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Top picks for new money for 2022

We had our office Christmas party at The Keg recently. We were so busy talking, drinking and eating that we forgot to take a picture! The picture above is from 2019! Gregg Lutton is no longer with our office. Rob Bisbicis (financial planning) and David Martin (compliance) were present. Adrian Mastracci sent his apologies. Omicron is out there…. We talked about a lot of things, but as we are in the business of prognosticating, we couldn’t help talk about what each one one of us is buying for 2022 and beyond. I took notes!

Veronika Moore (Marketing – not a registered adviser)

As my portfolio is rather small, I am still building a core position in equities. Adrian and Constantine have told me over the years that there is almost nothing better for a core portfolio position than an investment in the S&P500. So this is what I am doing with new money for almost all of it, 90%, using the lowest cost Canadian domiciled fund that I can find, RBC US Index Fund, (RBF5737). I am also investing a small portion in a pharmaceutical company, Biomarin Pharmaceutical Inc. (BRMN). They have drugs that aid with rare diseases including PKU, which is something I know a lot about.

David Martin (Compliance – not a registered adviser)

S&P500 through ETFs like the Vanguard S&P500 ETF, (VFV.TO). Large cap US stocks. We will see the pandemic become an endemic by mid-2022. Omicron will (I hope) turn out to be a type of extra immunity builder and not cause very many deaths. What we need is a stable and only moderately dangerous virus situation, so that we can establish stable and only moderately restrictive rules. The present system of constantly changing rules is a real drag on productivity and morale. If we move to endemic status, this drag disappears and companies can grow. Then there is almost nothing better for a core general investment position than an investment in the S&P500.

Rob Bisbicis (Investment Analysis & Research – not a registered adviser)

My top picks are Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Meta (FB). I call these the Fantastic Five. They are likely my picks for the next five years. They are big part of the S&P500 Index and every investor that buys the index through a mutual fund and ETF ends up buying these stocks. The S&P500 can be thought of as the largest momentum fund in the world and empirically momentum works, i.e., outperforms. The Fantastic Five are amongst the best businesses we have ever seen in history! Return on invested capital for Apple for example is around 120%. They also have massive balance sheets and lots of cash. They are not the tech businesses of the .com bubble. They should do well even in a rising interest rate environment, investing their cash for something rather than nothing.

Steve Nyvik (Senior Portfolio Manager)

With the massive amount of government stimulus and debt creation in 2020 and 2021, I believe 2022 is the year when we see the US Fed tapers off its bond buying and may raise interest rates. Rising interest rates are bad for bonds and adds volatility to stocks; especially those that don’t pay dividends. As such, my picks are three Canadian life insurance companies with good dividend yields, good earnings and low price to earnings ratios. Pick #1: Manulife Financial Corp (MFC.TO), which earns $3.40 per share (P/E of 7.15) and pays a dividend of $1.12 resulting in a dividend yield of 4.63%. Pick #2: Great-West Lifeco Inc. (GWO.TO), which earns $3.53 per share (P/E of 10.77) and pays a dividend of $1.96 resulting in a dividend yield of 5.19%. Pick #3: Power Corporation of Canada (POW.TO), which earns $4.28 per share (P/E of 9.83) and pays a dividend of $1.98 resulting in a dividend yield of 4.64%.

Constantine Lycos (Senior Portfolio Manager)

2022 may be a tough year for most asset classes including stocks, bonds and real estate. If rates rise, valuations shrink, asset prices come down. Having said that, the markets have already priced in a few rate hikes by the central banks so unless rates go higher than expected we could have an OK year in 2022. What’s very likely to happen also is continued outsized inflation, i.e larger than 2% and food and energy prices are likely to lead the way. I am therefore adding to the following areas:

First, commodities using the KRBN ETF which invests in carbon credit futures contracts. This should be a good way to profit from the increased interest in (and changes in regulations to combat) climate change. We’ll see.

Next, Canadian Farmland. Very stable asset class, uncorrelated with other investments. I am doing this through 2 Veripath Funds, (QWE638 and QWE641).

Finally, residential real estate. I am doing that through a private fund, Trez Capital Private Real Estate Trust (TRZ610) and through a publicly traded Company, Tricon Residential, Inc. (TCN.TO). Both of these own residential rental units mostly in the US sunbelt where population is growing as more and more businesses are leaving states like California and New York and moving to states like Texas due to more favorable regulations, taxes, better affordability, fewer covid restrictions, etc. While I expect REITs to be hurt in a rising rate environment, these should do OK.

Give Us a Call

So, if you have any questions please don’t hesitate to give us a call. We can help you decide whether these or other investments are suitable for your already well-diversified portfolio. Thank you and have a happy and prosperous New Year!!!

Constantine Lycos
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