Shopify Hits New Highs

shop 18jan17

Yesterday, Shopify (SHOP US) powered to new highs. Shopify is a small cap stock, but we have long been intrigued by its incredible potential and ability to successful grow its sales platform. As such, it is one of our biggest equity holdings and has delivered tremendous alfa to our equity portfolios.

We first wrote about Shopify in August of last year:

LINK: Take a Look at Shopify’s #s Today

LINK: Analysts Liked Shopify’s #s

In December of 2016, ‘The Motley Fool’ recommended Shopify as a top pick, and followed up its recommendation this week:

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Davos Wonders If It Is Part of the Problem

The World Economic Forum is currently underway in Davos, Switzerland. It seems that this year the Masters of the Universe that assemble there on a yearly basis are concerned about the global upswing in populism and the shade it tends to cast on the localized effects of globalization:

LINK: Davos Wonders If It’s Part of the Problem

Here are some charts that further illustrate the ‘Davos Disconnect’:

LINK: Davos Disconnect

davos trump

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Emerging Market Bonds – Still an Attractive Asset Class

em bonds

The majority of our fixed income returns over the past number of years have come from Emerging Market bonds.

In the wake of Trump’s election victory, rising rate assumptions, a higher US dollar and a higher anticipated degree of trade protectionism led to a strong sell off in Emerging Market bonds. We took this sell-off as a buying opportunity.

The following link sums up our investment rationale quite well:

LINK: Fear Not Emerging Market Bonds

Although mark to market pricing and wider bid-ask spreads can lead to higher volatility in Emerging Market bonds, we have found that choosing healthy companies in the right sectors can generate outstanding risk adjusted returns for long term investors.

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Amazon’s Way to the Top

Only ten years ago, four of ten largest companies in the world by market cap were from oil and gas industry and only one tech company (Microsoft) was included in the list.

As of December 30, 2016, five of ten largest companies in the world are tech companies and only one is from oil and gas industry (Exxon Mobil).

Top 10 companies by market cap
Rank 2006 2016
1 Exxon Mobil Apple
2 General Electric Alphabet
3 Microsoft Microsoft
4 Citigroup Berkshire Hathaway
5 Gazprom Amazon
6 Industrial and Commercial Bank of China Exxon Mobil
7 Toyota Motor Corporation Facebook
8 Bank of America Johnson & Johnson
9 Royal Dutch Shell JPMorgan Chase
10 BP General Electric

Source:Bloomberg

Right now we are not interested in the demise of oil & gas companies or decrease in the number of banks between top ten companies. We would like to turn your attention to tech companies.

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Netflix’s Original Shows Are Crushing The Competition

nflx

Netflix keeps on widening the moat when comes to original programming. Now Netflix is not a ‘Warren Buffett stock’, but it has some very salient features that Buffett has sought out in his favourite holdings, namely pricing power. The more people Netflix gets hooked on their shows, the more leverage they have in terms of pricing.

We got into Netflix under $100. Its done very well:

nflx

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Back In The Saddle

bull

I’m back at the office after a great two weeks spent in Canada with family and friends over the holidays.

Since I got back, we’ve been busy adding positions for new clients and evaluating the current state of capital markets.

Some observations:
– The US stock market is an absolute beast
– We did very well adding to our large tech positions when they sold off in November and December
– Emerging Markets are looking very interesting – things tend to move when you take your eye off of them
– European equities have woken up
– The US dollar looks a little bit tired
– Uranium is back (for now)

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US Small Business Optimism Explodes

US markets have continued to trade higher in the new year. Whether this unfettered optimism will be justified remains to be seen. However, what is abundantly clear is that American businesses are feeling very good about themselves and the prospect of tax reforms under a Trump presidency and Republican control of both the Senate and the Congress.

Here’s the latest blowout number from the NFIB Small Business Optimism survey:
nfib

The S&P 500 continues its upward trajectory:
spx-jan10

Here’s Scott Grannis with some more charts. Grannis also makes the prescient point that US businesses have been under-investing in capital goods and that improved confidence could do much to fill the gap:

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Our December, Year End and Two Year Results

We are pleased to announce that our weighted average return in December was +1.81%, resulting in an annual return of +11.05% for 2016 (net of all fees).

dec-ytd

December was a decidedly less eventful and more prosperous month than November. Both equity and bond markets were considerably less volatile than during November’s post-US election madness and US equity indices powered to new highs. As expected, the US FED did indeed raise rates and signaled that there could be up to three rate hikes in 2017.

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Our November Results – The Game Has Changed

nov-2016

Last month was a very eventful month that saw drastic moves in all major asset classes.

Following Donald Trump’s victory in the US presidential elections, market sentiment changed not over weeks or months, but over hours and days. The vast majority of mainstream media and sell side analysts were dead wrong in their predictions – both in predicting who would win and in how financial markets would react if Trump won.

In the days that followed Trump’s victory, markets showed that investors are expecting heavy spending on infrastructure, tax cuts for both companies and individuals, and less onerous government regulations. As such, many sectors rallied strongly for several days, and all major US stock market indices reached new highs. It remains to be seen which of these policies are actually implemented and to what degree, but in the meantime it would be foolish to fight the tape.

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