Caerus Wealth March Commentary
The last several weeks have proved to be unnerving at best. There are certainly more questions than answers and the one that seems to be on most people’s minds is ‘how long will this continue and when can we get back to living a normal life?’ As you can imagine, this type of uncertainty brings a large amount of misinformation lead by political propaganda and economic predictions. After all, the US elections are a few months away and since the beginning of the year, the stock markets have dropped in Canada and the US by approximately 22% and 19% respectively (Source: Quotestream Real market as of March 31, 2020). With all the different news and opinions out there, it is very crucial to remain calm, be objective and adhere to our disciplined approach to investment management.
As of this week, there are over three billion people around the world that are practicing some measure of ‘stay-at-home’ guidance. We anticipate this number increasing before declining as Latin America and African countries begin to see a surge in cases. Currently, there are over 250 million people in the US that also are practicing similar instruction. Here in Canada, it’s fair to assume that the entire country is on lock-down while cases are still increasing in the three largest provinces including Quebec, Ontario and BC (not counting for Northwest Territories and Nunavut). We are all being impacted by this pandemic, and in many cases, it’s hit very close to home. See Canada’s COVID-19 outbreak update.
There has also been some positive news over the last two weeks. We have seen monetary and fiscal policies that have come timely as the government intervenes taking extreme measures to provide much-needed support to the country. Some investors have viewed these measures as a buying opportunity which has resulted in a rebound of stocks from their lows. Some are even calling this a ‘V’ shape recovery and possibly the shortest-lived recession ever recorded. There has also been some positive news around the slowing rate of new cases emerging in European nations particularly in Italy that reconfirms that social distancing and home-isolations do in fact stop the spread and will ultimately be key in its’ control.
We are asked often about when the right time is to get back into the markets? Here at Caerus, we do not make predictions, nor do we claim to have all the answers. Our portfolio management process is founded on technical data layered with fundamental analysis to guide us in making investment decisions at every stage of the economic cycle. We look for strength and we always avoid weaknesses. This disciplined approach was instrumental in our ability to exit assets that showed weakness over the last several weeks, and we will apply the same process in examining buying signals as we navigate through this environment. We understand the desire and temptation to want to predict, anticipate or even time the market during situations like this and that is precisely why we have engineered a process that is objective, data-driven and agnostic across all market conditions and asset classes.
As it stands, the current data points to a weak environment for stocks and favours cash and liquid short-term bonds. This data point directly to the root of the problem, the pandemic. This is not 1929, 1987, 2000 or 2008 and it’s difficult to use those past events as indicators during such an unprecedented time. It is difficult to kill the virus using conventional means via pumping cash
into the system and lowering interest rates. Financial assistance is certainly helpful and much needed. However, this virus requires distancing, medical attention and time to overcome and until we notice a significant drop in global cases, it would be unlikely for us to see any compelling strength signals.
From an economic standpoint, the uncertainty around a solution and the global lockdown has lowered the price of oil down from approximately $60 to approximately $20, a barrel a drop of 67% (Source: Wall Street Journal, March 30, 2020). These prices are catastrophic for many oil-producing companies on both sides of the border and it identifies as to how this pandemic is impacting the global demand for such commodities. We are still seeing a very timid Bay Street and Wall Street with their indexes still down nearly 22% YTD. Furthermore, we have experienced an extreme amount of volatility in Bonds over the last 2 weeks triggered by mass redemptions and an overwhelming amount of credit risk. Lastly, we see the cases unemployment numbers skyrocket over the next few weeks and there is no certainty that those without a job will be able to resume employment once this is all done. These are all very telling signs that we are in an economic situation that may take some time to heal and find solid footing.
Caerus Private Wealth Portfolios
As communicated with you in our last Commentary on March 13th, we sold out of stocks over a 2-week period and last week we noticed signals to exit out of mid to long-range corporate bonds resulting in an increase in our cash balances. In addition, we have had numerous conversations with the alternative investment companies that are held in our models, regarding how they are navigating through this downturn. From our conversations, we feel that all our alternative investments (Rise Properties, Capital Direct Income Trust, Trez Capital and Romspen) remain to be great long-term investments with strong collaterals. However, it is also important for us to let you know that Romspen and Trez Capital have placed redemption restrictions to protect
their operations. Trez Capital has put a hold on all redemptions for the time being and Romspen is allowing a monthly redemption of 1% of their $3 Billion portfolios. These measures are to protect the existing shareholders and are designed to protect the operations of their core line of business. Also, given the current climate, they might experience a decrease in yield in 2020 which is currently set at 7% for Trez Capital Yield Trust and 8% for Romspen Mortgage Fund.
For the time being, and while we take a defensive stance, we have allocated the cash balance of the account to a Short-Term Federal Bond ETF so that we could earn a modest yield while we plan our next move. Year to date, the Caerus Balanced Portfolio and Caerus Balanced-Growth Portfolio are down between 6% and 5% respectively and their current yield is projected to be 3.1% per annum. We feel that we are well-positioned given the current market environment as we watch eagerly for more positive news developing around the globe.
As your trusted Portfolio Managers, Caerus Private Wealth and its team are available to address any questions you may have. Stay safe!
Terry Fay, Director, Private Client Group, Portfolio Manager
Kian Ghanei, Director, Private Client Group, Portfolio Manager
Caerus Private Wealth – HollisWealth, a division of Industrial Alliance Securities Inc.
700 – 609 Granville Street, Vancouver BC V7Y 1G5
T: 604.895.3316 | TF: 1800.665.2030 | F: 604.682.0529
terry@caeruswealth.ca | kian@caeruswealth.ca
holliswealth.com | caeruswealth.ca
This information has been prepared by Terry Fay and Kian Ghanei who are Portfolio Managers for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Terry Fay and Kian Ghanei can open accounts only in provinces in which they are registered. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.