2020 Year In Review

Summary

• The portfolio returned 23.9% vs. 15.0% for its benchmark.
• Given the market volatility, I traded more than normal.
• Valuations look stretched in many technology names.

Wow 2020 – what a ride! This was the first time since 2016 that I did not do a mid-year review. The year was so busy with work and a topsy-turvy market that it was mid-August before I realized that I hadn’t written one! By then I figured I would just wait until the year was done. Who would have thought that the market would crater in the first quarter only to strongly rebound in the second quarter and continue the positive momentum through Q3 and Q4.

For the year the portfolio returned 23.9%, which coincidentally was the same return in 2019 (well 4 bps higher to be precise). The benchmark (25% in each of S&P/TSX Composite, S&P/TSX Small Cap, S&P 500 and Russell 2000) returned 15.0% in 2020. Over the past eight years (since I formalized the tracking), the portfolio is up 18.7% annualized versus the benchmark return of 11.8%.

The end of year cash stood at 5.3% of the portfolio. The balance moved around quite a bit with a low of 0.9% at the end of February and 12.2% at the end of June. I will soon be contributing another $6K each to my wife and my TFSA’s, given the New Year. There is no immediate stock to invest this in, so cash will creep a little higher.

Trading fees in 2020 were one basis point higher than last year at 7 bps. I did do more trades than last year, but had a higher average portfolio value, which resulted in only a minor increase.

The Winners

Amazon.com finished the year up 76%. The company benefited from its dominance in online retail as bricks and mortars stores faced lockdowns. I purchased a Prime membership and am happy I did with two day free shipping.

Questor was up 50% from time of purchase in June. The stock has previously been a home run for me. I sold it last year subsequent to the stock plunging as oil prices plunged. While revenue has taken a major hit, I believe that as more oil production resumes in the US and stricter environmental standards are enacted, Questor will benefit.

Viemed finished the year up 22%, but had been up much higher. I trimmed the stock in June when it was up 97% and again in November. I now have about half the position I did at the end of 2019. I believe the company continues to have a long runway for growth, but I believe the market got ahead of itself in terms of expectations. I continue to hold the stock and like the company, but it is no longer a top five position.

The Losers

There weren’t that many losers from an absolute return perspective. Petroshale was once again the worst performer. In hindsight this was a mistake to purchase. The stock finished the year down 81%. I am hoping that with stronger oil prices, there will be more stock price rebound in 2021. It is now a very small position in my portfolio. It’s possible the stock may go to zero, but also possible for strong outperformance. With oil prices creeping higher, I will hold on for now.

Bank of Nova Scotia was down 6% based on price return, or -1% including dividends. Scotiabank continues to be a long-term hold and pays an attractive 4.9% yield.

Bristol Myers Squibb was down 4% base on price return, or -1% including dividends. BMS is the only pharma company in the portfolio and offers good diversification. I am comfortable with the position as it pays a growing dividend and has a diversified business line. At 2.7%, it is one of the smaller weights.

The Sells

BMS Contingent Rights – I had received these as part of the Celgene takeover transaction. By the end of the year they were going to be worth either $10 or $0. I decided to sell at around $3.40 rather than take my chances. I was happy to do so as I viewed these rights as simply gravy in the deal.

Winpak and CCL were both sold in February. I saw limited near term upside in either name and what I viewed as more attractive opportunities elsewhere.

Innovative Food Holdings (OTCQB:IVFH) had been a disappointment. I had hoped that governance improvements would be made with the activist shareholder, but nothing happened. IVFH had been reporting weaker and weaker earnings. I believed that COVID would have a negative impact and sold in March. Since then, the company has continued to disappoint shareholders.

Pacific Health Care (OTCQB:PFHO) was also sold in March as I tried to high-grade my holdings. With the sale of PFHO and IVFH I no longer have any OTC stocks. This is an area of the market in which I no longer actively look. PFHO continues to be profitable and has a very solid balance sheet. However growth has flat-lined and the elderly CEO/majority owner seems to be lining up his daughters for succession. Neither of which have run a company before. I think the company could get taken out at some point, but I was tired of waiting and saw better opportunities elsewhere.

Brookfield Renewable was sold in November. I had made around 100% since buying it in 2019. The stock price got to a point where I didn’t see much upside and the yield had fallen below 3% compared to 5.7% when I bought it. I still really like the business, but don’t like the valuation. I continue to hold it indirectly through holding Brookfield Asset Management.

The Buys

Uber was purchased in February. I bought the stock for around the same price as the IPO. I believe there is strong long-term upside potential and it makes traveling so much easier than calling a cab.

Questor was purchased in June. I covered this already above.

Rogers Communications was purchased in July. The company operates in an oligopoly and has recurring revenue. With people working remotely, strong internet connections are more important than ever. Rogers has also been increasing their prices. With a lack of competition, I believe most clients (including me) will remain as clients.

Pender Growth Fund (PTF) was purchased in August. I have known Pender and PM Dave Barr for many years. PTF historically had a very concentrated portfolio of illiquid positions in private companies. In 2019, the fund doubled in size by selling units. It sat on a lot of that cash until the market downturn in Q1 2020 and deployed it into beaten up publicly trading micro and small cap names. The fund is now much more diversified and has a majority of its assets invested in publicly traded stocks. It is trading at a 25-30% discount to NAV. The NAV increased by 30% in 2020.

BMO Equal Weight Banks ETF (ZEB) was purchased in September. This ETF is simply an equal weight to the six big Canadian banks. I wanted a relatively low risk investment that earned more income than cash. I decided on ZEB, which was paying around a 4.5% yield. It may not be a long-term holding, but I am happy to hold it for now and use it as a source to fund future purchases.

Firan Technology (FTG) was purchased in October. It is a small industrial company that had seen its stock price beaten up due to COVID. I believed there was a good upside/downside as the company remains profitable and has a solid balance sheet.

Simon Property Group (SPG) was purchased in December. Simon is one of the largest REITs in the US and has a large portfolio of high quality malls in good locations. The stock price was hit hard due to COVID lockdowns. The company cut its distribution but still yields over 6%. I believe people are still going to and shopping at high quality malls when able. The upside/downside is attractive and the geographic diversity and quality of the portfolio should help Simon get through.

Trades

I was more active this year than in most past years, largely due to market volatility. I bought and sold some names during the year.

Michaels (bought in Jan, sold in Jun) – I had followed Michaels for a while and saw the stock price crater. Although the company has more debt than I tend to be comfortable with, I believed that the market was leaving it for dead when it was still profitable and the market leader in its category. The stock price fell further in Q1 before rebounding strongly in Q2. I sold as part of my desire to high-grade the portfolio. My return was around 65%, although it was only a small portfolio position given the high debt level.

Biosyent (bought in Jan, sold in Oct) – This is a stock I had followed for a number of years. I always believed the company to be well-run and conservatively managed, with no debt and plenty of cash on the balance sheet. However it has always been too expensive for me. Well sometimes good things come to those who wait. The stock price fell after slower growth estimates and I bought a position. I sold in Oct as the stock had appreciated somewhat. I think the company could be a solid long-term hold, but I didn’t see any real catalyst for much more upside in the shorter term and saw better opportunities elsewhere.

Air Canada (bought in Feb, sold in Jul) – I had been following Air Canada and saw an opportunity to take a position on price weakness. Little did I realize that COVID would turn into a global pandemic, significantly impacting air travel. While I believed that there was a lot of potential upside, I was also concerned that the company could go bankrupt if this continued for a while. Given the uncertainty, I sold.

Rifco (bought in Mar, sold in Jun) – The auto financing company was getting acquired, but the stock price was trading below the take-out price. I thought I could lock in a quick short term gain by purchasing it, which I had done many years ago with a similar company. Unfortunately the acquirer got scared of COVID and broke off the deal. I gradually unwound the position as I did not particularly like the fundamentals of the business.

Valero (bought in Mar, sold in Mar) – This was a quick trade. I believed that VLO was getting sold indiscriminately and bought a position when the company was offering a 10%+ dividend yield. The stock price bounced up somewhat and I decided to lock in the profit and use the cash to buy more defensive stocks (i.e. Rogers).

2021 Outlook

It is always hard to predict what will happen. The stock market has performed much better than probably most people, including myself, anticipated. Even though as I write this, the number of COVID cases continues to climb in many countries and regions, the market seems to be looking through this to when the vaccines have been distributed to a large part of the population and life can get back closer to normal.

There has been a major divergence between growth stocks and value stocks. It is feeling a lot like the dot com bubble in 2000. Why did Tesla go up 10x in just over a year? Why are names like Shopify, Airbnb and Doordash, to just name a few, trading at sky high valuations? While I believe that a number of large, highly profitable tech companies will continue to do well, I believe that the stock market will be led by other sectors in 2021 rather than IT. I think that more value-oriented name will outperform as the world starts seeing the light at the end of the COVID tunnel.

In terms of portfolio positioning, I do not mind holding a higher weight in cash than usual. I will be patient and let opportunities present themselves. I like the holdings in the portfolio and do not plan to sell anything unless valuations get unreasonable.

Portfolio Holdings (as of Dec. 31, 2020)