TriDelta Investment Counsel – Q2 2015 investment review


Performance Summary – TriDelta clients minimizing the damage

Overall, the second quarter of 2015 was one of the weaker quarters in a long time.
Of interest, there wasn’t really anywhere to turn to find good numbers on the quarter.
Among indices, the results were the following:

Index % Change
S&P/TSX -2.3%
S&P500/US – CDN $ hedged 0.3%
S&P500/US – Unhedged -1.8%
CDN Bond Universe -1.7%
CDN Preferred Share -4.1%

Growth oriented TriDelta clients meaningfully outperformed the TSX, but were still mostly down around 1% on the quarter.
Conservative oriented TriDelta clients were down in the 1.5% to 2% range on the quarter, still outperforming the TSX.
A big impact on client performance was their weighting in Preferred shares. For the most part, clients with a higher percentage of their assets in taxable, non-registered accounts would hold a higher weighting of Preferred shares. Those with very low or no non-registered assets, would have very little in Preferred shares.
We do believe that Preferred shares will see some sunshine over the next year, but they have certainly been an underperforming asset class over the past year.

Greece, China and Iran – What does it all mean for your Portfolio?

Sifting through the headlines to try to find the economic meat, sometimes we find a lot more noise than news.
This is not to say that Greece’s latest brush with bankruptcy, China’s wildly gyrating market, and an imminent deal of some kind with Iran that will remove much of the economic sanctions on the country, are not important.
Each is important in a different way, but how do we use this to our advantage?
Let’s look at each situation:
Greece – a possible default on its debt and departure from the EU

  • A Greece debt default will cause financial stress for holders of Greek debt
  • Life for the Greek people will become harder and some revolt is possible.
  • A Greek default could cause other weak EU members to do the same.

Things we watch for:

  • 10 Year Bond Yields in Portugal and Spain – are just 2.8% and 2.1% respectively. This gives us some comfort that the bond market doesn’t see meaningful risks from these two countries.
  • Stress tests in European Banks over the past three years which would have looked specifically at how they would be impacted by a Greek default. The results showed that unlike in 2012, a Greek default would primarily impact Greece, the German government and the European Central Bank, but would not have a ripple effect throughout global financial markets.

Investment Opportunities:

  • Do not overreact and bail out. Greece is just 1.8% of the EU economy and about 0.4% of the global economy. Given all of the time to prepare, it looks like any result could be contained in the medium term.
  • Possibly invest a little cash on bad news days for Greece.


China – plummeting stock market of late
There is a great summary of the Chinese stock market moves in the New York Times. The link is below.

  • As one of the major drivers of the resource economy, could a stock market collapse in China lead to another hit to the various resource sectors?
  • Could stock market volatility lead to social instability in China?
  • Could the government interference in the stock market (changing the buying and selling rules as they go), turn foreign investors away?
  • Could the decrease in China’s stock market impact global liquidity in other areas?

Things we watch for:

  • Does the Chinese stock market strongly correlate to its economy? Over the last decade, huge stock market volatility has not been particularly connected to economic or earnings growth. While this makes investing in China a real gamble, it does suggest that we shouldn’t look to Chinese stock market performance as a driver of demand for Canadian resources, or equity markets overall.
  • While the Chinese stock market had dropped 32% over four weeks at one point, it has still outperformed North American markets year to date. Is there really any Chinese stock market crisis to consider? Probably not.
  • Is Chinese government interference in the stock market a destabilizing factor? While it doesn’t give most North American investors comfort in the investment space, it doesn’t appear to have any long term impact on the market. Ultimately, the Chinese stock market returns are highly volatile. The companies require greater regulation and transparency, and its stock market performance is not a large factor in our overall investment analysis.

Investment Opportunities:

  • Similar to Greece, it doesn’t make sense to overreact to the Chinese stock market. While the returns do impact our Emerging Market investments, we can absorb the extra volatility as we think it will add some growth to the overall portfolios.
  • The critical items in China relate to GDP declines, and their impact on global demand for various key resources and consumer goods. While GDP growth is slowly declining, it remains in the 7% growth range and a source of meaningful global growth at a time when Western markets are growing in the 0% to 3% range.

Iran – a possible lifting of global economic sanctions as part of a Nuclear deal

  • The biggest risk obviously relates to whether Iran could possibly create and use a Nuclear weapon.
  • Iran holds the fourth-largest oil reserves in the world, and it is sitting on another 20 to 40 million barrels in storage on-shore and in more than a dozen tankers floating off its coast. A deal could increase production and exports of oil at a time when supply is already outstripping global demand.
  • Domestic response to an agreement could be volatile in Iran as well as in Israel, the US, and several other countries.
  • A good overview is provided in this article from US News and World Report:

Things we watch for:

  • Iran’s oil minister pledged to increase the country’s exports by roughly 1 million barrels per day within a year. Experts estimate that the process will take a bit longer, but the numbers are about right in the long run. Worldwide, countries produce about 100 million barrels of crude per day. If that increase does happen, it will certainly put a lower ceiling on the price of oil for the foreseeable future.

Investment Opportunities:

  • With small exceptions, we have kept out of the oil patch over the past number of months. We expect that news of a ratified deal will definitely hit the oil patch, possibly more so than on the real impact to the market. In the short term, it could provide an opportunity for an investment, but we will likely stay very underweight on this sector over the short term.


The Art of Selling Securities: Time and again TriDelta has excelled at selling stocks before big declines

chart2In the past year, TriDelta has sold several companies prior to significant declines. Some sells protected client gains while some were not our best stock picks, but our sells limited losses. Here are 6 examples that were held in clients’ accounts (all clients would have held a few of these names):

Exhibit A: Micron (no dividend)
Purchased for US$33.09 in August 2014
Sold for US$31.55 in January 2015
With currency appreciation, this was actually a 3.8% gain in CAD dollar terms over 5 months.
Today, it trades for $17.56 or 44% lower than our January sell price.

Exhibit B: Suncor (2%+ dividend)
Purchase for $28.42 in May 2012
Sold for $44.65 in July 2014
Today it trades at $34.33 or 23% lower than our June 2014 sell price.

Exhibit C: Corus (4%+ dividend)
Original Purchase for $21.80 in March 2012
Sold for $21.96 in March 2015.
Today it trades for $16.90 or 23% lower than our March sell price.

Exhibit D: Michael Kors
Original Purchase for US$88.85 in June 2014
Sold for US$63.46 in April 2015.
Today it trades for $43.79 or 31% lower than our April sell price.

Exhibit E: Alliance Resource Partners
Original Purchase for US$39.23 in January 2015
Sold for US$38.70 in February 2015
With currency appreciation, it was actually a 4.3% gain in one month.
Today it trades at US$24.76 or 36% lower than our February sell price.

Exhibit F: Aimia (3.7%+ dividend)
Original Purchase for $19.22 in May 2014
Sold for $18.80 in August 2014
Today it trades at $14.24 or 24% lower than our August 2014 sell price

While we had no crystal ball, TriDelta used the same discipline that we always use. This approach gave us the warning signs that there are better stocks to own than the ones we held.

Many investment managers say, “it is easy to buy, but hard to sell”.

We have a theory on why we do much better than most managers in the area of selling. With our industry experience, we note that many investment managers tend to have a strong ego. This is actually an important trait for a business that often requires managers to buy when everyone thinks they should sell, and to sell when everyone thinks they should buy.

The downside of this ego is that they don’t ever like to admit mistakes. In particular, in cases where a stock hasn’t done well, it can be hard for an investment manager to admit the mistake and sell the security. This often manifests itself in holding stocks all the way down so that they sit in your portfolio with 50%+ declines.

Whether a stock is a gain or loss for our clients does not impact our sell decision (other than near year end when we look at Capital Loss selling candidates). Our sell decision is simply based on whether the stocks are no longer acting the way that we expected or certain financials are not what we expected, and we decide to cut the cord and move on. These sell decisions are not emotional ones, but rather based on financial changes. Through this financial discipline, we can eliminate the downside of the ego that causes many managers to hold on to securities for too long.

After all, while we are here to grow your money, we are also here to protect it.


Q2 Overview of the Bond Market

by Edward Jong

  • Our fixed income portfolios have been managed with a shorter duration bias. This means that we will be leaning towards bonds that mature in the next few years as opposed to having most of our bonds maturing in 10+ years. We believe that, even with the cut in overnight rates in Canada, interest rates could retest the recent highs in yields. Volatility will remain a staple in the market place as higher domestic (i.e. North America) interest rates will be pulled lower with anemic growth in Europe and Asia.
  • Greece default or exit from the European Union will not have a disastrous effect on the rest of Europe as financial institutions outside of Greece will have little impact. This leaves the markets to focus on what’s happening in their own backyard.
  • The European Central Bank will defend the EU at all costs – ideally with hopes that Greece remains part of the union. If markets are able to look beyond their nose, it’s reasonable that we could start to see some strengthening in the Euro and higher global interest rates could be the theme for the rest of 2015.


Q2 Overview of the Stock Market

by Cam Winser
TSX Returns by Month were:

Month % Change
April 2.16%
May -1.38%
June -3.07%

Top Performing Sectors were:

Sector % Change
Health Care +12%
Telecom +1%
Consumer Discretionary +1%

Bottom Performing Sectors were:

Sector % Change
Energy -11%
Info Tech -9%
Utilities -9%
  • There were a string of negative economic reports in Canada showing a weaker economy especially out west as declines in crude weighed on investment and jobs in the energy sector.
  • Manufacturing activity continued to lag despite the weaker Canadian Dollar which should have been supportive.
  • Valeant Pharmaceuticals was the major reason for the move in Health Care after a strong earnings announcement and more M&A activity.
  • Utilities underperformed as the market had concerns rates were going to rise and adversely affect the sector by increasing debt payments. Utilities have stabilized and started to outperform. We believe rates may actually be going lower in Canada, potentially helping the sector and are looking to add to some existing holdings after this decline.
  • Energy was weakened by global activity and domestic election results as the NDP won in Alberta, causing concerns of decreased profits due to an increase in taxes. Oversupply and over storage still seem to be an issue but the numbers are getting a bit better during this higher demand season which usually sees a draw from reserves.

United States:
S&P 500 Returns by Month were:

Month % Change
April 0.87%
May 1.05%
June -2.10%

Top Performing Sectors:

Sector % Change
Health Care +3.5%
Consumer Discretionary +2%
Financials +2%

Bottom Performing Sectors:

Sector % Change
Energy -7%
Utilities -5%
Industrials -3%
  • Data in the US was for the most part mixed. Weaker GDP, which was subsequently revised down further, was shrugged off due to poor weather and west coast labour action.
  • Jobs were added at a healthy rate as unemployment fell to 5.3% in June, home sales rose to highest levels post crisis and consumer confidence was up.
  • Stronger US dollar is thought to be a burden on U.S. exports and repatriation of foreign earnings. The strong US dollar has negatively impacted what would have been much stronger earnings from US companies with large foreign operations and sales.
  • Fed officials are still quoted as expecting a rate rise this year. We generally think the U.S. is stable and global growth is showing signs of improvement.
  • Utility companies in the U.S. suffered a similar fate to those in Canada by declining on the expectation of a potentially rising rate environment.
  • Healthcare was strong on M&A activity.
  • IPO activity more than doubled from Q1 to Q2.

Dividend changes continue to be positive, with no declines in payout in our holdings. We saw dividend increases of between 1% and 18% across 9 names during the quarter, with IBM’s 18% dividend increase topping the list. Given our focus in some portfolios on dividend increases, we like to track and report on this quarterly.

What Do We See in Q3 and for the Rest of 2015?

While we certainly don’t want to see more Q2’s ahead of us, we do remain a little more cautious than normal. It is worth noting that a few years ago, nobody would be too upset with a quarter where returns were down 1%. In 2015, it feels like we are expecting markets to only go up, and a flat to down quarter is cause for alarm.
Historically, stock markets are negative about 30% of all quarters.
While there are definitely sectors of the market that we like, there does appear to be a little less positive momentum in the markets overall, and a little more punishment for stocks that don’t meet earnings targets.
In the short term this means that we will be more selective, and more patient with buying new names. We may have higher than normal cash positions, and we may look a little more favourably towards some Alternative Investments that are less correlated to the stock and bond markets.
We don’t foresee any major declines as long as earnings remain strong and overnight interest rates remain low, but sometimes a little extra precaution is in order.

TriDelta Investment Management Committee


Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Exec VP and Portfolio Manager

David Oliver

Chief Operating Officer

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

TFSA Increases and RRIF Minimum Changes – Two Advantages for many of you


coupleAs most of you are now aware, last month’s budget brought two important personal finance changes.

The first is that TFSA annual contribution limits are now up to $10,000 annually, and the second is that if you have a RRIF, the minimum that you are able to withdraw has been lowered for all ages up to 94.

The TFSA changes will be important for many Canadians, especially younger ones who have years to build up TFSA room.

Asher Tward and Ted Rechtshaffen wrote a couple of articles on this topic in the National Post, showing how a middle class and upper middle class family could save over $1 million in their lifetime with the TFSA vs. the world without TFSAs:

A world with TFSAs vs without: Guess which can help a middle-class couple save $1.1M?
A world with TFSAs vs without, Part II: Which helps a family with a modest income save an extra $1.5M?

TFSA Action Item – You now have $4,500 in new contribution room for 2015. We will be discussing this contribution space with clients over the next few weeks.

On the RRIF, the chart below shows the change to RRIF Minimum Withdrawals. For example, at age 71, you had to withdraw 7.38% of your beginning year RRIF balance. Now it has been lowered to 5.28%.

RRIF Action Item – In many cases, this won’t have an effect on you. If, however, you are currently taking out the minimum RRIF balance, your Wealth Advisor will connect with you on whether you want to lower the withdrawal amount to the new lower minimum or not.

New Withdrawal Old Withdrawal
Age Minimums Minimums
71 5.28% 7.38%
72 5.40% 7.48%
73 5.53% 7.59%
74 5.67% 7.71%
75 5.82% 7.85%
76 5.98% 7.99%
77 6.17% 8.15%
78 6.36% 8.33%
79 6.58% 8.53%
80 6.82% 8.75%
81 7.08% 8.99%
82 7.38% 9.27%
83 7.71% 9.58%
84 8.08% 9.93%
85 8.51% 10.33%
86 8.99% 10.79%
87 9.55% 11.33%
88 10.21% 11.96%
89 10.99% 12.71%
90 11.92% 13.62%
91 13.06% 14.73%
92 14.49% 16.12%
93 16.34% 17.92%
94 18.79% 20.00%
95 20.00% 20.00%
Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
(416) 733-3292 x 221

TriDelta Client Leading the Charge on Environmental Issues


From time to time clients have mentioned some of the interesting things that they are working on and we are pleased to be able to share them. This month Aaron Freeman talks about GreenPAC – an organization that he has launched that is aimed at helping to get Environmental leaders elected to public office:

GreenPAC Will Change the Game in Ottawa on Environment

By Aaron Freeman

Experts and activists often point to the devastating consequences of government failures to enact policies that protect our environment. And understandably, this is what public and media attention is drawn to when a mining disaster destroys a salmon fishery, when floods, storms and droughts are exacerbated by unpredictable changes in our climate, or when we lose an endangered animal or plant forever.

But when governments shirk their responsibility on the environment, there is an even greater consequence: the failure to reap the broader benefits of environmental solutions.

My new organization, GreenPAC, has just launched to build the leadership we need in Canada to implement these solutions.

earthConsider a few opportunities that have emerged in recent months. Early this year, Deutsche Bank joined an emerging chorus of financial institutions that recognize solar energy as now more cost-competitive than conventional electricity sources, including fossil fuels. It is poised to leap from 1 percent of the world’s electricity market today to 10 percent by 2030, and 30 percent by 2050. Yet the International Monetary Fund notes that the Canadian government continues to subsidize fossil fuels at an astounding $34 billion a year.

Second, a study this month by Cambridge, Princeton and the World Wildlife Fund found that every dollar invested by governments in parks and protected areas generates 60 dollars in tourism revenue. Yet Canadian governments continue to compromise and under-fund what makes these areas unique – their ecological integrity.

Finally, climate skeptics are fond of saying that Canada shouldn’t have to do much to combat climate change, because we only contribute about 2 percent of global emissions. But imagine if we were 2 percent of the solution. Imagine if we had 2 percent of the emerging $2.5 trillion market for clean technology. This would mean a $50 billion industry in Canada creating sustainable, well-paying jobs, that punches above its weight in research and development investment. We could be creating environmentally friendly consumer products and technologies that reduce pollution rather than contribute to it. That vision for Canada is well within reach, according to an extensive new report by Ottawa-based Analytica Advisors, which states, “we can and should build a significant economic sector, relevant across the country, through coordinated and patient policies and wise investment.”

As a country, we are long on affordable solutions and short on the leadership that can make them a reality.

Canadians are taking action in their homes and workplaces, and experts are generating game-changing technologies and opportunities. But global, complex problems like climate change and endangered species loss won’t be solved without government action. And we’re still waiting for most of our elected leaders to catch up.

GreenPAC aims to narrow that gap. Its goal is to make environmental concerns politically relevant by recruiting, nominating, electing and supporting environmental champions. GreenPAC will build environmental leadership in Canadian politics.

The political achilles heel of the environmental sector is that support for environmental issues is broad but diffuse, spread out across the country. This support doesn’t translate well in a geographically based electoral system. Worse, environmentally minded candidates are typically placed at a disadvantage to well-funded and better-connected opponents.

GreenPAC exists to level the playing field for these candidates, and to translate Canadians’ environmental concerns into political action.

GreenPAC’s Expert Panel is made up of non-partisan leaders in various environmental fields. None have paid ties to any environmental organization. The Panel assesses the candidates running for office and endorses a short list of candidates, including at least one from each major party. The criteria will be transparent, and candidates will have the opportunity to provide information on their qualifications to the Panel.

GreenPAC is looking for political leaders who know how to get things done. To receive an endorsement, the candidate must have a reasonable shot at winning. They are assessed not on the basis of their platform or on-the-record comments, but on what they have accomplished on environmental issues. These accomplishments may be in the private, public, or NGO sector.

Polls consistently show that Canadians want to see their elected leaders doing more to protect our environment. Yet this concern is not getting translated into political action. GreenPAC will help find solutions-oriented leaders, and help get them where they need to be: elected government.

– Aaron Freeman is the Founder and President of GreenPAC

TriDelta Investment Counsel – Q1 2015 investment review


Executive Summary – Good times in the stock markets may last a while


Another quarter rolls by, and overall, it was another quarter of very solid returns for our clients. Can the good times for investment markets continue?
The pessimists of this world say “this has got to end soon”. The optimists say “maybe this is the new reality”. Our general view is that both are wrong. History teaches us that there are few to no “new realities” – eventually it repeats itself. At the same time, should we expect strong stock markets to end in the near future? We don’t think so.
Here are three reasons:

  1. Valuations are not unreasonable. The chart below is from JP Morgan based on the US S&P 500 index as of March 31, 2015. It shows current Price/Earnings ratios today as a percentage of the 20 year average of Price/Earnings ratios – so 100% would suggest things are at the 20 year average, 110% would be 10% over the average and 90% would be 10% under the average.

      Value Blend Growth
    Large 116.4% 104.3% 91.7%
    Mid 124.4% 118.1% 98.5%
    Small 114.3% 107.1% 97.4%

    This chart shows that while the overall market has a higher P/E ratio than the 20 year average, the higher valuation is skewed toward Value stocks, and in fact Growth stocks currently have valuations that are UNDER the 20 year average – especially among large companies. While this can provide some guidance for which types of names to buy in the market, it would suggest that on a purely valuation basis, despite several years of good markets, corporate earnings have mostly kept up. On its own, valuations would not drive us to lower our stock weightings.

  2. Rising interest rates should actually help stock markets. Over the past 52 years, a study of weekly stock market returns (S&P500) and 10 Year US Treasury yields, showed that when the Treasury yield was under 5%, there was a positive correlation between rising rates and stock market returns. Once the 10 year yields were over 5%, it became a negative correlation. Today’s 10 year US Treasury Yield stands at 1.9%.
    Based on this data, the next 3% of interest rate increases will actually correlate to a rising stock market. It is our view that this process will take a few years. When you consider that German 10 year bonds are trading at 0.15%, you realize that there still is room for US 10 year bond rates to decline from here. Even if there is no decline, at least rising rates will be constrained within this type of Global rate environment.
    There are a couple of reasons why stock markets would rise as interest rates climb. The first is that rising interest rates are often connected to growth in an economy, and if that growth is coupled with cheap money in the form of interest rates under 5%, it tends to be a good environment for stocks.
    The other reason might be that rising interest rates are not good for bond returns, and if that is coupled with bond yields under 5%, it tends to be a weak incentive to invest in bonds. If money doesn’t want to be in bonds, it tends to create inflows to stocks. If bond yields were 10%, but there were some capital losses, most people would still be comfortable holding bonds.
  3. Retirees are forced to invest in stocks at these interest rates. Today, a 65 year old couple has a 47% chance of at least one of them living to age 90. Essentially this means that 65 year olds need their money to last at least 25 more years – probably 30 years to be ‘safe’.
    If you have $1 million and GICs pay 8%, then they can spin off $80,000 a year and even with high inflation, you are in good shape.
    Today, retirees can invest it in GICs and it will spin off $18,000 if they are lucky. This means they would have to drawn down their savings each year to make ends meet. Can retirees afford to do that for 30 years?
    As a result, those with the largest portfolios (mostly those aged 65+), who used to have a much lower portion invested in stock markets, will need to be meaningfully invested in stocks (or high yield bonds) at least until they can get 4% or 5% on their GICs. That will take a while.

In the short term anything can happen. We fully expect there to be a 5% to 10% downturn at some point in 2015 because that happens most years. However, overall, we think that valuations, interest rates and demographics remain supportive for stock markets.

The Quarter that Was

The TSX had an OK start to the year, with a 1.8% return over the quarter. Of course, energy was down another 1.9% and financials were down 1.1%, but most of the smaller sectors helped to keep returns above water.
Declining crude prices continued to put pressure on energy stocks, but technically stocks are behaving well having put in what may be their low in December with higher highs and higher lows since then.
TSX earnings seem to have stabilized. Trailing 12 month corporate earnings numbers continue to fall, but the forward 12 month estimates have started moving up.
The Canadian financials have recovered from a very weak January where the index was down more than 8% on fears of a weaker Canadian economy (mainly Western Canada) and housing market.

The US S&P 500 was up just 0.4% in the quarter. But currencies added 9.1% for Canadian investors!!
In the US the best performing sector was Health Care, up 6.1%. The worst sector was Utilities, down 6.0%.
There was a very weak start in U.S. stocks on lackluster Q4 earnings where concerns over a strong dollar and slowing global growth were a recurring theme. This seems to have recovered somewhat.
Consumer sentiment has held up with the Consumer Confidence Index hitting a 7 ½ year high in January in the U.S.
Economic numbers were mixed with decent housing starts but weaker consumer spending, which may be somewhat related to the cold winter and heavy snowfall in the Northeast.
Earnings are stable as trailing numbers and forward estimates continue to rise.
With continuing drops in interest rates, bonds had a very good quarter, up 4.1%.
Global Central Bank policies continue to be the focus of headlines.
In Europe the ECB maintained a bias towards lowering rates and quantitative easing (governments buying their own bonds to keep rates low) in an attempt to keep their currency low and to stimulate growth.
In Canada, the Bank of Canada surprised with a 25 basis point rate cut on January 21st when no policy move was expected. The overriding concern is how Canada and its economy will deal with a US$50 a barrel environment for oil.

In the US, the Federal Reserve was quick to change its tone towards keeping rates steady instead of an expected increase. This was driven by deflationary concerns that came about from lower energy prices coupled with a strong US dollar.

How did TriDelta Do?

First quarter 2015 was very positive for TriDelta clients. Depending on risk tolerance/asset mix, most clients were up between 3% and 5.5% for the quarter, with the high growth oriented clients doing better, and the most conservative returning at the lower end of that range.
The TriDelta High Income Balanced Fund – was up 7.1% on the quarter.
The fund – which currently delivers a yield of over 7% – aims to provide income from diversified sources that include Global Bond yields, options, dividends and leverage. The fund is essentially a Global Balanced fund but we utilize a wide number of investment tools to achieve higher returns.
Some good regulatory news came through this quarter, which will allow all TriDelta clients the opportunity to own the fund (as opposed to only Accredited investors). This will come into effect in May and will allow for new investments as of the end of May.
Given a TSX return of 1.8%, we were very pleased with the results overall.
Our two biggest drivers for outperformance were:

  1. Between 30% and 40% of our stock weighting has been outside of Canada (U.S., Europe and Emerging Markets). Because of US currency gains and strong stock markets in Europe and Asia, these parts of the portfolio have done better than Canadian stock numbers.
  2. TriDelta has been significantly underweight energy, particularly with our Pension clients. In July we sold one of our two pure Energy stocks (Suncor), and bought the Pharmacy, Jean Coutu. To date, this trade has been a 40% swing to the positive. While we may find the value in Energy compelling at some point, for the most part, we find that our clients don’t want the volatility that comes with a high energy weighting, and we can find other industries and names that are more appropriate alternatives.

What worked well in Q1?

In our equity portfolios we continued to see the US$ working in our benefit. The leading performers had a US and technology slant with Avago Technologies and Apple leading the way.
Best Equity Performers – Core – Avago Technologies +31.0%, Fairfax Financial +18.9%, Moody’s +18.9%
Best Equity Performers – Pension – Apple + 23.7%, GlaxoSmithKline +22.1%, General Mills +16.9%
In the Bond and Preferred space, lower interest rates produced some nice winners.
Highway 407 6.47%, July 27,2029 bond was up 9.0% on the quarter as it benefits from a high yield and declining long term rates.
Brookfield Asset Series 18 preferred share was up 8.1% on the quarter.

What did not work well in Q1?

Before we talk details on what didn’t work, we have been asked by some industry colleagues “Why do you show people what didn’t work?” Our answer to that is simple:

  1. Transparency with clients is important
  2. It always helps an organization to review what isn’t going well
  3. It reminds everyone that even strong investment management returns include weak performers in a portfolio
  4. We like to be a bit different from the rest of the industry

This quarter, after the currency effect, Canadian stocks lagged the US (and most other world markets). Energy, Canadian Financials, and any business that seemed closely tied to Western Canada suffered.
Our weakest performing stocks were as follows:
Core – Michael Kors -4.3%, TransCanadaPipeline -4.3%, TD Bank -1.5%
Pension – Home Capital -10.9, ConocoPhillips -7.3%*, Corus Entertainment -6.5%
In the Core/Growth model, we still own all 3 of the weaker performers from this quarter. While we continually review our holdings for signs of problems, for now we are planning to continue to hold these names (always subject to change).
In the Pension model, we only continue to hold Home Capital. Its decline was largely based on fears of real estate declines and risk among non ‘A’ level borrowers. Home Capital is such a strongly managed company that has been able to work through much worse times than today, and we continue to like the name.
ConocoPhillips was actually sold on January 8th so we didn’t really participate in the losses for the quarter. Corus was sold (just in time) at roughly $22 on March 13th. It has since dropped 20%!
In the Preferred Share space, all rate reset preferreds (those that have dividends that will reset to a rate that is tied to the Government of Canada 5 year yield) had a very poor quarter. While we don’t see much in the way of increased interest rates in the very near future, we do believe that this sector of the market has been overly beaten up and is undervalued – and we may add to some beaten up names.
Cannaccord Series A 5.5% Variable was down 24.3% in the quarter, and represented our worst holding.
Its 5.5% dividend won’t reset until September 30, 2016, and at that time will reset at 3.12% above the 5 year Government of Canada yield, which today stands at just 0.6%, but could certainly rise in the next 18 months.

Dividend Changes in Our Portfolios

We continue to be pleased with a steady flow of dividend increases and no dividend cuts in our investment portfolios.
This quarter in our income oriented portfolios the top four dividend increases were:

Company Name % Dividend Increase Company Name % Dividend Increase
Canadian Utilities +10.3% Home Capital +10.0%
Potash +8.6% General Mills +7.3%

In our Growth portfolios, the overall dividend yields tend to be lower, but some of the trends of dividend increases have been very solid. Below are the four biggest percentage increases in the quarter:

Company Name % Dividend Increase Company Name % Dividend Increase
Sherwin-Williams +21.8% Moody’s +21.4%
3M +19.9% Magna +15.8%

What do we see in the Quarter Ahead

  • More volatility by sector – you won’t see as much of the overall market moving higher or lower as much as a few sectors pushing much higher or lower.
  • Interest rates remaining mostly stable to lower in Canada and Europe. The United States won’t likely see the Fed raising rates this quarter, but we still expect to see it this year.
  • Oil looks to have found a base from a technical perspective and may allow for some trading gains, but we can’t see any big move forward as long as oil inventories keep pushing new heights. We believe it will be a lot of ‘one step forward, one step back’.
  • Canadian dollar remains under some pressure, but seems to have found some support in the 78 to 80 cent range unless Oil makes a major move from here in either direction or there is another Bank of Canada rate cut.


TriDelta Financial is celebrating its 10th Anniversary this month and we are very thankful to our clients for helping us to reach this milestone.
We are planning to do a couple of special client thank you events in the coming year to celebrate – details to follow.
Enjoy the soon to be realized Spring!!

TriDelta Investment Management Committee

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Executive VP

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

TriDelta High Income Balanced Fund


Today’s investors face significant challenges, not least of which is generating sufficient income in the multi-decade low interest rate environment.

We launched the TriDelta High Income Balanced Fund in late 2013 and have since delivered significant returns to early investors. Our fund overview can be reviewed.

Opportunities to invest are restricted to ‘accredited investors’ currently, but the exciting news is that from May 5th 2015 regulations have been amended by the Ontario Security Regulators to all non-accredited investors to participate as well. This is however subject to it being an appropriate investment given the elevated risk profile. We will however review your situation carefully to determine this beforehand.

The Financial Post published this recent article about our fund:


Click here to read the entire story.

Collateral Mortgages – The Good and the Bad


Most people think of mortgages as pretty straight forward products. Our message is don’t be fooled, they are not. Finding the right solution is best done by partnering with an expert such as a mortgage broker.

The last couple of days have delivered the lowest rates ever, which is great news for those of us needing a mortgage, but again be diligent in working with the right partner to find the solution that is best for your particular situation – talk to us and we will guide you.

A relatively new option is a collateral mortgage solution. Most people are not familiar with this type of mortgage, but it has some unique features that may be beneficial.

We asked one of our preferred mortgage brokers, Jacques du Preez of Mortgage Allies to clarify things and provide his advice on collateral mortgages:

What is a Collateral Charge?

It is an alternative way for lenders to place a mortgage against a property. A collateral charge can contain more than one mortgage component such as a classic mortgage and a secured line of credit. Collateral mortgages are also re-advanceable.

What is good about collateral mortgages:

  • Borrowers have access to the equity that they have created by paying down the mortgage principal.
  • The borrower does not have to qualify for borrowing inside the collateral limit.
  • This can be a great tool for business people to cash flow their businesses.
  • The increasing equity can be used for investment purposes.

What is bad about collateral mortgages:

  • Collateral mortgages are not transferrable. This means that the borrower will have to pay full legal fees to transfer the mortgage to a different lender at term maturity.
  • These products are used as forced loyalty tools by lenders.
  • They are often the source of increased debts and can be a hindrance to become mortgage or debt free.
  • Collateral mortgages are not portable, nor assumable.
  • They block out any other loans against the subject property, which means a borrower has no way of securing any other emergency funding if they need it.
  • Collateral charges can lead to Power of Sales of properties.

Collateral mortgages are not for everyone and they should always be entered into as a result of a strategy.

Here are a few guidelines:

  • Only allow the financial institution to collateralize the property for the total borrowings. Some institutions collateralize above the borrowing limit or even to 125% of the property’s value. There is no need for this and does not serve the borrower’s best interest.
  • If a mortgage is above 80% of the value of the property the mortgage should not be collateralized. Under government rules there is no potential for future borrowings so there is no need to place a collateral on the property.
  • Disclosure about collateral charges are usually only provided in the lender’s Standard Terms package which the borrower sees at the solicitor when the mortgage is closed. This is too late so insist to see your bank’s Standard Terms when you enter into mortgage discussions.

The golden rule: Don’t allow your lender to place a collateral mortgage on your property unless you have a reason to do it.

Ellen Roseman of The Toronto Star also wrote an article highlighting the differences between a conventional and a collateral mortgage.
Read the entire article.

Anton Tucker
Compiled By:
Anton Tucker, CFP, FMA, CIM, FCSI
Executive VP
(905) 330-7448