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Report Updates
We have posted report updates on GDI, RPI.UN and DSG. Two companies have received an upgrade and one rating was maintained. All three companies, we think, are well-equipped coming out of the pandemic, with one potentially benefiting long-term from more precautions in sanitization. Another name has taken on a unique acquisition that could diversify its revenues further into the healthcare space.
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New Report
We have posted a new report on Telus International (TIXT), a subsidiary of TELUS Communications (T) that recently went public and the largest tech IPO in Canada's history. We also recently added this name to the Model Growth Portfolio and think it will be a good candidate for long-term growth given its exposure to high growth markets, strong backing from TELUS, profitability and strong management.
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Market Update
Markets have been steadily rising at a relatively steady pace, calmly reaching new all-time highs, after a bit of a wild start to the year. US mega tech stocks, in particular, have had a stellar week, but North American markets are sitting quite nicely so far with returns in the mid-teens year-to-date for 2021. Not much has come out of the markets in terms of 'exciting' news, aside from China cracking down on its companies listed on US exchanges. COVID cases have shown more improvement in Canada over the last month than in the US, but overall with increased vaccinations, things are looking more optimistic for a North American reopening.
The summer slowdown we are seeing in the market is a good opportunity for investors to take a breather, do some portfolio 'house cleaning' and get a fresh perspective on one's investments. Here are some good practices to consider taking on when markets slow down:
Portfolio Rebalancing
One of the first things that we think makes sense to look at is how one's portfolio composition looks on a broader level. By this we mean making sure your asset allocation is in line with your target weights in terms of exposure to the primary asset classes (equities and bonds). With the last year or so being quite out of the ordinary for both equities and fixed income, it would make sense to revisit this 'top' layer of one's portfolio. Then, diving into one's equity portfolio one could look at rebalancing one's sector allocation. With the pandemic having changed the outlook for many sectors (some even for the long-term) and generally causing a shift in many industries, this is an area of a portfolio where one may see a lot of variability, and as such, adjustments may be needed. Further, with COVID changing the landscape for many industries, you may even find specific sectors you are invested in to be not as attractive as before or others more attractive. You can use our Portfolio Analytics tool to make sure your sector and geographic weights are not out of line with your strategy and even see how they compare to our recommended weights.
Company weights
Digging a bit deeper down to the individual company level, an investor may also find themselves over or underweight in certain companies. We have seen some staggering returns over the last year in some stocks, but this may also lead to one company taking up too much weight in a portfolio. Typically we find 7-10% of a portfolio to be a good maximum range even for high conviction stocks and we would set the bar a bit lower for higher risk/speculative stocks. That said, taking partial profits may not be a bad idea here. On the other hand, there may be stocks that for one reason or another (i.e. underperformance or neglect) have too small of a weighting in a portfolio. At this point, one may choose to either sell a small position that may not move the needle to make room for better opportunities or add to it if it is a higher conviction name.
Tax-loss harvesting
Just as many names saw strong gains, many have also seen large losses. We believe that 'breaking even' should not be a goal in investing. Remember a 50% loss needs a 100% gain to get one back to a 0% return. With many up-and-coming names in the EV, renewable energy and even high growth-oriented tech names suffering some severe losses over the last few months - albeit we are beginning to see a recovery in some of these names - it may be worth taking a hard look at some losing investments. It is important evaluate whether one can reasonably expect to make a decent return by holding on to a losing investment in the long-run or if it is better to sell and move on to another opportunity. Enter: Tax-loss harvesting. This may be a good time to sell names you do not expect will recover much of the losses endured this year and 'lock-in' losses in order to offset future capital gains and reducing your tax bill. This can work especially well if one expects to realize large capital gains this year as well.
While the three action items above do not necessarily have to be done in this particular order, we think this top-down approach can work well for making the necessary adjustments to one's portfolio while keeping the big picture and overall strategy in mind.
Updates from 5i Research: Market and Flash Report - July 8, 2021
