A warning about chasing yield

first_img 7.4 $45.5 billion $90.09 Market cap Franklin Templeton renames funds with new managers Total % return 3Y* Toronto-Dominion Bank Feb. 24 close Daniel Bubis, president and CEO at Winnipeg-based Tetrem Capital Management Ltd., says that defensive dividend-paying stocks remain expensive, while offering lacklustre earnings growth, against the backdrop of a strengthening global economy. In this defensive-dividend category, he includes pipelines, utilities, telecommunications services and consumer staples. Investors have been chasing these stocks for their dividend yields, as well as for their safe-haven characteristics, says Bubis, who is a value manager. Sonita Horvitch 11.5 $91.90-$73.89 Next: The energy sector @[email protected] The energy sector At the end of January, energy constituted 17.8% of the portfolio and was the second largest sector weighting. The two biggest energy holdings are Suncor Energy Inc. (TSX:SU) and Canadian Natural Resources Ltd. (TSX:CNQ) The latter, says Bubis, is buying the Canadian conventional assets of U.S.-based Devon Energy Corp. (NYSE:DVN) “These predominantly natural-gas assets are close to CNQ’s existing properties and infrastructure.” CNQ’s management is a “great steward of capital.” In the last few years, the company has been bearish on natural gas, he says. “This acquisition is a positive signal for the outlook for natural gas, which has seen its price rise in the wake of a tough winter and low inventories.” Also in this sector, the portfolio has a number of leading energy-services companies, “which should benefit from the expected pick-up in drilling in Canada, the United States and internationally.” They include Precision Drilling Corp. (TSX:PD) and Trican Well Service Ltd. (TSX:TCW) Precision is gaining market share, says Bubis, and is enjoying pricing strength. “Trican USA has had challenges, but it is in the midst of a turnaround and the company has appointed a new president, a seasoned veteran in the field, to head this division.” The portfolio has a holding in one of the largest global energy-services companies, Schlumberger Ltd. (NYSE:SLB) “This high-quality company has a substantial research and development budget that far exceeds that of other oilfield services companies,” says Bubis. “This keeps Schlumberger ahead of the curve when it comes to new technology.” In keeping with his view that “bond proxies are expensive,” Bubis has sold the remainder of his holding in the Canadian pipeline company, Enbridge Inc. (TSX:ENB), which is also part of the energy sector. In consumer staples, the team sold a “small position” in Maple Leaf Foods Inc. (TSX:MFI) Maple Leaf recently announced a deal to sell its 90% stake in Canada Bread Co. Ltd. (TSX:CBY) to Mexico’s Grupo Bimbo. “This was the catalyst we were looking for in Maple Leaf Foods,” says Bubis. “The story has played out.” About the Author Sonita Horvitch is a Morningstar columnist who specializes in reporting on money managers and their strategies. Manulife Financial Corp. $22.22-$13.79 Change to Counsel Global Small Cap Fund $21.20 Total % return 5Y* 12.0 Royal Bank of Canada 21.1 Related news Source: Morningstar Rising interest rates represent a headwind for these “bond proxies.” These companies have “little economic sensitivity or exposure outside of Canada.” Of the interest-rate environment, Bubis says that the 31-year decline in interest rates ended in 2012. “While I don’t see interest rates shooting up, the trend is for them to go higher.” In contrast to these defensive dividend-payers, the Canadian banks and insurers were not accorded the “bond-proxy status by investors and rightly so,” says Bubis. These financial companies have a number of lines of business, including their growing wealth-management divisions. “They benefit from rising interest rates, stronger equity markets and, in the case of those with substantial international operations, a weaker Canadian dollar.” Bubis says he has “selectively and opportunistically” added to his major holdings in Canadian banks and in one insurer. In the shorter term, the insurers are likely to be bigger beneficiaries of the stronger equity markets and rising interest rates than the banks, he says. Also, the Canadian banks’ consumer and mortgage-loan growth is being stunted by the slowdown in the Canadian housing market and the highly leveraged Canadian consumer. “But the banks remain steady-as-she-goes dividend payers and a core component of a Canadian equity portfolio.” At the end of January, Tetrem had $5.4 billion in assets under management, with CI Investments a major client. Heading the list of its CI mandates are CI Canadian Investment and CI Canadian Investment Corporate Class. These funds had assets under management of $2.3 billion and $994 million respectively. Both funds have foreign content. At the end of January, they had 65% in Canada, 21.9% in the United States and the remaining 13.1% in Europe, Japan and elsewhere. “We had increased the foreign content in our Canadian portfolios prior to 2013,” says Bubis. This weighting rose to 38% during 2013, with the strong outperformance of the foreign-content holdings versus the Canadian holdings. Bubis emphasizes: “All our country sleeves did well, with the Canadian holdings handily beating the benchmark S&P/TSX Composite Index.” At the end of September, the Tetrem team started to move money out of the portfolio’s international holdings and into Canadian stocks across the board. “This was a portfolio-allocation decision, which brought the foreign content down to 35%.” This strategy will likely continue, he says, “so as to get back to our historic 30% in foreign content.” The team has also used tactical changes to its hedging strategy for the portfolio’s U.S.-dollar exposure to take advantage of the strength in the U.S. dollar. Bubis and his team target securities that trade below Tetrem’s estimated fair value. “We are, at times, contrarian and certainly opportunistic.” Financials constituted 28.4% of the portfolio at the end of January. Top-10 holdings include Toronto-Dominion Bank (TSX:TD), the largest overall weighting in the portfolio, Royal Bank of Canada (TSX:RY) and Canadian Imperial Bank of Commerce (TSX:CM) . Another major financial holding is Manulife Financial Corp. (TSX:MFC) Of TD, Bubis says the stock is “trading at a valuation premium and the team did not add to it, but it did to Royal on an opportunistic basis during 2013.” The Tetrem team also used weakness in CIBC’s stock to add to its holding in this bank. CIBC’s stock trades at a discount to its peers, yet the bank has a higher-than-average return on equity, says Bubis. Earlier last year, the stock came under pressure due to uncertainty surrounding the future of CIBC’s Aeroplan loyalty credit cards in the wake of TD’s move into this business. “Later in 2013, a satisfactory compromise was reached on this matter, with both CIBC and TD issuing these loyalty credit cards.” Recent renewed concern about the health of the emerging markets put pressure on Scotiabank’s stock, says Bubis. The bank has been building its South American operations and is the most exposed of its peers to these markets. “As contrarians, we used the weakness to add to our holding in Scotiabank (TSX:BNS); the stock was mispriced.” On average, Bubis says the major Canadian banks trade at 10 to 12 times earnings-per-share estimates for the next 12 months, and the stocks have dividend yields of 3.5% to 4.5%. As for Manulife, Bubis says that the worst of its problems, which surfaced during the global financial crisis, are behind the company and the financial climate is favourable to insurers. “We upped our weighting in this stock.” 42.5 Share this article and your comments with peers on social media 7.1 $72.49 Canadian Imperial Bank of Commerce 52-week high/low 24.0 $50.28-$39.80 Total % return 1Y* Facebook LinkedIn Twitter 21.2 12.0 $36.0 billion 16.9 $73.35-$58.55 10.8 NEO, Invesco launch four index PTFs *As of Feb. 24, 2014 $39.1 billion Keywords Fund managers 26.2 $104.8 billion $49.44last_img read more

Mexican regulator targets service providers with new antitrust investigation

first_img America Movil’s mobile and fixed line operations are likely to face further scrutiny, with the announcement of a further probe by the Federal Telecommunications Institute (IFT), Mexico’s telecoms regulator.Both Telcel and Telmex could be impacted by the IFT inquiry, announced in the government’s official gazette.The announcement said the regulator will determine which operators hold substantial market power in voice, data or video services and networks, both nationally and at state, regional or local levels.The inquiry, which could also pull in Televisa, the country’s largest TV player, will not exceed 90 days. It will look at market practices, and whether leading operators are using their power for unfair advantage.America Movil has been under growing pressure in Mexico since IFT declared the operator a “preponderant economic agent” and hence eligible for tougher rules to curb its dominance. That definition was an assessment based on market share.The company subsequently responded by putting parts of its business up for sale, in an attempt to reduce its reach.Numerous reports have said America Movil will dispose of operator assets on Mexico’s east coast, as well as the west coast and near the US border. And foreign players have been linked to the assets — including AT&T, SoftBank and Bell Mobility. But so far no sale has taken place.AT&T subsequently inked a deal to acquire Iusacell. Previous ArticleSpark catches up with competition on 4G — COONext ArticleTelenor Euro head talks up scale benefits of TeliaSonera Denmark deal Related Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including… Read more Author Home Mexican regulator targets service providers with new antitrust investigation AddThis Sharing ButtonsShare to LinkedInLinkedInLinkedInShare to TwitterTwitterTwitterShare to FacebookFacebookFacebookShare to MoreAddThisMore 22 DEC 2014 OneWeb, SoftBank Corp plot Japan satellite movecenter_img Tags Deutsche Telekom, SoftBank tipped for T-Mobile trade Richard Handford Asia SoftBank Corp targets growth through acquisitions America MovilAT&TBellMobilityIFTMexicoSoftBanklast_img read more

Lord Kanaloa completes hat trick

first_imgNAGOYA – Hong Kong Sprint and Sprinters Stakes champion Lord Kanaloa won the Takamatsunomiya Kinen in dominant fashion Sunday, becoming the first Japanese horse to capture three Grade 1 sprint titles.The 5-year-old Lord Kanaloa went off as the overwhelming favorite in a field of 17 at Chukyo Racecourse, where he shattered the course record to win in 1 minute, 8.1 seconds over the 1,200 meters on firm going. GET THE BEST OF THE JAPAN TIMES Second choice favorite Dream Valentino came in second a length and a quarter behind. Pacesetter and long-shot Hakusan Moon was third.The Takayuki Yasuda-trained Lord Kanaloa now has an impressive 10 wins in 15 starts, never having finished under third in his career.“I’m convinced he’s No. 1 in the world, not just in Japan,” jockey Yasunari Iwata said of his mount, who also became the first Japanese horse to win the Hong Kong Sprint in December.“We’re in a position where we’re not allowed to lose anymore. I’m just trying to savor each and every race I have with him,” he said. center_img IN FIVE EASY PIECES WITH TAKE 5last_img read more

Junior table tennis team wings out for Caribbean C/ships

first_imgGuyana’s junior table tennis team yesterday departed these shores to match their skills against their Caribbean counterparts in this year’s edition of the Caribbean Mini-Cadet and Pre-Cadet championships.   The tournament is set for the Dominican Republic from August 26 – 31.  Speaking moments before the team’s departure, coach Linden Johnson indicated to Stabroek Sports that he’s confident of success. Linden Johnson “Apart from Kaysan Ninvalle and Jonathan Van Lange, we have a few good under – 11 boys, for example, Colin Wong and Danesh Persaud who are two seasoned players and could also do well in these championships because last year they weren’t too far away from it,” he said.   Reflecting on the team’s preparations which had included the input from ITTF Coach Sydney Christopher and former national female champion Chelsea Edghill, Johnson noted that he is quite satisfied with the process.  “Basically, I should say yes… we just had a few things to fine-tune coming down to the end, especially with the doubles combinations where we looked to work on their coordination,” Johnson, a longstanding coach of the GTTA noted.  Asked about the tantalising prospect of Ninvalle and Van Lange orchestrating their efforts in the boys under – 13 doubles category, he more or less hinted at the pair having inevitable success.   “I think it’s a good combination…if you look at them earlier in the year, they won an under-13 title… it’s just a good pair, and I think they can medal for Guyana,” he confidently remarked. He added: “They are two strong players, and you see a lot of improvement, especially with Van Lange who has started to show us good tennis in the last couple of months while Kaysan – we know that he is a past under – 11 champion and combined now, I just think it’s a strong force.” The team also sports a few exceptional female talents, most notably seven-year-old Jasmine Billingy who earned her debut for Guyana after capturing a few girls under – 11 titles this year.    While there is not undue pressure on her to grasp championship success, participating in the championship is expected to aid in her development as she goes on in the years ahead to carry Guyana’s table tennis flames.  Malachi Moore, another young and exciting talent will also test his technique and character against his Caribbean counterparts with an eye on the future.last_img read more