MATCO MARKET INSIGHTS – ELECTION WAVES ON THE SURFACE; STRONG EARNINGS UNDERCURRENT BELOW
The current U.S. election was one for the ages, with record voter turnout and an extended vote count period due to the increased number of mail-in ballots. Although it appears that Joe Biden will become the 46th President of the United States come January of 2021, some uncertainty remains. There will be a runoff race for the two Senate seats in Georgia, with that election set for January 5th, which will ultimately determine which party controls the Senate chamber. The strong positive for democracy overall is the record-breaking voter turnout that has been observed during this election.
While the election results will have long-term economic implications that we do not want to downplay, over the short term the headlines continue to grab more attention than they merit. What we are referring to specifically is that although the world seemed to stop spinning on its axis throughout the election, the third-quarter earnings session for both Canadian and U.S. companies continued to march on.
With respect to our investment process, 4 of the 9 key factors we use to select our investments are related to company earnings, so earnings performance is critical to how we manage our portfolios. Thus far, 52 out of the 90 companies we are invested in have reported their 3rd quarter earnings result. Out of those 52 companies, a remarkable 44 of them have surpassed analyst earnings expectations. These companies are held within our Canadian Equity Income Fund, Canadian Small Cap Fund and our Global Equity Fund. Additionally, 30 out of 52 of the companies have also grown their earnings year-over-year, meaning their Q3 2020 earnings were greater than their Q3 2019 earnings. Although the U.S. election continues to cause waves of uncertainty, one of the most powerful economic undercurrents – corporate earnings – is flowing very strongly below the surface. When considering that 58% of the companies we are invested in have grown their earnings this year even though we are working our way through an economic recession, we believe this speaks directly to our investment process. Our process is heavily focused on analyzing company-specific fundamentals, with company earnings growth at the forefront of those fundamentals.
Now as I mentioned, we certainly do not want to downplay the importance of the U.S. election, from many perspectives including the economic implications. However, the election results will gradually impact the economic landscape over time, determining which companies and sectors will benefit and which ones may suffer. What we do want to hit home with is that our process of focusing on company fundamentals allows us to take a more objective approach, particularly when uncertainty and emotions may be running higher than normal. Process and discipline, perhaps more boring than Fox or CNN news headlines, continue to be the risk management compass that guides us through the investment landscape. Although the U.S. election may very well make headlines and waves for weeks to come, we remain focused on the stronger economic forces below the surface.
Trevor Galon, CFA
Chief Investment Officer
MATCO FINANCIAL INC.
Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.
Our mission is to simplify the investment world for our clients by understanding their needs and providing exceptional investment solutions that preserve and grow capital.