Portfolio Managers' Notes


 

August 2022

 

Intro/Notes

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 and an article from our Senior Economist on the state of the Canadian economy. In addition, we have included the second quarter earnings report on CN Railway, a Model Portfolio holding.
 
Under the Wealth Management section, we have included a financial planning article for clients juggling both children and older family members. In addition, we have an article on planning for the family vacation property. We highlighted in the month of May that the prescribed rate loan was increasing to 2%. With the increase in interest rates, it was recently announced that as of October 1, 2022 the rate would increase again by 1% to 3. Finally, we remind you of the dates and limits for RRSP, TFSA, and RESP contributions.
 
We would like to wish all of you a wonderful end 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
 
Portfolio Strategy

Equity and Fixed Income Strategy:
Analysts: Stéphane Rochon, CFA, Equity Strategist and Eric Yoo, Associate
 
Description:

Inflation, Slowing Economy and Flattening Yield Curve - Focus on Defensive and Commodity Stocks

Notwithstanding the recent relief rally, the market has been mired in negativity for the entire year. No
single factor has been more damaging to financial assets- both bonds and stocks- than inflation, which has
pushed up interest rates dramatically and lowered equity valuations. We have previously likened inflation
to a cancer for financial assets, eroding the present value of interest coupons (hurts bonds) and of
corporate free cash flows (bad for stocks, especially high multiple, high duration equities).

Read More


Resilience or Recession?

Reprinted with permission from Sal Guatieri, Senior Economist and Director Economics, BMO Capital Markets.
 
We still lean toward “resilience” in the title question, but with waning conviction

High energy and food costs are eating into consumer spending power and confidence. Fast-rising interest rates are cooling the previous fire-breathing housing market. Even after several upward revisions, we still see upside risks for both inflation and policy rates. Any further bumps higher would almost surely lead to a hard landing. Still, we give the expansion roughly even odds to continue, albeit at a much slower pace and close to stalling at year-end. Support stems from high household savings and pent-up demand for travel, in-person services, and automobiles. Businesses need to invest to expand capacity. But a lot of things must start going right, notably for inflation and the war in Ukraine. Falling lumber and metal prices and easing pandemic restrictions in China are a start, but these are relatively small wins with oil prices still above US$100 a barrel.


Read More


CN Railway: CNR-TSX

Q2/22 Well Ahead of Expectations; Solid Momentum Going Into H2/22


Bottom Line:

CNR Q2/22 core EBIT was 8.9% above consensus and 3.8% above our estimate on strength in pricing and a solid improvement in the operating performance. Maintaining these positive trends through H2/22 alongside a projected 6% volume improvement versus H1/22 should put CNR on track to beat the high end of its full-year 15-20% target EPS growth. We reiterate our Outperform rating.


Read More (please contact us)

Wealth Management

Top Five Financial Planning Tips for the Sandwich Generation

Even on the best of days, life can be hectic and overwhelming. Jobs and the general day-to-day responsibilities aside, many of us have kids to take care of which comes with its own subset of duties and expenses. When you add the responsibility of caring for older family members, it can be a lot to handle. Hopefully, it’s comforting to know that you are not alone. This article provides financial planning tips for those sandwiched between managing responsibilities of taking care of aging parents and raising children.


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Planning for the Family Vacation Property

Many Canadians appreciate the benefits and joys of owning a cottage, cabin or chalet (“vacation property”), and wish to pass the ownership and enjoyment to the next generation. Designing a succession plan for the future ownership of your family vacation property can be challenging, especially because these properties often hold tremendous sentimental and monetary value. In addition, it is likely that more than one child may want ownership; however, the asset cannot be divided. As a result, it’s important that your estate plan take this asset into consideration to ensure that it is properly accounted for and, if applicable, transitioned based on the needs and desires of the family.


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.
 
RRSP contribution amount for 2022 is the lesser of $29,210 or 18% of your 2021 earned income.
 
TFSA contribution amount for 2022 is $6,000 or cumulative of $81,500 for 2022 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.


 
Regards,


Tim, Catherine, and Edward