CPMS 2016 Q3 Canadian Market Review

Transcription

1 CPMS 2016 Q3 Canadian Market Review 2015 Morningstar, Inc. All rights reserved. <#>

2 Areas of Focus 1. Market Performance 2. Best sectors and stocks 3. Single factor analysis & model performance 4. Market fundamentals & outlook 2

3 S&P/TSX Composite Performance 2016 Q3 (Price Change) % +0.1% +0.9% % July August September The market experienced volatility in September but ended 4.7% higher for the quarter. 3

4 S&P/TSX Composite Performance 2016 Q3 versus Brent Oil Large dip in the index in early September is somewhat correlated to oil prices. 4

5 S&P/TSX Composite Performance 2016 Q3 versus Gold Volatility in Mid/Late September may have been impacted by the dip in Gold prices. 5

6 Q3 Market Performance (Total Return) 8% 6% 4% 2% 0% -2% -4% -6% July August September Q3 S&P/TSX Composite 3.9% 0.3% 1.2% 5.5% S&P/TSX % 0.6% 1.2% 5.8% S&P/TSX Small Cap 5.5% -3.6% 3.1% 4.9% Larger caps ended the quarter outperforming small caps. 6

7 Market Breadth (% of stocks with a positive total return) 100% 80% 60% 40% 20% 0% July August September Q3 S&P/TSX Composite 73% 48% 61% 69% S&P/TSX 60 78% 52% 57% 72% S&P/TSX Small Cap 63% 43% 64% 64% A greater percentage of larger stocks had a positive return over the quarter. 7

8 Sector GICS Sectors: 2016 Q3 Total Returns Sector Weight Q3 Return Q3 Breadth Best Performer % Worst Performer % 10 Energy 20.7% 6.2% 78% (39/50) Parkland Fuel Corp. +39 Baytex Energy Corp Materials 13.1% -1.1% 56% (31/55) Ivanhoe Mines Ltd First Majestic Silver Industrials 8.8% 10.8% 76% (19/25) Brookfield Business LP +41 Bombardier Inc Consumer Discretionary 5.2% 8.9% 74% (17/23) Sleep Country Canada +31 Corus Entertainment Consumer Staples 4.1% 6.3% 63% (7/11) Saputo Inc. +19 North West Company Health Care 0.8% 9.0% 100% (4/4) Valeant Pharmaceutical +24 Chartwell Retirement Financials 33.1% 5.9% 85% (22/26) Element Financial Corp. +20 Alaris Royalty Corp Information Technology 2.9% 12.1% 67% (8/12) Kinaxis Inc. +29 Sierra Wireless Inc Telecommunications 5.3% 2.8% 75% (3/4) Rogers Communications +7 Manitoba Telecomm Utilities 2.7% 0.7% 64% (9/14) Superior Plus Corp. +12 Just Energy Group Inc Real Estate 2.7% -1.5% 45% (10/22) Altus Group Limited +32 Boardwalk REIT -9 S&P/TSX Composite 69% (169/246) Ivanhoe Mines Ltd Baytex Energy Cop. -26 Technology and Industrials were the outperformers for Q3. Materials and the new Real Estate sector were the laggards. 8

9 Q3 BEST & WORST PERFORMERS Top and bottom 50 excluding takeovers and stocks in bottom ½ of CPMS Universe on average monthly volume 9

10 10 Q3 s 50 Best Performing Stocks

11 Q3 s 50 Best Performing Stocks During Q3, The 50 Best shared some of the following attributes: High Cash Flow to Debt Higher earnings and price volatility Lower earnings estimate revisions Expensive valuation metrics Lower expected yields Poor growth metrics Higher expected EPS growth 11

12 12 Q3 s 50 Worst Performing Stocks

13 Q3 s 50 Worst Performing Stocks During Q3, The 50 Worst shared some of the following attributes: Lower debt to equity ratios Higher earnings volatility Positive earnings surprise and revisions that got worse over the quarter Poor P/E and P/CF ratios Lower profitability metrics Higher initial price momentum 13

14 Which fundamentals did the market reward during Q3? At the start of the period, we equally weighted the best 50 stocks using each of the most commonly used CPMS factors separately and measured their performance. 14

15 Single Factor Analysis Expected growth for next year and price-to-sales factors delivered outperformance in Q3. Net profit margin and quarterly sales momentum underperformed. The CPMS universe was limited to stocks better than D+ for market float and trading volume. 15

16 STYLE ANALYSIS 16

17 CPMS Model Strategy Returns: Q Style Portfolios Jul Aug Sep Q3 Asset Growth 5.7% 1.2% 1.0% 8.1% D10 Dividend/Asset Growth 3.6% 1.8% 2.1% 7.7% Triple % -1.0% 1.7% 6.9% Income 5.1% -1.3% 2.7% 6.5% Predictable Growth 2.6% 3.4% 0.4% 6.5% S&P/TSX Composite Total Return 3.9% 0.3% 1.2% 5.5% Value 3.5% -0.5% 1.6% 4.6% Dividend Growth 2.2% 1.1% 0.9% 4.3% Bargain 4.8% -5.7% 4.6% 3.4% Triple 5 1.1% 1.6% 0.3% 3.1% D10 Earnings Momentum/Value 7.2% -5.6% 1.5% 2.7% Momentum 7.6% -7.6% 3.2% 2.6% Earnings Value 2.3% -0.4% 0.3% 2.3% Dangerous 1.4% -1.3% 1.5% 1.7% Earnings Momentum 9.2% -7.9% 1.1% 1.7% Industry Relative 4.1% -4.8% 2.0% 1.1% Core % -5.1% -0.5% -1.5% A majority of the model strategies underperformed the benchmark for the quarter. Asset Growth, D10 Dividend/Asset Growth were the largest gainers while Industry Relative and Core 20 were the laggards. 17

18 MARKET FUNDAMENTALS & OUTLOOK 18

19 Valuations & Profitability P/B vs. ROE (net of T-bills): CPMS Median The margin between ROE and P/B remains strong but valuations have moved up. 19

20 Earnings Year-over-year earnings growth (Median & Average - CPMS Universe) Median and average earnings have moved up from last quarter; average earnings growth is predicted to improve and jump into positive territory. 20

21 Earnings Year-over-year earnings growth of the TSX Composite Year over year Composite earnings are negative and have remained unchanged relative to the prior quarter. Actual earnings have moved lower over the quarter. 21

22 Estimate Revisions & Earnings Surprise Average earnings surprise have moved up slightly and into positive territory. Estimate revisions continue to trend higher and are positive. 22

23 23 GICS Sectors: 2016 Q3 Overview Sector Current P/B Expected ROE Expected EPS Growth Earnings Surprise Estimate Revisions 10 Energy 1.0x -1.0% -11.7% 0.9% 13.7% 15 Materials 1.6x 1.6% 16.2% 0.2% 9.0% 20 Industrials 2.3x 12.2% -2.0% 0.4% 1.5% 25 Consumer Discretionary 2.0x 14.8% 3.9% -0.4% -1.3% 30 Consumer Staples 2.6x 14.3% 2.9% 1.3% -4.2% 35 Health Care 3.8x -0.6% -3.9% -0.8% -1.9% 40 Financials 1.3x 11.4% 3.4% 1.7% -2.7% 45 Information Technology 2.4x 10.8% 0.2% 0.5% -1.5% 50 Telecommunications 3.7x 21.0% -1.7% 2.1% -4.7% 55 Utilities 1.6x 8.8% 7.8% 0.5% 7.0% 60 Real Estate 1.0x 7.9% -0.1% -0.1% -0.8% Earnings are expected to grow healthily for Materials and Utilities while the outlook for Energy earnings is to decline. Estimates have been revised downwards in greater degree for Consumer Staples and Telecomm.

24 OTHER CONSIDERATIONS 24

25 The Asset Mix Decision There remains a positive spread between the Composite yield and the bond yield. 25

26 Economic Outlook Unemployment has increased over the quarter. Capacity utilization has declined while inflation appears relatively unchanged from end of last quarter. 26

27 Technical Analysis Technicals appear to have moved more into overbought territory. 27

28 Technical Analysis 28 Longer and shorter term technicals have moved higher. The composite remains above both the 50 and 200 day moving averages.

29 % Total Return Historic Performance Q4 S&P/TSX Composite 4 th Quarter Performance: 1957 to % 20% 10% 0% -10% -20% -30% # positive quarters # negative quarters % positive Q4 Q1 Q2 Q3 Q4 46 Average 3.6% 1.9% 0.7% 3.7% 14 Median 3.7% 2.2% 1.9% 3.8% 77% Std Dev 7.1% 7.9% 9.1% 7.7% 29

30 Return (%) Historic Performance Q4 GICS Sector Q4 (October December) Performance: 1988 to 2015 Energy Materials Industrials Consumer Disc. Consumer Staples Health Care Financials I.T. Telecom Utilities Median 0.4% 3.3% 6.0% 5.3% 4.5% 4.4% 6.9% 8.0% 7.2% 4.9% Std Dev 10.6% 10.2% 9.6% 7.3% 6.4% 14.8% 9.5% 24.7% 14.6% 8.0% % Positive 52% 63% 74% 74% 89% 56% 93% 81% 81% 85% Looking back to 1988, we present the median return, standard deviation and probability of a profitable quarter for all sectors in Canada. 30

31 FUNDAMENTALS: Fundamental Summary Valuations: Profitability: P/B multiples have rose over the quarter but remain low relative to long-term history. High Return on Equity is expected in many sectors; Energy and Materials are the exceptions. Earnings Growth: Year-over-year growth is mixed across sectors. ASSET MIX DECISION: Equity yields are more compelling than ten year bonds. TECHNICAL ANALYSIS: Technicals are in overbought territory and trending upwards. ECONOMICS ANALYSIS: No apparent capacity constraints, the unemployment rate has increased. Inflation remains below BOC targets. 31