Three dominant investing trends for the rest of 2021. Plus, an improving outlook for office REITs and why defense stocks are attractive buys

The BofA Securities research team has produced a report that helpfully outlines the three dominant global themes they believe will affect investment portfolios for the remainder of 2021. What these trends will mean for Canadian equities is mixed and d an interesting way.

The first theme involves a strengthening global economy through ongoing vaccination programs in Asia and Brazil, combined with a shift of consumers in the developed world from buying goods to buying services and experiences after locked up at home for months.

The commodity-heavy TSX benefits from a recovering global economy due to the resource-intensive growth profile of developing economies – they use more commodities for each unit of GDP growth than G economies -10, which rely more on service industries.

However, the shift from goods – game consoles, furniture and lumber for renovations and the like – to buying services like dining out and vacations is less conducive to the TSX’s outperformance. Increased air and land travel will boost oil consumption, but Canadian mining companies and other material suppliers are not benefiting as much from global spending on consumer services as from orders for goods.

The second major theme – and I was waiting for someone to point this out – is China’s continued efforts to rein in debt growth. The country’s incredible growth was previously financed mainly by bank loans to infrastructure builders and property developers.

The economy has reached the point where significant debt growth is needed for any further growth, and regulators are looking to curb lending. The current rate of credit growth is in the 30th percentile of the historical average.

Typically, China consumes about half of the world’s raw material production. The slowdown in Chinese lending and investment is therefore clearly negative for Canadian commodity producers, and this time includes the energy sector. “Couple [this trend] with spending shifting from goods to services,” writes BofA, “and the current consensus bullish views on cyclicals/commodities would be tested”

The third theme concerns central banks, in particular the possibility that the Federal Reserve will announce a reduction in bond purchases on the open market (quantitative easing). BofA’s view on this is simple.

They note that stock prices are affected by the combined asset purchases of all the major central banks – the Fed, the European Central Bank, the People’s Bank of China and the Bank of Japan – and rarely by the actions of any one. single bank. Given that total asset purchases by all banks are expected to increase by another $1.6 trillion, even if the Federal Reserve reduces purchase amounts, it doesn’t believe equities will suffer from this theme in 2021. .

What I generally take away from the report is that the markets have entered a phase of transition. The easy money on the stocks most sensitive to the global economic recovery has already been made and investors will need to be more selective about which market sectors are likely to outperform. The rising tide of global economic growth recovery will no longer lift all equity boats.

— Scott Barlow, Globe and Mail Market Strategist

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actions to ponder

Alaris Equity Partners Income Trust (AD-UN-T) The one-year average target price among analysts at this trust implies a potential price return of 26% over the next year – and that’s not even including the attractive 7% return. The trust has multiple potential catalysts, which could bring the unit price back to pre-COVID levels. Another encouraging sign: the trust’s payout ratio is approaching a historic low. Jennifer Dowty provides a profile of the trust.

The summary

Looking for defensive stocks for your portfolio? Try Defense Actions

There is one corner of this exuberant stock market where it is still possible to buy stocks of exceptional companies at reasonable valuations: the American defense industry. The industry has a long history of significant shareholder rewards. For some reason, however, investors seem oddly unexcited about its potential. Ian McGugan reviews the investment case.

Gordon Pape’s TSX outlook for the second half of 2021

The first half of 2021 is over, and it has been extremely positive for stock markets. All major North American indices posted double-digit gains as the economy recovered from pandemic-imposed downturns – and the biggest winner was our own TSX. So what does the rest of the year hold for us? Gordon Pape offers his predictions for the Canadian stock market, including an expectation that financials will continue to perform well.

With the limits of remote work becoming increasingly apparent, REITs will be among the biggest beneficiaries

Sorry, telecommuters. The obituaries for the office were premature. As vaccination levels soar and the limitations of remote working become increasingly evident, a growing number of companies are planning at least partial returns to boxing grounds. Investors should be careful. Some of the most direct beneficiaries of a return to the office would be real estate investment trusts, such as Allied Properties REIT, which lease prime office space in city centers. More retail-focused landlords like RioCan REIT also stand to gain if the return of office workers helps revitalize downtown stores and restaurants and spur demand for storefront space. Ian McGugan wonders if now is the right time to get back into these REITs.

Also see: Boardwalk REIT insiders rack up shares

Investors eye high-dividend stocks as Treasury yields languish

Expectations that Treasury yields could remain subdued in the second half are prompting some investors to take a second look at companies with higher dividend payouts than those offered on US government bonds. The ProShares S&P Dividend Aristocrats ETF – a measure of companies that have increased their dividends annually for the past 25 years or more – is up 14.3% this year, compared to a 15.8% rise for the index benchmark S&P 500. Some investors think these stocks could be a good bet in the coming months, however, as a more hawkish tone from the Federal Reserve and signs of a spike in growth weigh on expectations that Treasury yields will resume an outbreak that started in the first quarter but died out more recently. Reporting by David Randall of Reuters.

Others (for subscribers)

The most oversold and overbought stocks on the Toronto Stock Exchange

Monday analyst upgrades and downgrades

Monday’s Insider Report: Mining Billionaire Invests $2 Million in Stock That Doubled in Value in 2021

John Heinzl Dividend Growth Model Portfolio as of June 30, 2021

Globe Advisor

The Financial Times: Record Skew Index shows investors’ stubborn nerves over rally in US stocks

The Financial Times: Emerging markets deviate from the playbook

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Ask Globe Investor

Question: I purchased the TD Nasdaq Index Fund (Investor Series) for my Tax-Free Savings Account through an advisor at a branch of TD Canada Trust. I understand the fund is subject to US withholding tax, but the bank denies this. Can you fix this?

To respond: Any Canadian mutual fund or Canadian exchange-traded fund that invests in U.S. stocks is generally subject to a 15% U.S. withholding tax on the underlying dividends, regardless of the type of account the fund is in. detained. The only way to avoid US dividend withholding tax is to: a) invest directly in a US-listed ETF or US stock, and b) hold that investment in a registered retirement account. A TFSA does not qualify for the exemption.

But here’s the thing: No one buys the Nasdaq-100 index (which your mutual fund tracks) for the dividends; they buy it for growth. The technology-focused index returns just 0.7%, which at a withholding rate of 15% equates to an annual tax impact of just 0.105%.

Now compare that to the management expense ratio of your mutual fund, which is 1%, almost 10 times higher. The MER alone is more than enough to wipe out the index stock’s 0.7% dividend yield, which explains why the TD Nasdaq Index Fund hasn’t paid any distributions in the past five years (this which dates back as far as the data appears in the most recent annual management report of fund performance.)

So withholding tax is not your biggest enemy here.

There are cheaper ways to invest in the Nasdaq, including TD’s Series e Nasdaq Index Fund, which has an MER of 0.5%. You could cut your costs even further by opening a self-directed discount brokerage account and investing in ETFs.

If you’re more comfortable working with an advisor, you could certainly do worse than paying a 1% MER. So I’m not saying that you have an urgent need to make things happen. But I wouldn’t spend another minute worrying about a tiny withholding tax on a growth-oriented mutual fund.

–John Heinzl

What’s up in the coming days

This weekend, get ready for an in-depth look at what investors could be facing in the second half of 2021.

Click here to view Globe Investor’s earnings and economic news calendar.

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Compiled by Globe Investor staff