Thursday, January 22, 2015


With 2014 behind us, it's time for my usual post-mortem review on my portfolio. With a return of 3.4%, I trailed the TSX return of 10.8% and the S&P 500 return of 13.8%. I don't fret about any 1 year's return, it's the five year returns I'm interested in. I'm still well inside my comfort range on the 5yr (mid-teens %) returns.

Figuring out what worked and what didn't this year was easy. Here's a look at several of the S&P 500 sub-sectors:

Winners                                   Losers

Financials    +13.5%               Energy      -10.3%

Technology +21.1%                Industrials +7%

Utilities        +26.7%               Basic Mat. +2.7%

Healthcare   +25.3%               Telecom    -0.1%

Exposure to financials and technology was a huge contributor to my 2014 return. Without that exposure, 2014 would have been a down year. Energy and materials were a major headwind in 2014.
I under estimated the floor on oil, thinking we would not see less than $65-$70/barrel. As you know oil is currently under $50. Some energy companies may become financially unstable if oil continues to languish. If you owned U.S. stocks in 2014, then the falling Canadian dollar (CAD) also provided a tailwind. Weak commodity prices will likely continue to weigh on the CAD going forward. The Canadian economy will also suffer.

Looking ahead to 2015, there's still value in the financials. The large money center banks like Bank of America and Citigroup are finally moving past the huge legal challenges ( and monetary settlements ) they have endured over the past few years. As recently as last week, investors dumped bank stocks as they continue to worry about NIM's ( net interest margins ) thanks to falling bond yields. While lower NIM's may hurt BAC and C, in the short-run, we think these banks have tremendous earnings power going forward. We'd add to both BAC and C now.

Other areas of value include technology, where I continue to add to the mega-cap tech companies that have improving fundamentals - Oracle (ORCL) to name one. Industrials also offer value, as they were poor performers in 2014. Specifically, there's value in the auto makers and steel companies.
While we don't know what's in store for the markets in 2015, it's sure to be full of surprises. There are still cheap stocks - we are cautiously optimistic. All the best for 2015!
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