adapting to a more competitive world. This chart will help you judge the brokerages for yourself to choose the one that is right for you.
How Telus investors could get a clearer view of its earnings
David Milstead takes a look at Telus Corp.'s balance sheet and explains why he and Veritas Investment Research take issue that the company took future pay raises all at once on its quarterly earnings report.
Gordon Pape: This has been the year of improbable profits
There are only a couple of weeks left in 2016 and it looks like it will end up being a very profitable year for most investors, writes Gordon Pape. The S&P/TSX Composite was up 17.7 per cent for the year after the close of trading on Dec. 9, making it one the top performing indexes in the world. In New York, the Dow, S&P 500, and Nasdaq all established new records last week. At this point, the Dow is ahead 13.4 per cent for the year, the S&P 500 has gained 10.5 per cent, and the Nasdaq Composite is up 8.7 per cent. These numbers seemed highly improbable back in January-February. North American stock markets got off to their worst start in history.
Raymond James reveals its top Canadian stock picks for 2017
Raymond James's research team released its Canadian analysts' 2017 best picks on Monday, featuring only four holdovers from this year among the list of 14 stocks, writes Dave Leeder. "It was a strong performance for the list in 2016, with the 40.1-per-cent average holding period return from Dec. 7, 2015 to Dec. 7, 2016 landing in-line with the S&P/TSX Small Cap Index return of 40.4 per cent and nearly doubling the S&P TSX Total Return Index return of 20.5 per cent. Of the 19 stocks on the list, 6 outperformed the relevant benchmark," said Daryl Swetlishoff, the firm's Canadian head of research.
These 10 TSX stocks are long-term losers. Could they be short-term winners?
Racing to the bottom is something investors don't like to do when it comes to the markets. They tend to avoid stocks that have fallen over the course of many years. Last December, Norman Rothery highlighted 10 Canadian stocks that had shrivelled to less than one-10th of their 10-year highs. Fast forward a year and something rather unexpected happened. The long-term losers turned into short-term winners. They gained an average of 120 per cent from Dec. 10, 2015, to Dec. 9, 2016, not including dividends. The bounce back was impressive with eight of the 10 stocks posting gains of more than 50 per cent. He gives the list of this year's laggards for investors to ponder.
I took my investment broker's advice – and it cost me
John Heinzl tackles one reader's question -- his broker gave him bad advice and he lost out on thousands of dollars in gains. Now, what do you do? How do you handle your disappointment and your lack of faith in your broker?
What to tell your millennial kids about how to invest
Rob Carrick recently got a letter from a proud father about his 24-year-old daughter and the fact she had $17,000 saved. He wanted advice to ensure she got started properly as an investor. Rob Carrick suggested she gets a good financial planner who doesn't just sell mutual funds, and set some clear goals for her future.
Number Crunchers
Twenty small-cap TSX stocks with growth and momentum on their side
Eleven rallying oil-field services stocks with room to run
Ask Globe Investor
The Question:
I have a stock with an unrealized capital loss. When is the last day I can sell it so that the loss is recorded in 2016 to offset capital gains I have realized this year?
The Answer:
If you want your trade to be recorded in 2016 for tax purposes, the last date for Canadian stock transactions is Friday Dec. 23. Why so early? Stock sales and purchases settle -- that is, money and shares actually change hands -- three business days after the trade date. The Toronto Stock Exchange is closed on Dec. 24 and Dec. 25 (a weekend) and will also remain closed on Dec. 26 (in lieu of Christmas Day) and Dec. 27 (in lieu of Boxing Day). That means a trade on Dec. 23 will settle on Dec. 30. If you sell your shares after Dec. 23, your trade will be recorded in 2017 for tax purposes. You have more time for U.S. stocks. Because U.S. exchanges will be open on Dec. 27, that is last trading date for U.S. stock transactions to settle in 2016.
--John Heinzl
Thinking of investing in marijuana stocks? Send us your questions for this CEO
Marijuana stocks - Are they in a bubble ready to burst or is their market leadership expected to continue? The Globe and Mail's investment reporter, Jennifer Dowty, this week will be sitting down with Vic Neufeld, the chief executive officer of Aphria Inc. If you have specific questions that you want answers to, e-mail jdowty@globeandmail.com by the end of the day on Thursday, Dec. 15, and in the subject line indicate, "Aphria question." Watch for the story online and in the paper later this year. Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead
John Heinzl gives us a vigorous defence of being a dividend investor at a time when the sector seems to be losing some of its lustre. Andrew Hallam will write why TSX investors shouldn't be too loud in cheering the near record highs in the Canadian index. And David Rosenberg outlines five reasons why today's lofty earnings expectations are vulnerable to disappointment.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston