Travis Kidson 6/20/22 Travis Kidson 6/20/22

2022 Q2 Newsletter

Hello all,

For this newsletter, we wanted to focus on providing some perspective on the current market conditions. We understand the concerns individuals have. Periods such as these are challenging to watch, however, they are temporary.

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Markets

Markets this year have been volatile. As you have likely heard us say, we were expecting a pullback after the strong returns in 2021. What we were not expecting was the level of inflationary growth and the geopolitical war in Eastern Europe, all occurring within a short 6-month period. Below are a few of the global events tangled together that have created a challenging investment environment:

China’s Zero COVID policy causing disruptions to the supply of goods
Companies are understaffed and have been increasing wages to attract people
Energy prices had been high even before the war in Ukraine
The sanctions on Russia and the war have removed major sources of wheat and fertilizers
Rising interest rates are causing some large investors to indiscriminately sell all their investments, in effect throwing the baby out with the bath water.

Our investment process on the other hand doesn’t waiver. We continue to have an objective view on your portfolios and try to balance not making knee jerk reactions with taking advantage of opportunities to manage risk. Below is an example of some of the metrics we look for when selecting our companies to invest in. Without reading the name of the company below, we have highlighted some of the annual financial numbers they produce, dating back to 2007.

* numbers in the millions (000,000.00)

Not all years saw an increase in sales, net income, or their share price. But over 16 years of market volatility, an investor would have been well rewarded.

News outlets tend to focus on the changes we are going through and the disruptions all around us. We deliberately included the period of the Great Recession (2007-2009), which saw large swings in the market. This company’s worst performing period during the Great Recession was down about 50%.

This year it is off 29% from its peak in December. However well-run companies will continue to execute their strategy and grow overtime. The chart below is the stock price of this same company from 2007 to today. The company has had periods of pullbacks throughout the 16-year period, but the long-term trend is up and to the right!

The company: Microsoft

However, you could do the same analysis of many well-run companies within your investments.

In the meantime, the media will continue to sell fear to catch your attention.

Part of the problem, is we have lived through the last two years where we could not:

Go out
See friends and family
Travel

Just when we start to see an end to restrictions and the possible return to normal, inflation starts to peak, central banks raise interest rates and war has been thrust upon Ukraine. All of us feel we have had it – and rightfully so! This market downturn is emotionally harder to deal with than the period of 2008 and 2009.

Our expectation is markets will look for inflationary growth to cooldown and supply chain issues to show signs of repair before confidence is restored. We don’t know when this will happen however would like to highlight the importance of being patient over the next couple of months. Given markets are much closer to the bottom today than in January 2022, we see many of the companies currently owned in your portfolio as being on sale (food for thought!).

We wanted to leave you with the chart below. This represents the top 500 companies in the US (S&P500 index) over the last 80 years. Blue represents times when markets are going up (bull market) and orange represents times when markets are going down (bear markets). Typically, we see prolonged periods of bull markets followed by relatively short (temporary) periods of bear markets. Every time these occur, it’s easy to think this can last forever – however we always have found a way through.

The chart above shows that approximately 70% of the time markets move up. If you were to go to a Vegas slot machine, knowing that every time you pulled the lever your odds of winning were 70%, you would never stop.

If you have questions, please don’t hesitate to contact us.

Travis Kidson, B.Sc, CFP®, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3486
travis@beaconwealthpartners.ca

Jack Fournier B.Sc, FMA, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3348
jack@beaconwealthpartners.ca

This information has been prepared by Travis Kidson and Jack Fournier who are Portfolio Managers for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Managers can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

Insurance products are provided through iA Private Wealth Insurance Agency which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investors Protection Fund.

Beacon Wealth Partners is a personal trade name of Jack Fournier and Travis Kidson.

Travis Kidson 3/30/22 Travis Kidson 3/30/22

2022 Q1 Newsletter

The start of 2022 has been quite eventful. From easing COVID restrictions, to the SLAP at the Oscars, the winter Olympics, and finally the war between Russia and Ukraine. Our newsletter will focus on the following topics:

Markets and Investor Sentiment
War and Sanctions
Power of Technology
The Good in People

Markets and Investor Sentiment

Investment markets do not move in a smooth manner. One could say that they show manic - depressive behaviour. One day the future is bright and sunny and nothing could be better. The next, they have curled up in a ball and are hiding under a blanket sure that the end is near. Overall, optimism prevails, but it can be difficult for individuals to remember that while we are inundated with news of terrible events.

We can remember previous periods of market or economic stress, but from a distance they don’t seem so bad because we know the outcome - markets recovered. In February we sent out a note illustrating normal market pull backs against calendar year returns (see above). With the invasion of Ukraine, market nervousness understandably increased. Historically, after an invasion or other geopolitical events, most of the time markets have been positive six and twelve months later.

One of our jobs, as your investment advisors, is to be patient students of history and to understand the normal flow of market sentiment. We look to position our clients investments where we see potential and to avoid, what we feel are obvious risks.

One market sector we are hesitant to include in our portfolios is what we call old energy - oil and gas. In 2020, oil prices plummeted due to uncertainty on the effect the COVID pandemic on the economy and thus the demand for energy. As students of markets, we knew that this would be a good opportunity to invest, but we did not. Oil is especially sensitive to global events - from spills to recessions and war. In many ways, oil is to be appreciated as it had allowed the world to move past coal powered trains and ships to a much more connected and technologically advanced world. But we feel better options exist now for our clients.

We see technology as the next major improver of global conditions. Technology and other sectors offer better financial fundamentals, such as return on capital, and fewer risks from mishaps. We have avoided old energy as we believe we can get as good or better returns elsewhere. In our managed portfolios, we believe in having a meaningful exposure to the positions we hold, by selecting quality companies that show strong long-term economic potential.

Upon the invasion of Ukraine the benchmark price of oil in North America spiked upon the fear and uncertainty that war brings, but since then prices have declined. These high prices encourage oil producers to quickly reopen existing wells or begin producing reserves they have mapped out but not yet developed. This can be done within months, causing prices to drop as supply rapidly rises.

The companies we prefer to hold for you are not as subject to the rapid whipsaws of supply and demand and are more aligned for how the world’s economies are evolving.

War and Sanctions

A surprising outcome of the invasion of Ukraine is the cooperation amongst countries of the developed world in agreeing to and implementing economic sanctions. Perhaps the most significant part of this is denying several Russian banks access to the SWIFT network (Society for Worldwide Interbank Financial Telecommunication). This is the system banks use to efficiently message each other and to move money between institutions. Most commodities are priced in US dollars and this has had the effect of isolating the Russian economy from the currency they need to transact with the world. Besides oil and gas, Russia is a major exporter of wheat and fertilizer.

Sanctions have also targeted the reserves of the central bank of Russia. Since a prior round of sanctions were imposed on Russia after the annexation of Crimea, Russia has built up reserves equivalent to $630 billion US. But much of these assets were held at other banks/central banks in places that follow the rule of law. Suddenly Russia has lost access to its holdings of Euros and other strong currencies. Other sanctions prevent the sale of critical components, from microchips to advanced machinery, into Russia.

All of this has caused the Russian Ruble to drop from ~75 to the US dollar before the invasion, to briefly 135/USD to now around 96. In response, the Russian central bank raised the interest rates from 9.5% to 20% to support the currency.

All of this will lead to a smaller Russian economy and a lot of hardship for normal Russians (ie non oligarchs). What real effects this has on the decisions of the Russian President or changing future actions of not only Russia but other countries, is impossible to know. But it does signal the resolve of the developed world to not turn a blind eye to invading another country while avoiding escalating the situation into a much more dangerous and broader war.

Power of Technology

We do not have to look far to see the power and potential of technology than the COVID pandemic.

From March of 2020, scientists were able to sequence the genetic code of the virus, develop possible vaccines in 5 months using supercomputers running Artificial Intelligence algorithms (which otherwise would have taken 5 years to develop), run clinical trials and then build manufacturing capacity to enable 10 billion vaccines to be produced and injected by early this year.

Vertical Farms: Across North America in highly populated cities, ‘vertical farms’ are starting to become more popular. The main two advantages are they help reduce the amount of square feet needed to plant a crop as vegetables are stacked on top of each other – allowing for a far higher density of growth. There is also no soil as crops are grown either aeroponically (misting of roots) or hydroponically (roots sit in water). This helps reduce the amount of water usage and almost eliminates weeds and microbes/insects which require soil for their life cycle. By having complete control of the nutrient rich water crops are fed, there is also no fertilizer runoff into waterways that could affect lake and ocean wildlife. Currently the biggest drawback to the technology is the lack of sunlight within the warehouses used as farms. The solutions are computer controlled temperature control systems and lights tuned to the particular plant species to enhance growth. Modern LED technology allows that frequency tuning while also operating at much lower costs than older lighting systems.

Overall, this technology will allow for the growth of vegetables regardless of the season and enabling it to be sourced locally so it will be fresh and reduce transportation costs and emissions. Berries are the next item researchers are trying to incorporate. Currently this technology is being added in the UAE, Switzerland, and in Shanghai China as well.

New Type of Camera: Conventional cameras focus light onto a recording medium to preserve an image as a field of tiny dots, know as a frame camera. However, a team at The Robotics and Perception Group at the University of Zurich in Switzerland has created an event camera, where a dot only shows when the nature of the incoming light changes. Since the changing light is a consequence of movement (in most cases) the cameras often record events rather than objects. This can become particularly helpful if the camera itself is also moving, as nearby objects change positions more rapidly than distant ones. Uses for this technology can be applied to robots, drones, and driver-less cars.

For example, if a driver-less car approaches a stop sign and a truck has stopped first in front of it, the closer the driver-less car gets to the truck, the larger it will appear within the field of the camera. By analyzing the changes in the image, the AI (artificial intelligence) system will be better able to determine where to stop. In this case behind the truck, not close to the stop sign!

Robots and Jobs: The use of robots within factories or warehouses isn’t new technology. People do not enjoy doing menial repetitive tasks, which can now be done more effectively by robots. Amazon for example currently uses over 350,000 robots within the warehouses bringing shelves of items to people for them to pick and pack. However, during the busiest times of the year in November and December, extra sets of hands are needed. Currently the hardest things to automate are picking specific items and packing them to ship, an advancement that would revolutionize the warehousing industry.

Many people are concerned about the effect of these robots on the availability of work. If you look back to the 1960’s there used to be 1,000’s of people working the telephone switchboard operators, however all whom lost their job when it could be automated. The number of jobs in the telecoms industry have soared since then as advances in the sector have created many new/alternative jobs.

As logistics get more efficient through greater automation, and online businesses grow, the overall level of employment in e-commerce should still increase. It is not difficult to think of many job functions that have come and gone, (like the television repair man) but computer programmers and even social influencers are examples of new opportunities. People are creative, always finding new ways to do things and to help others. And as an example of that:

Good in People

Our thoughts go out to the people of Ukraine. We have clients with families that have been affected by this ongoing tragedy, as we are sure many of you know family and/or friends in this situation. Seeing the news and headlines on this topic is hard as people are suffering.

Social media certainly has its pros and cons, however people have found creative methods to help campaign and advertise ways to funnel money to besieged Ukrainians who need direct financial assistance.

One of campaigns suggested the use of Airbnb. People around the world were booking places in Ukraine, with no intentions of ever showing up. Effectively helping to directly donate to Ukrainian citizens in desperate need of the aid. Once the news of this tactic gathered steam, Airbnb also stepped up and waived all service fees for these bookings.

Our hope is this conflict can be resolved as quickly as possible.