5i Research Blog
Dec 20, 2016 2016 Year in Review
It is hard to believe another year has gone by. It can get scary how fast time seems to pass. If we were to rewind back a year, and someone from the future were to tell us the events that were to unfold, we probably would have called them crazy! With essentially a 9% drawdown in the TSX over the month of January, we don’t think anyone would have thought we would be looking at a 17.5% return as we write this. Lets take ‘stock’ of those events that we would consider ‘crazy’ just a year ago.
- TSX returns ~17% over the year, flirting with all-time highs
- S&P 500 returns roughly 10.5%, with all major US markets hitting all-time highs
- The United Kingdom decides to split from the European Union in an event dubbed the ‘Brexit’, and markets rally after a brief breather
- Donald Trump, business mogul, media personality and host of ‘The Apprentice’ runs for and wins the US Presidency and markets continue to rally
- Bond yields would finally increase (and bond prices would decline) with three rate increases projected for 2017 – OK maybe markets ‘expected’ this, but it took much longer than everyone thought
We think the real eye-opener here is that even if someone knew all of these events were to occur a year ago, very few (if anyone) would have guessed that markets would be rallying to record highs. In both the case of an unprecedented Brexit and Trump presidency, people’s money would have more than likely been betting on lower markets after these events. This is another great example of why market timing can be so difficult and why we continue to believe staying invested for the long-term is the appropriate path. Even if an investor were able to predict the ‘left-tail’ events occurring in the first place, they were unlikely to predict the actual market reaction appropriately. The one certainty with investing is that it will ensure that it keeps investors humble.
On the side of 5i Research coverage, things were also busy:
- Model Portfolios: The balanced equity portfolio continues with a strong showing, returning 18.9% as of the YTD period at the end of November and 125.65% since inception of March 18, 2013. The Income portfolio continues to deliver a portfolio yield of 4% to 5% and has returned 13.6% since inception of April 1, 2014. The Growth portfolio has been our laggard so far, but we think it has worked its way through some problem holdings and expect better results in 2017.
- Coverage Companies: As of the end of November, of the 78 companies under coverage, 21 of our coverage companies (~27%) have at least doubled in value (with the earliest reports dating back to December 2011). Ten of those companies have returned over 200%! The average return across all of our coverage companies, if all were held at the time coverage was initiated, the average return would have been 80% since we launched. If this were to be filtered out to only companies that hold a positive rating, this return would have been 90.7%. Admittedly, there will be some bias here as we have dropped bad companies or downgraded bad companies in the past but these results also exclude companies that have been taken over at decent premiums over the years such as Prism Medical, Whistler Blackcomb and Tim Horton’s to name a few.
- Blowups: Finally, it would be unfair for us to review only what went right at 5i Research, as we did have some bad calls this year, and will continue to have bad calls in the future. With only 30% of the companies in the ‘red’ in 2016 and 25% in the red since coverage initiation, the primary names that jump out at us would be DH Corp., Airboss and Concordia International, with the caveat that CXR was not a formal coverage company of ours, but one we did speak fondly of. DH and BOS have been laggards, but both have been seeing a bit of a resurgence as of late and we don’t think the story is over yet with those names.
Turning to the actual services provided by 5i, it was also a busy year:
- Added a search function for our Question and Answer service, allowing for more convenient searching through our database of over 50,000 questions
- Added watchlist functionality where members can sort questions by those they are actually interested in
- We also added a ‘digest’ function where members can get daily or weekly e-mails with analysis about the companies they care about
- We also added forums for our membership and hope to enhance this offering in the coming year
- Finally, we added a bit more depth to our research reports with a ‘chart of interest’ and relative valuation analysis
- Launched a scholarship for high school students to help encourage financial literacy, which kicks off in January (spread word to friends and family over the holidays! More information here).
While we are not quite ready to talk about changes in 2017, we think the next year has potential to be even more exciting (and busy). While it is amazing how fast the past year has gone by, it is equally surprising how much can be accomplished in a single year. While we cannot predict what will happen with the markets in any given year, we hope to continue to provide interesting research and ideas to our members while helping to educate them, as well as all Canadian’s that want to learn more about investing.
If you are a reader but still on the edge in deciding whether to subscribe, we are offering a one-month free trial here to help make the decision that much easier.
One final thanks to all of our members, both new and old. There would not be a 5i Research without you and we wish all of you a safe and happy holiday season and a profitable 2017!
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