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Matco - Outlook & Opportunities Presentation
- 1. Outlook and Opportunities In a “V.U.C.A.” World October 2012
- 2. Returns in JuniorOil & Gas Space Outlook = Global Economy Slowing Junior oil and gas companies outperform large caps over past 25 years Modest Growth – Not NO Growth Source: The Economist – Estimates based on 52 countries representing 90% of world GDP. Weighted by GDP at purchasing-power parity
- 3. Returns in JuniorOil & Gas Space Junior oil and gas companies outperform Global Deleveraging Outlook = large caps over past 25 years Source: International Monetary Fund
- 4. Returns in JuniorOil & Gas Space Junior oil and Outlook = Commodity Bull Market Over? gas companies outperform large caps over past 25 years Going Back to 1800 ??? Average bull market lasts 16 years and gained 202%. Today we are in year 11 (13) and 178% Source: Ned Davis Research
- 5. Returns in JuniorOil & Gas Space Junior oil and gas companiesSoft Landing for Commodities Outlook = outperform large caps over past 25 years Hard or Soft Landing? Source: Ned Davis Research
- 6. Returns in JuniorOil & Gas Space Junior oil and gas companiesUS Consumer caps over past 25 years Outlook = outperform large In Better Shape Trend continues to improve US Household Debt to Income Ratio and Savings Rate Source: FRB, BEA
- 7. Returns in JuniorOil & Gas Space Junior oil and gas companies outperform large caps over past 25 years Opportunities
- 8. TSX Energy vs.Composite Opportunity = Equities Long term still outperforming Stock Dividend Yields Still Attractive Dividend yield = 3.2% 10 Year bond yield = 1.81% Source: BMO Capital Markets, Bank of Canada
- 9. Returns in JuniorOil & Gas Space Opportunity = Valuations Compelling Junior oil and gas companies outperform large caps over past 25 years Price to Earnings Multiple for S&P500 & TSX Current Trailing P/E = 14x Source: BMO Capital Markets, TSX, Global Insight
- 10. Returns in JuniorOil & Gas Space Opportunity = Natural Gas Junior oil and gas companies outperform large caps over past 25 years Growing Global Demand Natural gas demand growing at 2.8% annually (twice the speed of oil) Source: BP Statistical Review
- 11. Returns in JuniorOil & Gas Space Junior oil and gas companies outperformProfits All Time High Opportunity = US Corporate large caps over past 25 years Source: Federal Reserve Bank of St. Louis
- 12. Returns in JuniorOil & Gas Space Junior oil and gas companies outperform large Housingpast 25 years Opportunity = US caps over Market Trend continues to improve ??? Source: BMO Capital Markets
- 13. Returns in JuniorOil & Gas Space Opportunity = Auto Sales Recovering Junior oil and gas companies outperform large caps over past 25 years Consumer Confidence and Manufacturing North American Light Vehicle Sales and Production has rebounded from low Source: The Conference Board, WardsAuto.com
- 14. Themes Summary • Moderate Growth World – Global deleveraging – Commodity bull market flattening out – Headwinds remain (China, Fiscal Cliff, EU) – US recovering - Canada can benefit as largest trading partner • Opportunities Exist Within Slow Growth World – Equities vs. Bonds (Sector specific) • Canada and US – Natural Gas (Canada and US can benefit) – US Recovery Gaining Traction • Housing • Autos
- 15. Returns in JuniorOil & Gas Space Junior oil and gas companies US Election – Does it Matter? outperform large caps over past 25 years 2 Half of Election Years Generally Positive nd We are here Source: Ned Davis Research
- 16. Matco’s Approach Ina Slow Growth World Matco’s Asset Classes 1. Fixed Income A. Cash & Cash Equivalents B. Bonds 2. Canadian Equities A. Energy B. The Blue Chip Era (big & small) 3. Global Equities A. US B. International C. Emerging Markets
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- 19. Fixed Income • Globalcredit boom hangover has resulted in low rates…
- 20. Fixed Income The GreatParadox of Low Rates
- 21. Fixed Income How tonavigate the shallow Bond waters? 1. Manage risk, don’t avoid it 2. Corporate bonds continue to offer best value 3. What the BOC’s mixed signals & high CAD $ mean for bonds TOP IDEA • Brookfield Asset Management 5.30% 01MR21 – Infrastructure, asset management, & commercial R/E – Akin to a long term private equity fund – ~8 year term remaining – Rated two notches above investment grade (A) – +3.93% annual yield to maturity (YTM)
- 22. Canadian Equities • Diversification– who needs it? • The Canadian Advantage – Strong oil prices – High Canadian dollar – Top AAA rating – Lower unemployment – Overvalued housing • Blue Chips are back! – The Income Trust renaissance? – Don’t fight the baby boomer bulge (read: need for income)
- 23. Canadian Equities TOP IDEAS •Telus (T-T) – Income & Growth – Smartphone secular growth continues globally – Cable business market share opportunity – Earnings & dividend growth – Dividend Yield = 3.89% • Tourmaline Oil (TOU-T) - Growth – Low cost Natural Gas & NGLs exposed – Natural Gas bottom in – Strong production growth profile – Duvernay 2.0?
- 24. Global Equities • UnitedStates – Already had their lost decade – Sleeping Giant re-awakening – Winning the Race to the Bottom • International – Extended global credit & spending hangover for the EU – The EU hampered by a high Euro – Too many cooks in the kitchen • Emerging Markets – BRIC growth & urbanization normalizing (read: slowing) – China’s low cost advantage waning – Globalization vs. Protectionism
- 25. Global Equities TOP IDEAS •QualComm (QCOM-US) – Income & Growth – US-based chip manufacturer exposed to global smartphone growth – The ‘not trying to pick the winner’ strategy – Dividend Yield = 1.70% • Tesco Plc (TSCO-LON) – Income & Growth – UK-based international retailer exposed to global staple industry – May benefit from weaker input prices looking forward – Cheap valuation ~1/2 the multiple of the markets – Dividend Yield = 4.62%
- 26. Strategic Asset ClassCalls Themes Asset Mix • Small Overweight Stocks • Small Overweight Cash Bonds • Small Underweight Canadian Equities • Market Weight Global Equities • Small Overweight (US & Multinationals)
- 27. Why a BalancedApproach in a Slow Growth World? 1. Income, Income, Income (but not at all costs) – Low inflation – Negative real yields – Slow growth 2. Diversification – Reduces volatility – Compliments the Canadian Advantage – Hedge black swan risk in uncertain & complex world
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- 29. Disclaimer For your information: MATCOFINANCIAL INC. is a privately owned and independent wealth management office. The material presented is intended to provide information to Matco Financial clients, contacts and affiliates. Readers should not act on this information without first consulting their investment advisor, tax advisor, financial planner or lawyer. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Management fees, commissions, and expenses may be associated with investment management services and mutual fund investments. Before investing, please read the applicable information such as the prospectus, which contains detailed investment information and is available from your advisor. Most marketable securities such as mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.