Portfolio Managers' Notes


 

August 2024

 

Introduction

Enclosed in this Portfolio Managers’ Notes, we present BMO Nesbitt Burns’ latest portfolio strategy report to give you an update on equity markets and our strategist’s perspective. In addition, we have included a report on the upcoming Q3/24 earnings season for Canadian banks, which are held widely in our Model Portfolio.

 

Under the Wealth Management section, we have included an article about U.S estate considerations for Canadians investors. We have also included an article that looks at some effective tax planning and charitable gift planning strategies for business owners. We also remind you of the dates and limits for RRSP, TFSA, and RESP contributions. We encourage all of those that have not yet completed all their 2024 contributions to their registered plans to proceed as soon as funds are available.

 

We would like to wish all of you a wonderful rest of summer and remind you that we are here to help if you have any questions or would like to review your investment portfolio or your financial plan.

 

Market Research
 
Market Insights
Investment Strategy - August 2024:

Analysts: Stéphane Rochon, CFA, Equity Strategist and Richard Belley, CFA, Fixed Income Strategist.
 
Description:
Going Beyong the "Nifty AI Five" and the Presidential showdown

New catchphrases keep popping up all the time to describe the small group of stocks that have led the market since last year. Magnificent Seven, Super Six, and Fab Five are just some examples. Not wanting to be left out of the action, we propose the “Nifty AI Five” (Microsoft, Nvidia, Meta, Google and Amazon). We realize it most likely won’t catch on, but it does have the merit of including today’s dominant investment theme of Artificial Intelligence while echoing another period of stock exuberance in the early 1970s (the “Nifty Fifty”) which – spoiler alert – did not end well. Recent rotation out of mega-cap Tech and into smaller, more prosaic sectors/stocks could have legs, in our opinion, with positive implications for more reasonably valued dividend paying stocks and, of course, the Great White North. We believe EPS growth and valuation differentials have a lot to do with the recent move. The Nifty AI Five are still expected to grow faster than the rest of the market in 2024 (following their impressive outperformance in 2023), but Canada could outgrow the U.S. next year based on consensus. This would be a massive relative improvement. In other words, their advantage is shrinking, and the market has noticed.
Read More
 

Canadian Banks
Canadian Banks - Q3/24 Preview - Final Scorecard

Bottom Line:

The Q3/24 earnings season kicks off Aug. 22 with TD. “Big 5” (excl. BMO) cash earnings are expected to be up ~3% y/y (high single digits at CM and NA but declines at BNS), reflecting mid-single-digit pre-tax pre-provision earnings growth coupled with still elevated but stable credit provisions. Our estimates contemplate some firming in Capital Markets/Wealth revenue, moderating expense growth with benefits from last year's restructuring charges and mid-single-digit loan growth (helped by the full-quarter benefit from the HSBC Canada acquisition at RY). We believe that the regulatory capital inflation is behind us (removing an ROE headwind), and that the Canadian banks are at an inflection point with an improved earnings visibility. At current valuations, we view pull backs in the stock prices of our Outperform-rated names (CM, RY, NA, and EQB) as a buying opportunity.
Read More (please contact us)

Wealth Management
 

U.S. Estate Tax for Canadians
Income Tax Considerations

 

As a Canadian you may be unaware that your estate could be impacted by U.S. estate tax if you own U.S. securities or U.S. real estate. This article highlights the potential U.S. estate tax implications that could apply to Canadian estates and suggests a number of planning opportunities to help Canadians minimize these taxes. The strategies discussed in this article apply to individuals who are tax residents of Canada and are not U.S. citizens or taxed as a U.S. person. All amounts quoted are in U.S. dollars. 
Read More


Maximize Charitable Giving
Using a Holding Company

 

A small business can be an extraordinary opportunity for creating wealth. Small businesses are also the biggest creator of jobs in Canada. Almost 60% of Canada’s small and mid-sized business owners are aged 50 or older, nearly double the proportion of the overall workforce, indicated in a 2017 BDC study on The Coming Wave of Business Transitions in Canada. Furthermore, according to the Canadian Federation of Independent Business, approximately 50% of business owners plan on exiting their business in the next five years with more than 75% planning to exit within the next 10 years. This provides a great opportunity for effective tax planning and charitable gift planning strategies for business owners.

Read More


Contribution Reminder
For Your RRSP, TFSA and RESP Accounts


Maximizing the value of your registered plans by making annual contributions to your Registered Retirement Savings Plan (“RRSP”), Tax-Free Savings Account (“TFSA”), and Registered Education Savings Plan (“RESP”) is an important wealth planning strategy. By making your annual contribution(s) early in the year, you’ll benefit from the tax-sheltered growth all year long. 

 

The RRSP contribution amount for 2024 is the lesser of $31,560 or 18% of your 2023 earned income. 

 

TFSA contribution amount for 2024 is $7,000 or cumulative of $95,000 for 2024 if you have never contributed to a TFSA account. 

 

The RESP is an excellent way to save for post secondary education for your children. A contribution of $2,500 to the RESP leads to a combined 30% in government matching savings grants. 

 

For clients with children turning 18 this year that are considering the purchase of their first home, if you have funds available for savings, take advantage of the new FHSA.

Regards,

Tim, Catherine, and Edward