Matco - Outlook & Opportunities Presentation

transcript

Outlook and Opportunities In a “V.U.C.A.” World

October 2012

Returns in Junior Oil & Gas Space Junior oil and gas companies outperform large caps over past 25 years

Outlook = Global Economy Slowing

Modest Growth – Not NO Growth

Source: The Economist – Estimates based on 52 countries representing 90% of world GDP. Weighted by GDP at purchasing-power parity

Outlook = Global Deleveraging

Source: International Monetary Fund

Outlook = Commodity Bull Market Over?

Going Back to 1800

Source: Ned Davis Research

Average bull market lasts 16 years and gained 202%.

Today we are in year 11 (13) and 178%

Outlook = Soft Landing for Commodities

Hard or Soft Landing?

Outlook = US Consumer In Better Shape

Trend continues to improve

US Household Debt to Income Ratio and Savings Rate

Source: FRB, BEA

Opportunities

TSX Energy vs. Composite Long term still outperforming

Opportunity = Equities

Stock Dividend Yields Still Attractive

Source: BMO Capital Markets, Bank of Canada

Dividend yield = 3.2% 10 Year bond yield = 1.81%

Opportunity = Valuations Compelling

Price to Earnings Multiple for S&P500 & TSX

Current Trailing P/E = 14x

Source: BMO Capital Markets, TSX, Global Insight

Opportunity = Natural Gas

Growing Global Demand

Natural gas demand growing at 2.8% annually (twice the speed of oil)

Source: BP Statistical Review

Opportunity = US Corporate Profits All Time High

Source: Federal Reserve Bank of St. Louis

Opportunity = US Housing Market

Trend continues to improve

Source: BMO Capital Markets

Opportunity = Auto Sales Recovering

Consumer Confidence and Manufacturing

North American Light Vehicle Sales and Production has rebounded from low Source: The Conference Board, WardsAuto.com

Themes

• Moderate Growth World – Global deleveraging – Commodity bull market flattening out – Headwinds remain (China, Fiscal Cliff, EU) – US recovering - Canada can benefit as largest trading partner

• Opportunities Exist Within Slow Growth World – Equities vs. Bonds (Sector specific)

• Canada and US

– Natural Gas (Canada and US can benefit) – US Recovery Gaining Traction

• Housing • Autos

Summary

US Election – Does it Matter?

2nd Half of Election Years Generally Positive

We are here

Matco’s Approach In a Slow Growth World

Matco’s Asset Classes 1. Fixed Income

A. Cash & Cash Equivalents B. Bonds

2. Canadian Equities A. Energy B. The Blue Chip Era (big & small)

3. Global Equities A. US B. International C. Emerging Markets

Security Selection Process

• Bonds

Security Selection Process

• Stocks

Fixed Income • Global credit boom hangover has resulted in low rates…

Fixed Income

The Great Paradox of Low Rates

Fixed Income

How to navigate the shallow Bond waters? 1. Manage risk, don’t avoid it 2. Corporate bonds continue to offer best value 3. What the BOC’s mixed signals & high CAD $ mean for bonds

TOP IDEA • Brookfield Asset Management 5.30% 01MR21

– Infrastructure, asset management, & commercial R/E – Akin to a long term private equity fund – ~8 year term remaining – Rated two notches above investment grade (A) – +3.93% annual yield to maturity (YTM)

Canadian Equities

• Diversification – who needs it?

• The Canadian Advantage – Strong oil prices – High Canadian dollar – Top AAA rating – Lower unemployment – Overvalued housing

• Blue Chips are back!

– The Income Trust renaissance? – Don’t fight the baby boomer bulge (read: need for income)

Canadian Equities

TOP IDEAS • Telus (T-T) – Income & Growth

– Smartphone secular growth continues globally – Cable business market share opportunity – Earnings & dividend growth – Dividend Yield = 3.89%

• Tourmaline Oil (TOU-T) - Growth – Low cost Natural Gas & NGLs exposed – Natural Gas bottom in – Strong production growth profile – Duvernay 2.0?

Global Equities

• United States – Already had their lost decade – Sleeping Giant re-awakening – Winning the Race to the Bottom

• International – Extended global credit & spending hangover for the EU – The EU hampered by a high Euro – Too many cooks in the kitchen

• Emerging Markets

– BRIC growth & urbanization normalizing (read: slowing) – China’s low cost advantage waning – Globalization vs. Protectionism

Global Equities

TOP IDEAS • QualComm (QCOM-US) – Income & Growth

– US-based chip manufacturer exposed to global smartphone growth – The ‘not trying to pick the winner’ strategy – Dividend Yield = 1.70%

• Tesco Plc (TSCO-LON) – Income & Growth – UK-based international retailer exposed to global staple industry – May benefit from weaker input prices looking forward – Cheap valuation ~1/2 the multiple of the markets – Dividend Yield = 4.62%

Themes Asset Mix • Small Overweight Stocks • Small Overweight Cash Bonds • Small Underweight

Canadian Equities • Market Weight

Global Equities • Small Overweight (US & Multinationals)

Strategic Asset Class Calls

Why a Balanced Approach in a Slow Growth World?

1. Income, Income, Income (but not at all costs)

– Low inflation – Negative real yields – Slow growth

2. Diversification – Reduces volatility – Compliments the Canadian Advantage – Hedge black swan risk in uncertain & complex world

Thank you

Questions

Disclaimer For your information: MATCO FINANCIAL INC. is a privately owned and independent wealth management

office. The material presented is intended to provide information to Matco Financial clients, contacts and affiliates. Readers should not act on this information without first consulting their investment advisor, tax advisor, financial planner or lawyer. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

Management fees, commissions, and expenses may be associated with investment management services and mutual fund investments. Before investing, please read the applicable information such as the prospectus, which contains detailed investment information and is available from your advisor. Most marketable securities such as mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.

Matco - Outlook & Opportunities Presentation

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