COMMENTARIES ARCHIVE

The “Resilients”

July 12, 2019

By many indications we are now in the late stage of the business cycle. We cannot accurately predict when the next recession will occur, as the current cycle has defied historical average timelines.

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The Seven Tests Framework

April 12, 2019

What a difference three months can make! The S&P/TSX Composite Index went from bottom to top performer amongst major global indices in the three months ending March 31st, 2019.

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Waning Optimism

November 23, 2018

From leading economic indicators to consumer confidence reports, sentiment in North America is still flashing green with several measures at decade high levels.

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Easing trade anxiety in your portfolio

July 13, 2018

The Bank of Canada raised its policy rate another 25 basis points (0.25%) on Wednesday. The hike was expected by the investment community given the solid pace of economic growth thus far in Canada and in its largest trading partner, the US.

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Sensible Purchases in Canadian Energy

March 02, 2018

Berkshire Hathaway, a holding in the QV Global Equity Strategy, released its 2017 Annual Report to Shareholders last weekend. Reading the Chairman's Letter is always enlightening with its wisdom on subjects like the dangers of investing with borrowed funds, how stocks "surge and swoon" around underlying value in the short term, and how buying equities at sensible multiples will reduce risk over longer time horizons.

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Responding to Current Events

November 17, 2017

Will AI displace traditional human managers? From the Industrial Revolution came power technologies like steam and commercial electricity, which led to the creation of industries and higher rates of productivity.

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Keeping up with the consumer

March 24, 2017

When analyzing consumer stocks, I cannot help but think of the wisdom shared by legendary investor Peter Lynch in his 1993 book, Beating the Street.

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What it means to be long-term

February 03, 2017

"Information is the oxygen of the modern age." - Ronald Reagan "We aren't in an information age, we are in an entertainment age." - Tony Robbins

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New Highs, New Opportunities

December 09, 2016

Not that 'The Donald' needs any more publicity, but it’s been exactly one month since he was elected to become the 45th president of the United States. In this time, the S&P 500 is up 3.8%, copper is up 7.7%, and oil is up 13.5%.

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"Lower for longer, not lower forever"

September 23, 2016

The title is taken from a speech delivered by Bank of Canada Governor, Stephen Poloz, on Tuesday. The intent seems twofold: 1) to ease concerns of future savers hoping for higher interest rates, and; 2) to encourage companies to invest today while funding costs are low.

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Resist the Urge to Pay More

June 17, 2016

What comes to mind if you were asked to name a high quality business? We have posed this question several times in meetings, and we hear many of the same companies mentioned each time, including "Starbucks," "Apple," and "CN Railway."

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Survey Says...

February 19, 2016

Investors are nervous. On Wednesday, the CFA Institute, a global association of investment professionals, released findings that revealed 30 percent of retail and institutional investors feel another financial crisis is likely within the next three years.

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Keep On Digging

December 11, 2015

In discussing the lessons learned through this cycle, the CEO at one of our resource companies indicated how a downturn had been planned for, but when it arrived the impact was much greater than anticipated.

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Deals, Debt, and Demise

October 23, 2015

In our third quarter review of the QV Canadian equity strategy we touched on how slow organic growth and low interest rates have enticed many companies to aggressively acquire. We wanted to expand on this topic.

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Healthy Developments

August 28, 2015

A balanced diet is part of a healthy lifestyle. In many diet programs the periodic "cheat meal" is encouraged in order to stay on track with the long term goals. Like the cheat meal, volatility is a necessary part of maintaining a healthy stock market.

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What to do about Housing?

May 01, 2015

In a recent interview with Ray Dalio, co-Chief Investment Officer of hedge fund Bridgewater Associates, the veteran manager was asked to what he attributes his success. Dalio's response was, "People think that my success is because of what I know. It's not. It's due more to how I deal with not knowing."

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Escape Valves

November 21, 2014

In purely practical terms, when the stock market is at or near a peak, there are likely to be very few, if any, bargains to be had…there is, therefore, a naturally induced bias towards selling and building cash during such periods…

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Follow the Leader

September 05, 2014

We recently had the opportunity to draw the insights of Murray Mullen, President and CEO of Mullen Group Ltd. – a leading provider of trucking and logistics in Canada. Mullen has a successful track record of generating free cash flow througho...

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Don't Settle for Just Any Yield

June 20, 2014

"Canadian stocks have rallied to a record amid a resurgence in energy producers and gold mining shares," states a Bloomberg report. The S&P/TSX Composite Index has nearly doubled five years after closing at 7,567 on March 9, 2009. Alternatively, six years after a record high above 15,000 in June 2008, the TSX closed at an all-time high above 15,100 this week. A good portion of investors might be thinking - it's about time! Those who failed to participate in the early rally could be eager to do so now. To this we refer to economist John Kenneth Galbraith, who famously opined the financial memory is "notoriously short."

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An Exercise in Patience

March 28, 2014

Over my four years at QV I have studied and used various techniques to value businesses, listened to strategists describe the condition of market cycles, and engaged with experienced managers on their past investment actions. While these opportunities have been instrumental to my development as a practitioner, it is the current market environment that helps me understand best what it takes to be a value investor. Patience is certainly a key ingredient; especially in markets testing new highs and making the contrarian element of value investing a challenge.

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Staying Sober in the New Year

January 24, 2014

How does the adage go, “let us not drink to the past, but to the future”? The New Year remains an opportunity to reflect and to plan. In the investment community, managers, strategists, and analysts have been releasing 2013 reviews and 2014 forecasts. By and large, value managers warn that stocks are no longer cheap. It could be that the healing process from the wounds of 2008 is well underway, or maybe the market has just had one too many drinks since the ‘08/’09 crisis and is due for sobering up.

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Pushing Through the Fourth

December 06, 2013

I settled into watching a Toronto Raptors basketball game on TV Tuesday night. In the first three quarters of the game, the Raptors came on strong and led by as much as 27 points. But as in the past, they began to stumble in the fourth quarter, losing their composure and eventually the game.

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Marching On

October 18, 2013

As we progress through our third-quarter reporting period, the tone of our outlook remains the same. We still favor equities over bonds on the basis of the yield differential between the two asset classes, but we feel that cash is becoming an increasingly important part of the asset mix.

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Big Bets on Canadian Banks

May 03, 2013

In reporting our quarterly performance to clients we are often asked where we see opportunities in the market. With the materials sector off 22.9% year-to-date our screens find plenty of value in this space, but our fundamental analysis finds little quality. Another area of the market where we see opportunity is in the financials sector, which includes both insurers and banks. The sector is up just 0.8% year-to-date, compared to the S&P/TSX Composite Index of 1.2%.

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The Market's Mixed Signals

March 01, 2013

We are two-thirds of the way through another period of corporate financial reporting, and for the businesses held in the QV portfolios, the results so far can be described as stable. A good example to characterize the last quarter for most of our companies would be the results of Canadian National Railway (CNR). CNR experienced single-digit earnings growth year over year, kept its balance sheet healthy, and increased its dividend. It is a business that continues to create long-term value for shareholders. Of the 32 businesses we hold in the Canadian equity and balanced portfolios, 22 dividend payers have reported their financials, and of them, 11 have increased their dividends. Here we emphasize the consistency in our businesses. Markets on the other hand are suggesting something other than stability or consistency.

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Reinvesting can pay dividends

December 07, 2012

Dividends have been cited to compose roughly 40% of the stock market’s long-run total return. It comes as no surprise that US investors are concerned about the risk of taxes on dividend income sharply rising from 15% to 43% in the New Year. The effect on Canadian dividend paying companies should be minimal, but we have seen some response. CCL Industries (a label and packaging manufacturer held in the QV Small- and Mid-Cap strategies) may have responded to the potential impact on its US institutional investors by accelerating its next quarterly dividend payment to before 2013. Dividend yield remains an important part of portfolio returns, especially for investors seeking an attractive and dependable income stream in today’s low rate environment.

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Core Consistency

October 26, 2012

“[W]e’ve seen continued economic weakening and uncertainty…We’re focused on being very nimble and taking actions to respond…It requires a pragmatic and steady approach as we balance our actions in the short term with what we need to do to be prepared for better growth when the world economy improves.” – Doug Oberhelman, CEO of Caterpillar Inc.

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Betting on Red

August 24, 2012

I’m not much of a gambler. After losing $40 at a hand of blackjack I vowed never to gamble again. I recall sitting at the table with angst, knowing win or bust comes down to one card. (It’s clear what happened next). My $40 loss was small by betting standards and easily reasoned away as the cost of a fun night out with friends. Now consider the bet the world is making on China, which saw $7.6 billion of foreign direct investment in July.

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Exploring for Value

June 22, 2012

The announcement of Canada’s inflation rate falling to 1.2% from 2.0% underscores that inflation is not an immediate concern in North America (although disinflation might be). As a result, we wonder if inflation hedging assets like gold and oil will continue to see some near-term weakness. With a $2.65 trillion monetary base, expected slow growth of around 2%, and a federal deficit fast approaching $1 trillion, the US Fed’s resistance on Wednesday from announcing a third round of quantitative easing (QE3) is comforting.

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The Transformation of Communications

May 04, 2012

Many of the businesses we hold in the Canadian Equity Fund have been highlighted in the press over the past week. When companies we hold hit the front page, naturally we become more interested in what the press has to address.

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Diary of a travelling analyst

March 23, 2012

I recently returned from holiday in Southeast Asia. A region of the world I called home for a significant duration of my youth. It has been at least ten years since I was last in the area, so it is an understatement to say that a lot has changed. The most prominent changes I observed were the numerous real estate developments and infrastructure projects occupying the city centres, as well as the Starbucks logos in the most convenient locations. The area was clearly living up to publicised growth rates for emerging market economies of between five and seven percent, in real terms.

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What is it you do again? - Revisited

January 13, 2012

With every New Year comes the opportunity to create annual goals, or resolutions. British media recently published survey results that revealed “despite 2.6 million people starting diets last Tuesday…this weekend 92 per cent of dieters gave up, shunning exercise and gorging on comfort food.” This survey suggests that individuals are prone to making choices that are often short-lived.

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Sound businesses will "full-steam" ahead

November 04, 2011

It’s that time of the year again where investors sit on the edge of their seats in anticipation of third quarter financial reports from the businesses we own. To date we’ve seen some very good earnings…and some not-so-good earnings. However, it is important to keep in mind that interim performance should be assessed alongside the long-term achievements of a business.

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Fresh off the press!

September 16, 2011

At times it seems like all recent news has been negative.  Especially as we end the week with Research In Motion's (RIM) stock down 20% today after reporting double-digit declines in revenues and earnings in its second quarter financials on Thursday.  The disappointment resulted from much lower BlackBerry device and PlayBook sales than anticipated, and higher operating expenses.

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A Dedication to Dividends

July 22, 2011

Part of QV’s investment process includes a monthly audit of fundamental portfolio characteristics against a relevant benchmark. In recent reviews of the QV Canadian Equity Fund and equity portion of the Balanced mandates, we have witnessed the dividend yield of the Fund come down to a level in line with the S&P/TSX Composite Index at 2.5%. Since the introduction of income trusts to the Index in 2006, the dividend yield of the Fund has generally tracked that of the Index. However, we are confident the businesses held in the Fund will help us build an improving dividend component going forward.

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Putting Cash to Work

May 13, 2011

When we're not discussing how the Canucks will win theCup, cash flow is a hot topic among many of us at QV.Positive, sustainable cash flow is a quality we hold in highregard when looking at our businesses and seeking outnew ones. As Darren highlighted in February, it paves theway for a company to repurchase shares, pay dividends,and fund growth opportunities. Simply put, it gives acompany options on how best to create shareholdervalue.

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High P/Es and High Returns

April 01, 2011

We recently met with a company whose core business is private equity investment. Some highlights from their investment strategy include: 1) finding businesses with high quality cash flows; 2) using financial leverage cautiously; 3) buying at a discount to fair value; 4) avoiding businesses highly correlated with commodity prices; and 5) staying disciplined. In keeping with its value-oriented philosophy -- similar to those at QV -- the company claims to be able to find around three good investment prospects per year.

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Value still exists, and it still rewards.

January 21, 2011

It's been a busy start to the New Year and we've witnessed several encouraging signs for sustaining growth. Flaherty further acknowledged Canada's rising household debt by tightening mortgage rules; Obama stepped closer to corporate America by recruiting General Electric's CEO to his economic advisory board; and earnings season has kicked off with some spectacular numbers from companies like Intel and Apple. However, as Joe emphasized in last Friday's Update, risks are building. Jobless rates remain high, US housing is still depressed, Europe's sovereign debt crisis lingers, and commodity prices have run-up significantly. Nevertheless, investors have upped their risk profiles by riding the momentum in equities.

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Virtuous circle, or something all too familiar?

November 12, 2010

With US Thanksgiving two weeks away, how many American families do you suppose will serve turkey with their holiday meals? Before taking a guess, Bloomberg has reported US wholesale frozen turkey prices have reached an all-time high. To be candid, I don't know what the answer is. And in all likelihood, the 28% annual price increase is not going to affect a timeless holiday tradition a great deal.

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Technology: Protector and Friend

September 24, 2010

When I read about the speed of advancement in technology, it's hard not to conjure up scenes from The Terminator. Beyond the forecast of how the world would end, the movie portrays how moving too far, too fast can be detrimental to civilization. Instead, a steady pace in innovation is advantageous. From the printing press to the Internet, technology has shaped the world's economic landscape by developing industries and creating jobs and wealth. In today's environment of high unemployment and low productivity, is it any wonder that governments are looking to businesses to innovate and spur growth?

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