Zach Curry, director and portfolio manager, Greenrock Capital Partners

FOCUS: North American large caps 

MARKET OUTLOOK:

While it appears to have been a very strong start for broader markets thus far in 2023, looks can be deceiving, as a good portion of index returns have come from a small number of companies. When it comes to the S&P 500 Index, returns have been dominated by the “magnificent seven,” which includes Apple Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp., NVIDIA Corp., Amazon.com Inc. and Tesla Inc. While market breadth has increased over the past month or so, index returns would be much lower without the performance of these technology companies. This lack of breadth is great if you own these companies today, but one must be careful when things turn the other way. While our client portfolios hold some of these companies, we take pride in a diversified approach so that when some sectors zig, others will zag, which we believe will reduce portfolio volatility while still providing attractive portfolio returns over the long run.

At Greenrock, we think that the majority of the move higher in interest rates has taken place, as inflation seems to be slowing year-over-year. Inflation does however remain above the comfort level ranges of central banks around the world, so markets could remain volatile if rates continue to rise (or inflation stays higher than expected for a longer period of time). As such, we continue to keep our eyes focused on the long run, over which trends fade, and the markets turn their attention back to earnings growth, cash flows, and fundamental company performance and execution.

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TOP PICKS:

Tourmaline Oil Corp. (TOU-T)

This is a Canadian energy company engaged in the exploration, development, and extraction of crude oil and natural gas. It became the largest natural gas producer in Canada in 2021, and approximately 80 per cent of its production is weighted to natural gas. The shares currently yield 1.5 per cent, however, this is supplemented by special dividends ($1 per share in the third quarter of 2023) with more expected to follow later this year and into 2024. TOU has one of the best balance sheets in the industry and a proven management team that has the experience and significant equity ownership in the business. 

Constellation Software Inc. (CSU-T)

This is a Canadian conglomerate that acquires, manages, and grows businesses that provide mission-critical software that targets small to mid-size businesses in attractive, niche vertical markets. Growth is driven via funding new initiatives and acquisitions using a disciplined approach. Constellation is a global company with six operating groups in more than 100 vertical markets. Year-to-date in 2023 (including the recent Optimal Blue acquisition announcement), CSU has spent more than $1.9 billion on acquisitions, a 17 per cent increase over the full year spend in 2022, which was a record for the company.

Bank of America Corp. (BAC-N)

This is one of the world’s largest banks with roughly $3.19 trillion in assets, $1.91 trillion in deposits, 45 million active digital banking users, and 3,892 financial centres as of March 31, 2023. Through its subsidiaries, BAC provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. Its segments include consumer banking, global wealth and investment management, global banking as well as global markets. The company was founded in 1784 and is based in Charlotte, North Carolina.

PAST PICKS: January 10, 2023\

Amazon.com (AMZN NASD)

• Then: US$89.87
• Now: US$138.86
• Return: 54%
• Total Return: 112%

Canadian Natural Resources (CNQ TSX)

• Then: $74.37
• Now: $82.95
• Return: 11%
• Total Return: 21%

Brookfield Corporation (BN TSX)

• Then: $45.22
• Now: $44.60
• Return: -1%
• Total Return: -2%

Total Return Average: 44%