Legacy Wealth Weekly - May 1st, 2015 (May Strategy, German Bund Blitzkrieg, Weekly Energy Update)

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North American Portfolio Strategist Martin Roberge leads off this week’s Legacy Wealth Weekly with an updated edition of his Quantitative Strategist. It’s looking like there’s a modest coordinated global growth re-acceleration due to: 1) the decline in nominal and real long term bond yields, 2) lower oil prices, which is especially good for Emerging Markets and 3) a relatively higher US $ which redistributes demand towards the weaker countries. Accounting for these three factors, Martin’s economic reflation index is growing at its fastest pace in years. Having said this, Martin feels that resource and defensive stocks look like they’re on a collision course in terms of performance and valuation. This forms the basis for Martin’s ongoing sector rotation towards resources and away from defensives. A peak in the US $ in mid-March was the catalyst for the initial leg up in resource stocks. The second leg should be fuelled by a synchronized rebound in DM (developed market) economies which will lift DM bond yields and cause defensive yielders to underperform. Keep in mind this coincides with the valuation of resources being one standard deviation below the historical mean, and vice-versa for defensives. Nowhere was the rise in DM government bond yields more pronounced than in Germany. German Bunds have been sold off en-masse, causing yields to pop ~134% from ultra-low levels.

 

Canadian Junior and Intermediate E&P Weekly: Our energy analysts advise caution heading into Q1 reporting. Anthony, John, Sam and the team think there could be some negative surprises, including the potential for production revisions, dividend reductions, and unfavorable bank line reviews. Commodity hedging is helping producers in the near term, but many of those roll off after H1, which could lead to further budget cuts after break-up. The energy teams’ Chart of the Week shows that the SW Saskatchewan Viking has been a  hot topic in 2015. It’s easily one of the most actively drilled plays, and there’s been plenty of M&A in the area. Rock Energy (RE) is highlighted as a potential M&A target, due to higher-than-average performance of its wells. 

 

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