Portfolio Positioning: Short-Term Yields Just Too Attractive to Pass Up

Cameron Scrivens
Portfolio Manager and President 

Kai Lam
Chief Investment Officer

REGIONS IN FOCUS

CANADA

• Bank earnings season was disappointing, with lower-than-expected revenue growth and higher than expected costs from most banks.

• Canadian housing market is staging a modest recovery; supportive of near-term economic strength.

• First quarter economic growth beat forecasts, underscoring economic resilience—and leading the Bank of Canada to “un-pause” monetary tightening.

U.S.

• A debt-ceiling deal was expected and priced into the market.

• The personal consumption expenditures price index (PCE)—the Fed’s “preferred” inflation gauge—remains elevated, lending support to continued interest rate hikes to cool prices.

• Watching consumer/household data flow closely for any cracks in relative strength year-to-date.

INTERNATIONAL

• The European Central Bank and Bank of England are confronting persistently higher inflation compared to North America. UK food prices rose 19% year-on-year in April.

• Japan’s economic activity is expanding quickly and markets are rallying. Opportunities may be emerging.

• In contrast, China’s reopening now appears less promising, with related equity volatility as investors re-assess exposures.

Read More | Portfolio Positioning: A Railway with Momentum to Ride Out a Possible Downturn

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MARKET WATCH

What we’re adding – cash ETFs

The short end of the yield curve is offering very attractive returns right now. We’ve been using the cash we’ve raised from selling equities to deploy into cash ETFs. Those funds are carrying distribution yields of nearly 5%. If we can get that kind of yield without risk, that’s something we’re going to take advantage of.

What we’re underweight – equities

We’ve scaled back our equity exposure in order to increase our cash ETF position. Our equity portfolio performance has outperformed comparable benchmarks year-to-date and with short- and ultra-short term fixed income yielding 4-5%, our view is to take profits and direct those proceeds into money market funds and cash equivalents.

Read More | Get additional commentary from JCIC Asset Management

A look at some of the companies we’ve been buyers, holders or sellers of in the past month:

Company or issue	Buy, Sell, Hold	Thesis
EQB Inc. (EQB:TSX)	Buy	EQ Bank is the first fully digital bank in Canada offering deposits, savings products, loans and mortgages. For the past several years, EQB has demonstrated stronger growth than the “Big 6” banks while still generating impressive ROE (return on Equity) and maintaining strong capital ratios. Despite stronger performance, valuation is at a very steep discount to peers. We believe the business is misunderstood and much more resilient than current valuation suggests.
AXA SA (CS:PAR)	Buy	AXA is a global insurance company offering life and savings, protection, property and casualty insurance, and reinsurance. Historically management has done a good job improving operating metrics and hitting medium-term targets. Going forward, AXA will benefit from higher interest rates and a lower risk profile. The dividend yield is attractive and exceeds 6%. As the company executes and delivers on earnings and dividend growth, valuation should expand.
Canadian Pacific Kansas City Ltd. (CP:TSX)	Hold	Canadian Pacific Railway (CP) has combined with Kansas City Southern (KCS) after the US Surface Transportations Board's final decision this spring. The combined company is the only North American rail company that spans Canada, the United States and Mexico. Once fully integrated, over US$1 billion in synergies are expected to be realized over the next three years.

NEWSLETTER

Disclosure:

Although we obtain information contained in our newsletter from sources we believe to be reliable, we cannot guarantee its accuracy. The opinions expressed in the newsletter are those of JCIC Asset Management, its editors and contributors, and may change without notice. Any views or opinions expressed in the newsletter may not reflect those of the firm as a whole. The information in our newsletter may become outdated and we have no obligation to update it. The information in our newsletter is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. It is provided for information purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor or a group of investors. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. We strongly advise you to discuss your investment options with your Relationship Manager prior to making any investments, including whether any investment is suitable for your specific needs.

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