Jan 2018 Newsletter

Jan 2018 Newsletter

Dear Fellow Investors,

The markets are off to a fast start, at least in the US, with the S&P 500 up 5% in the first 30 days of the year. Historically this has boded well for the rest of the year – since 1950 when the market has been up 5% or more in January it has always finished the year in the green. In Canada the markets are off to a slow start with the TSX down 2% in January. The US dollar continues its slide and has now fallen 9% versus the Loonie over the past year including 2% in 2018. In the short-term we continue to remain overweight the US and underweight Canada although this will need to be monitored closely as we head towards the mid-term elections in the US.

Globally interest rates have been rising and putting pressure on bonds. We remain underweight bonds and still see the biggest risk coming from the bond market. Remember as interest rates rise, bonds drop in value. The longer the maturity the bigger the fall e.g. for every 1% increase in interest rates a bond with a maturity of 3 years will drop ~3% in value, compared to a 10 year bond which will plummet ~9%.

In November Shopify (SHOP) was added to the growth portfolio. I’ll do a bigger write up on Shopify in the future because it is a very interesting story. Shopify is a homegrown company – a Unicorn in the parlance of venture capitalists. It’s the first Canadian internet startup to have a billion dollar valuation since the dot-com crash. An over-simplification is to say that it takes care of a company’s online storefront and enables them to leverage analytics and reporting. It reminds me of Amazon in its early days…We purchased it after Citron Research (a noted short-selling firm) drove the share price down by 20% by calling the company’s business practices into question. This report was without merit in my opinion and thus far it looks like the market has agreed as the shares are back to where they were prior to the report.

At the start of the month Advanced Micro Devices (AMD) was added to your portfolio if it matched your risk profile – historically it has been a volatile stock and it doesn’t pay a dividend. AMD manufactures semiconductors for computers and servers. It has always played second fiddle to industry leader Intel. At the start of the month a design flaw in Intel’s chips that make them vulnerable to hacker attacks made the news. This should provide a catalyst for AMD shares along with their already strong operating performance and new Epyc server chips. Right on cue, AMD released a stronger than expected 4th quarter earnings and guidance this morning. The Motley Fool has a good write up on AMD on their website:

https://www.fool.com/investing/2018/01/15/amd-vs-intel-who-will-win-the-cpu-war-in-2018.aspx

This newsletter along with previous articles can be found on my website:

https://haakonpedersen.ca/

Thank you for your business and if you have any questions, please just email or call.

Best regards,
Haakon