Bryden Teich and Paul Gardner discuss Avenue’s outlook for interest rates and Federal Reserve policy as we enter 2020. The past year saw a significant change in policy from the U.S. Federal Reserve with three interest rate cuts and a significant re-expansion of their balance sheet starting in September. The conversation touches on the economic outlook for both the United States and Canada and the impact on interest rates and stock prices.
The case study is where we discuss specific details of our investment process. Today we will tackle stock market multiples and how it relates to risk. I wish I could say we can also make it entertaining, but the subject matter probably precludes this.
This past year was a year to celebrate Avenue’s unique equity strategy where the foundation of the portfolio is built on limiting the risks we take, instead of trying to ‘beat the stock market’ in any given year. For 16 years we have developed our brand and place in the Canadian investment industry where when you think of Avenue, you think of stability. Investment stability is achieved by diversification of the portfolio, the stability of the underlying investments, and rigorous attention to avoid owning securities that we believe are overvalued.
Avenue’s stock market investment strategy is to find business that have consistent earnings and trade at a fair price. Technology is difficult to fit into these parameters because technology companies by nature have disruptive business models which don’t always result in consistent earnings. Our topic today is to show just how expensive and erratic many of these technology companies have become. We will examine the influence of Softbank’s Vision Fund and WeWork on tech venture investing.
There are three distinct themes emerging that separate the world of investing and define our times.
With Canadian bond yields dropping below 2%, these are dark days to be a bond investor. Gone are the days when one could hope for 5-7 % annual returns from the bond market. With global central bank policy using quantitative measures to lower interest rates close to zero, the global $40 trillion-dollar bond market is searching for a “normal” return.
We are now in record territory; a full decade of economic growth and stock market expansion has many investors fearful that we are overdue for a correction. In this quarter’s letter we make the case that the investments we hold in Avenue’s portfolios remain compelling, but at the same time we need to actively avoid certain stocks and sectors where there is excess valuation.
This past year was a year to celebrate Avenue’s unique equity strategy where the foundation of the portfolio is built on limiting the risks we take, instead of trying to ‘beat the stock market’ in any given year. For 16 years we have developed our brand and place in the Canadian investment industry where when you think of Avenue, you think of stability. Investment stability is achieved by diversification of the portfolio, the stability of the underlying investments, and rigorous attention to avoid owning securities that we believe are overvalued.
There are three distinct themes emerging that separate the world of investing and define our times.
We are now in record territory; a full decade of economic growth and stock market expansion has many investors fearful that we are overdue for a correction. In this quarter’s letter we make the case that the investments we hold in Avenue’s portfolios remain compelling, but at the same time we need to actively avoid certain stocks and sectors where there is excess valuation.
We have experienced good performance in the last three months in both Avenue’s Equity Portfolio and Bond Portfolio. The key reason is an extraordinary reversal in interest rates.
In last quarter’s letter we wrote that as interest rates rise, they will likely cause a stall in the economy given the level of consumer and corporate debt. It is always hard to predict the timing of when the market will react to a slowdown, but that reality finally happened in December. What is unusual is that this was a global phenomenon where almost all asset classes were down worldwide in 2018.
The last three months have seen the continuing trend of gradually rising interest rates in both Canada and the US. In this quarter’s letter we will elaborate on Avenue’s bond portfolio strategy where the majority of our investments are in shorter maturity Canadian corporate bonds.
In investing it is important to directly address the challenging and ever-changing economic environment head on. It was only last quarter when there was a real fear of inflation and surging interest rates. Now escalating trade wars are threatening a global recession. In this quarter’s letter we will discuss how we see these challenges playing out and what we are doing about it within Avenue’s fixed income and equity portfolios.
The case study is where we discuss specific details of our investment process. Today we will tackle stock market multiples and how it relates to risk. I wish I could say we can also make it entertaining, but the subject matter probably precludes this.
Avenue’s stock market investment strategy is to find business that have consistent earnings and trade at a fair price. Technology is difficult to fit into these parameters because technology companies by nature have disruptive business models which don’t always result in consistent earnings. Our topic today is to show just how expensive and erratic many of these technology companies have become. We will examine the influence of Softbank’s Vision Fund and WeWork on tech venture investing.
With Canadian bond yields dropping below 2%, these are dark days to be a bond investor. Gone are the days when one could hope for 5-7 % annual returns from the bond market. With global central bank policy using quantitative measures to lower interest rates close to zero, the global $40 trillion-dollar bond market is searching for a “normal” return.
In Avenue’s equity portfolio, Enbridge is a great example of an investment which demonstrates the current valuation paradox.
In a rising interest rate environment there are times like the last nine months when it seems like nothing is happening. We have had a few questions from clients about why we own bonds at all. We believe it is helpful to lay out Avenue’s bond portfolio, so you can see all the individual bonds and you can better understand the return profile of the entire portfolio.
It seems many Canadians are in denial of what we actually do as a county to create wealth. A majority of the Canadian population have voted for federal politicians to extract us from the carbon economy. This may sound like a good idea except we don’t really have a substitute non-carbon economy ready to replace it, just yet.
Sometime a picture can relay information more clearly than a long-winded description.
Bryden Teich and Paul Gardner discuss Avenue’s outlook for interest rates and Federal Reserve policy as we enter 2020. The past year saw a significant change in policy from the U.S. Federal Reserve with three interest rate cuts and a significant re-expansion of their balance sheet starting in September. The conversation touches on the economic outlook for both the United States and Canada and the impact on interest rates and stock prices.