S&P/TSX composite posts new record Thursday, U.S. markets also rise

May 9, 2024

TORONTO — Canada’s main stock index rose to a new record high, led by strength in energy, telecom and base metals, while U.S. markets also moved higher.

The S&P/TSX composite index closed up 116.67 points at 22,375.83.

In New York, the Dow Jones industrial average was up 331.37 points at 39,387.76. The S&P 500 index was up 26.41 points at 5,214.08, while the Nasdaq composite was up 43.51 points at 16,346.26.

Canadian companies reporting earnings Thursday included Canadian Tire, which warned of waning consumer demand, as well as Telus, Quebecor and Manulife.

This earnings season in both Canada and the U.S. has been characterized by stronger-than-expected results, but cautious outlooks from firms, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

Wednesday’s report from Shopify, which saw its share price down almost 20 per cent that day, was a prime example, said Burkett.

“Their earnings weren’t so much the trouble, it was weak guidance,” he said, adding the stock slide “dragged down the TSX.”

The markets are responding positively to earnings beats, but much more harshly to misses, added Burkett.

“I think investors are generally waiting and watching earnings for indication of where we are in the economic cycle. And that’s especially true with Shopify,” he said.

“Clearly the market was taken by surprise by just how weak their forward outlook was.”

In the U.S., where earnings season is almost over, it’s been mostly positive surprises, added Burkett.

Though this week is thin on major economic data, one report showed that in the U.S., the number of workers applying for unemployment benefits rose more than expected last week.

That follows a recent weaker-than-expected jobs report in the U.S., as investors continue to take bad economic news as good news for interest rate cuts.

“(At) the end of last year, everyone was expecting imminent rate cuts, and that has absolutely not come to pass. And the reason it has not come to pass is because earnings have been pretty resilient, business conditions have remained good,” said Burkett.

Cuts are expected much sooner in Canada, where economic data has shown more signs of slowing.

But there are concerns that the central banks are holding off on cuts for too long, said Burkett, given the lag effect of higher interest rates.

The Bank of Canada’s Financial Stability Report released Thursday said Canadians continue to adjust to higher interest rates, with more mortgage holders in the coming years set to renew at higher rates.

“We’re seeing now more and more of those mortgages come up for renewal, and renewal at significantly higher rates,” said Burkett.

The Canadian dollar traded for 73.04 cents UScompared with 72.81 cents on Wednesday.

The June crude oil contract was up 27 cents at US$79.26 per barrel and the June natural gas contract was up 11 cents at US$2.30 per 1,000 cubic feet.

The June gold contract was up US$18.00 at US$2,340.30 an ounce and the July copper contract was up five cents at US$4.59 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published May 9, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Rosa Saba, The Canadian Press

CRA reassessing charges for late trust filing after issuing penalties in error

May 9, 2024

Taxpayers who filed information disclosing the beneficial ownership of a trust may have received a letter in error from the Canada Revenue Agency (CRA) stating they owe a $100 late-filing penalty.

The CRA posted a statement on its website that says some trusts that filed a T3 trust income tax and information return with a Schedule 15 after March 30 and before April 3 were charged a penalty in error. The deadline to file the return was April 2. “We are currently reassessing affected accounts to remove the penalty and a notice of reassessment will be issued,” the statement says.

Schedule 15 discloses the beneficial ownership of a trust.

Kim Moody, founder of Moodys Private Client Law LLP in Calgary, read about the error last month on a LinkedIn post from John Oakey, CPA Canada’s vice-president of taxation. After looking into the matter with the CRA, Mr. Moody notified affected clients and instructed them to ignore the letter as their situation would be reassessed. Despite that, he says approximately 10 clients contacted him about receiving the letter, confused about how to proceed.

The penalty error comes after the CRA’s decision to exempt bare trusts from filing T3 returns days before the deadline. Some taxpayers were filing bare trust returns for the first time as T3 reporting requirements became mandatory for informal trust agreements set up by clients over the years.

The reversal caught taxpayers and their accountants off guard as many had filed returns in advance of the deadline, sometimes paying hundreds in accounting fees depending on the volume and complexity of the trusts.

After all the confusion this tax season, for some taxpayers to receive a letter from the CRA about a penalty has resulted in even more frustration, says Debbie Pearl-Weinberg, executive director of tax and estate planning at CIBC Private Wealth in Toronto.

“Many people who do not work in the tax industry are not going to know that this CRA penalty was imposed in error,” she says.

Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, had a handful of clients question why they received the letter from the CRA as they knew he had filed the returns on time. Mr. Burkett sees the issue as part of a bigger problem – accelerating change in Canada’s tax system.

“The letter is a symptom of the fact our tax legislation is becoming so complex that everyone is struggling to interpret and apply these new rules in their own situations,” he says. “The CRA itself under added pressures, worsened by the onslaught of new tax legislation,” including the complex changes to the capital gains inclusion rate introduced in this year’s federal budget.

Mr. Moody says the CRA’s statement is “buried” on its website, making it difficult for the average taxpayer to find the information. “It’s the CRA’s job to broadcast widely and loudly,” he says.

The CRA says it ensured contact centre agents were ready to explain the situation and that it issued a message to tax preparers who submitted T3 tax returns electronically.

“Any payment that has been made related to the penalty will be automatically refunded,” a spokesperson with the CRA said in a statement sent via e-mail. “The CRA regrets any inconvenience that this situation may cause and is committed to providing the best possible service to Canadians.”

Mr. Moody says affected clients started to receive reassessments last week reversing the $100 penalty.

Budget 2024: To trigger, or not to trigger, capital gains

On April 16, 2024 the Liberal Government of Canada released their proposed 2024 Federal Budget. One key proposal is a change to the capital gains inclusion rate to 66.7% from 50.0%. For all corporations and trusts, the new inclusion rate will apply to all realized capital gains. For individuals, the new inclusion rate applies only to realized capital gains exceeding $250,000 on an annual basis. Individuals with realized capital gains below $250,000 per year will maintain the 50.0% income inclusion rate. The proposed changes will take effect on and after June 25, 2024.

If the proposed changes are passed, the result would be a very rapid transition to the higher capital gains inclusion rate. This creates a short timeframe to action planning opportunities to get a 50.0% inclusion rate.

New information about the proposed capital gains rate change is being released daily. Possible delays in passing legislation or amendments to the capital gains proposal are entirely unknown. As of the date of publication, draft legislation has not been released for our review. If passed, the capital gains rate change will have a pervasive effect on the Canadian Income Tax Act.

A brief history of the capital gains inclusion rate:

To 1972                         Nil

1972-1987                    50.0%

1988-1989                    66.7%

1990-1999                    75.0%

2000-2024                  50.0%

2024                              66.7% proposed

Those affected by an increase to the capital gains inclusion rate:

  • Individuals and trusts holding marketable securities with unrealized gains
  • Corporations with marketable securities and other assets with unrealized gains
  • Owners of cottages, second homes, or rental properties
  • Individuals leaving Canada
  • Deceased taxpayers
  • Active sellers of businesses, farms, real estate or other assets with transactions closing soon
  • Others, on a fact-specific basis

Should you trigger capital gains?

Reasons – Yes:

  • You assume the 66.7% capital gains inclusion rate change is permanent and will apply on and after June 25, 2024
  • You are planning to or in the process of selling assets soon and may look to accelerate timeline to close
  • You are seeking to leave Canada and may accelerate timing
  • Trusts approaching 21-year rule without tax planning options for deemed dispositions
  • Elderly taxpayers, especially those without a surviving spouse, who may face a deemed disposition in a short timeframe
  • You are carrying out a capital gains strip transaction
  • Other reasons, on a fact-specific basis

Reasons – No:

  • Capital gains, if triggered pre-emptively, may result in a prepayment of tax which can include alternative minimum tax (AMT) calculated under the new 2024 rules
  • Payment of tax using borrowed funds incurring interest is not deductible
  • The proposed change to the capital gains inclusion rate is proposed – new information is being released daily
  • If many people rush to sell assets there could be a depressed market
  • CRA has not commented on how the amended and expanded general anti-avoidance rules (GAAR) could apply
  • There are inherent risks that must be assessed and re-assessed – rules are complex requiring specialized advice
  • Staying cautious

Overall, the proposed change to the capital gains inclusion rate is expected to impact more Canadians than stated by the Government of Canada. Analysis of your situation should be comprehensive in nature, evaluating the possible risks, benefits, and costs of acting, or not acting, before June 25, 2024.

If you would like to proceed with a comprehensive analysis or have any questions, please contact our Senior Tax Manager Brad Grsic (250.370.9178 | [email protected]).

Disclaimer: This article is intended to inform readers in general terms. It is not intended to provide any tax, investment or business advice. Please consult your advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.

Posted in Tax

Four housing credits and rebates to put money back in homeowners’ pockets

March 21, 2024

If your client is purchasing a new home or embarking on a renovation, there’s an opportunity to advise them on the tax credits and rebates they can claim.

“Clients might not be aware of all the tax credits available to their specific situation,” says Julia Chung, president and certified financial planner at Spring Planning Inc. in Vancouver. “Many times, clients will also not tell you about some of their plans because they didn’t even realize it would be relevant to their tax situation.”

That lack of client communication, or proactivity from their advisor, could translate into leaving money on the table. Below are four tax credits or rebates to help homeowners keep more money in their pockets.

1. The home accessibility tax credit

With the home accessibility tax credit, seniors can claim up to $20,000 toward qualifying accessibility expenses and receive a 15-per-cent tax credit to a maximum of $3,000.

Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, says one popular reno as clients age is replacing a deep-soaker bathtub with one that’s easier to enter and exit.

But there’s a catch to qualify for this tax credit ­­­– the taxpayer must have been 65 or older at the end of 2023 or eligible for the disability tax credit (DTC).

“Let’s say you’re 64 and you’re about to do that tub replacement … maybe wait 24 months and then you’ll get the credit,” Mr. Burkett advises.

While more seniors prefer to age in place, not all are perfectly content with their living arrangements, according to Statistics Canada (StatsCan). More than half are dissatisfied with the accessibility of their accommodation and may renovate to improve the situation.

2. The multigenerational home renovation tax credit

Due to housing shortages and affordability issues, multigenerational living arrangements have become the fastest-growing housing segment, increasing by 50 per cent since 2001 to more than 442,000 households, according to StatsCan.

The multigenerational home renovation tax credit was introduced last year to make cohabited living spaces better for all generations, Ms. Chung says. To qualify, one member of the household (the “qualifying individual”) must be either more than 65 years old at the end of the renovation period or more than 18 years old and eligible for the DTC.

A family member who is 18 or older and lives with the qualifying individual can also claim the credit. But family members who reside together but don’t fall into those specific age brackets and qualifications are out of luck, she adds.

A qualifying family member who incurs renovation expenses in 2023 can claim up to $50,000 in qualifying expenses to create a secondary unit – including materials, services provided by contractors and permits, Mr. Burkett says. In return, they get a 15-per-cent tax credit up to a maximum of $7,500.

“If your mom or dad are getting older and you want to renovate your house to make a comfortable living space for them, this credit is intended as a support or incentive,” he says.

As it’s a new tax credit, he says many clients may not know about it, which is why it’s imperative for advisors to ask clients about their life circumstances consistently.

“With this knowledge, clients may rethink the timing and amount they spend on a renovation,” Mr. Burkett says. “For example, a client with a $40,000 budget may expand to $50,000, knowing they will get a $7,500 credit on their tax return.”

3. The home buyers’ amount

New homeowners can claim up to $10,000 on their tax return. “The only real criterion is that you did not live in another home that you or your spouse or common-law partner owned in the year of acquisition, or in any of the four preceding years,” Mr. Burkett says.

One exception is clients who receive the DTC. In that case, they don’t need to be a first-time home buyer to receive this credit.

He advises clients to look into similar provincial credits for home renovations in Ontario, Saskatchewan, British Columbia and New Brunswick.

4. The HST new housing rebate

Homeowners who build or renovate the interior of their homes substantially, by at least 90 per cent, may qualify for the HST new housing rebate. It must be their primary residence and can be any type of dwelling, such as a single-family home or condo.

Homeowners can apply for this tax rebate, which falls under the Excise Tax Act. There’s a two-year limit to apply from substantial completion or move-in date. The rebate may also apply to new residential housing, such as laneway houses and garden suites on the same property as the primary residence, says Rami Miransky, HST rebate specialist with MCO Wealth Management Inc. in Toronto.

Secondary residences, such as cottages, don’t qualify. However, Mr. Miransky says if a client decides to relocate and either build new or substantially renovate their cottage, they’d be eligible for the rebate as long as it becomes their primary residence.

The rebate has a federal portion (GST) and a provincial portion (PST). Federally, the homeowner would receive a maximum of $6,300, but that’s exclusively for new residential units or renovations for which the value of the property is less than $450,000. The provincial portion would also apply.

Mr. Miransky notes that for properties worth more than that value, the client can only apply for the provincial portion of the rebate, which is a maximum of $16,080, an amount that has remained static since 2010.

Mr. Miransky emphasizes that the rebate is not considered income, but is a refund of the HST paid to build or renovate the home.

“You can’t get a rebate if you haven’t paid the HST,” Mr. Miransky says. “If someone pays cash for the entire build or renovation, you can’t claim the rebate.”

To apply, clients need to offer proof of payment (usually various invoices paid to contractors for the renovation) and fill out a lengthy application form. Some pay middlemen like Mr. Miransky to gather all the information and apply on their behalf.

— With files from The Associated Press

Why the CRA’s bare trusts ‘fiasco’ has made advisors’ lives more difficult

April 19, 2024

The decision by the CRA to reverse its guidance and revoke the requirement for Canadians with bare trusts to file T3 forms just days before the filing deadline has left clients confused, the CRA’s reputation marred, and advisors to pick up the pieces.

The initial decision by the CRA this year was to mandate that a T3 be filed by the beneficiaries of any kind of trust, no matter how informal that trust was. This was largely motivated by the overlaps between trusts and real estate ownership. Beneficiaries were even required to file at T3 if there was no activity in their trusts.

The CRA defines bare trusts as an “arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.” The highly informal nature of these trusts mean that any potential trustees had to do a huge amount of legwork to prepare an accurate T3 filing. On March 28th, the day before the Easter Long Weekend and effectively the last business day before the April 2nd filing deadline, the CRA told Canadians that they would not have to file a T3 for their bare trusts.

Kevin Burkett, Tax Partner at Burkett & Co. Chartered Professional Accountants is also a portfolio manager and advisor. He offers full tax services in addition to his investment and wealth management expertise. He explained exactly what went into the CRA’s initial guidance around bare trusts and the sudden decision to reverse that guidance. He outlined where this decision has left his clients and how advisors, whatever their tax certifications, can do to help clients who have been impacted by this sudden reversal.

“Clients were rightly confused by these rules, and found it odd that they needed to make these filings,” Burkett says. “As an advisor, for the last two months we’ve been doing our best to explain the CRA’s position, to commiserate with clients a little bit…We did the work to prepare those filings and two days before the deadline we hear these trust filings won’t be necessary. It’s quite challenging and I think clients are understandably frustrated.”

In demonstrating how broad the definition of a bare trust is, Burkett notes that if a parent helped their child qualify for a mortgage by co-signing a lease, it may meet the definition of a bare trust. Nevertheless, clients want to stay compliant and advisors like Burkett make it their duty to keep everyone onside. As much as the requirement was itself a bit of a pain, the reversal of the decision has done more damage to the CRA and put advisors like Burkett in a more challenging position.

“I think this has some interesting long-lived implications. We may find it more difficult in the future to make the case for new filings,” Burkett says. “I think some taxpayers may be less inclined to comply, too, expecting that there might be some later about-face.”

The initial decision to require T3 filings across all trusts was, Burkett says, borne of an extensive consultation process that began in 2018. While there might not have been consensus that this was the right decision, advisors and accountants were aware of the plans. Burkett’s key takeaway, however, is that the CRA was prevented from fully implementing the feedback they had received, likely due to some form of political interference. A decision at the 11th hour meant they clearly failed to engage with the stakeholders at a level high enough to prompt the CRA to reverse its decision.

Burkett likens this latest mishandling to the failures around rollout of the underused housing tax last year. The legislation, initially intended to cover foreign owners of properties, was so broad in its language that more people were scoped in than expected, resulting in confusion and failures in the rollout.

“There’s clearly a commonality here around real estate, I think they’re trying to address some of the housing affordability crisis with information gathering and requiring new types of filings,” Burkett says. “But it doesn’t seem that they’re placing much emphasis on putting forward a compliance regime that people can follow without taking on undue burden of professional fees and time and energy.”

Burkett accepts that the CRA has a difficult job to do. More often its for them to interpret and execute. As questions around real estate fall under the political lens, however, Burkett sees the risk that key points of nuance in tax legislation are glossed over in favour of a snappy headline that implies a fight for housing affordability. Much of the responsibility for the failure lies with parliamentarians and senior staff who interfere in matters that are highly technical in nature.

Burkett’s greatest concern emerging from this story is that it has harmed the credibility of future tax policy. While advisors like Burkett are on the frontlines at tax season, he worries that some individuals will treat future CRA decisions of this kind with even greater disdain.

“We take a conservative approach to tax and we do that because over time we believe that serves the client best,” Burkett says. “What I worry about is that when we take a conservative, compliant position in some future area of new tax legislation or policy, we may get pushback.”

Bare trusts exempt from new reporting rules for 2023, CRA says

March 28, 2024

The Canada Revenue Agency says it won’t require Canadians with bare trusts to adhere to complex new tax-reporting requirements for the year 2023, after recent legal amendments meant to increase transparency around trusts caused an uproar among both many affected taxpayers and tax professionals.

The announcement, which came just days before this year’s April 2 deadline for filing trust returns, means tax filers won’t have to report bare trusts this year unless the agency makes a direct request for the files.

The new rules have been lambasted for including onerous requirements to disclose information to the CRA that critics said were particularly hard to comply with in the case of bare trusts, which are often informal arrangements that aren’t documented in writing.

In a statement online the tax agency said it was exempting bare trusts in recognition that the new reporting requirements have had “an unintended impact on Canadians.”

Chartered Professional Accountants of Canada, which represents the profession at the national level, had been among the groups asking the CRA to push back the deadline for filing bare trust returns, said John Oakey, vice-president of taxation at the organization.

Instead, the tax agency used its administrative powers to waive the filing requirements entirely for bare trusts for the 2023 tax year, Mr. Oakey said, calling the move “a much better outcome” compared with a deadline extension.

A trust is a legal relationship in which someone called a trustee holds property for another person known as the beneficiary. In a bare trust, the trustee can only act on the instruction of the beneficiaries.

Accountants and tax lawyers warned that many ordinary, poorly documented arrangements used by Canadians to manage family finances constituted bare trusts that would be caught in the new rules. In many cases, those affected by the new rules never formally or intentionally set up a trust.

Common scenarios involve people who hold title to their adult children’s home because they co-signed their mortgage and those who have their names on their elderly parents’ bank or investment accounts.

This tax season was supposed to be the first time in which Canadians would have to file what’s known as a T3 Trust Income Tax and Information Return for bare trusts, which were previously exempted from having to report information to the CRA.

Part of the difficulty of complying with the reporting requirements stemmed from the fact that assessing whether a bare trust exists can involve extensive information gathering and complex interpretations of common law, according to many tax advisers.

A March online survey conducted by The Globe and Mail through the Carrick on Money newsletter shows the new reporting rules for bare trusts were forcing many taxpayers to spend hundreds – if not thousands of dollars – in accounting and legal fees in addition to routine tax-preparation costs.

While the CRA’s announcement is good news, showing the government listened to sustained and increasing criticism, the fact that it came so close to the filing deadline means both individual and corporate taxpayers have already spent millions of dollars in fees and expenses, said Allan Lanthier, a prominent tax expert and retired partner at EY.

“The Minister of Finance should take a hard look at this fiasco, and develop a new, consultative approach to legislative drafting so that these types of mistakes don’t happen again in future,” Mr. Lanthier said via e-mail.

Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants, said the late notice would punish conscientious taxpayers and tax professionals who had already submitted bare-trust returns. “Your most honest, ethical taxpayers and practitioners have probably made their bare trust filings already,” he said.

The trust reporting requirements had also resulted in significant extra costs and workloads for accounting firms, according to several tax professionals who spoke to The Globe.

To help Canadians comply with the rules, CRA had previously said it wouldn’t apply penalties for 2023 bare trust returns submitted after the deadline, except in blatant cases of gross negligence. On Thursday, the agency went further by exempting bare trusts entirely for the 2023 tax year.

The move represents the second time in four months that the federal government has walked back new tax-filing requirements. In November, Ottawa announced it would largely scrap reporting obligations for Canadians stemming from the Underused Housing Tax (UHT). The measure, which is meant to discourage foreign real estate investors from leaving residential property underused or vacant, also affects many Canadian and permanent resident homeowners and some Canadian corporations.

Both in the case of trusts and with the UHT, the primary impact of the recent tax changes on Canadians is to create new obligations to disclose information to the CRA, rather than to introduce new taxes.

On bare trusts, the tax agency said in the statement announcing the exemption for 2023 that it will work with the Department of Finance over the coming months to clarify its guidance on this filing requirement. It also said it will share with Canadians further information as it becomes available.

Mr. Oakey said he hopes those consultations will produce rules that, while satisfying Ottawa’s goal of boosting transparency around trusts, are also workable.

“Let collectively come up with rules that actually capture that information without being so broad in scope that they’re capturing useless information.”

Why this money manager is buying Intact and selling Choice Properties REIT

April 12, 2024

Money manager Kevin Burkett isn’t waiting to see if the economy has a soft or hard landing, or how many interest-rate cuts could come this year. Instead, his four-person investment team at Burkett Asset Management Ltd. looks to buy high-quality companies that are out of favour or misunderstood by investors in the short term, and have the potential to do well over the long term.

“Our firm is small and independent, which we think gives us an advantage because we can be more nimble in making investment decisions,” says Mr. Burkett, partner and portfolio manager at the Victoria-based firm, which oversees about $340-million in assets.

The firm’s balanced portfolio, which includes an approximately 60-40 split of stocks and bonds, was up 13.2 per cent over the past 12 months. Its three-year annualized return was 7.6 per cent, while its five-year annualized return was 8.6 per cent. The performance is based on total returns and gross of fees as of March 31. (Fees range from 0.40 per cent to 1.25 per cent depending on the size of a client’s portfolio.)

The Globe and Mail spoke with Mr. Burkett recently about his investing style and what he’s been buying and selling.

Describe your investing style.

We strive to own a portfolio of companies that we consider higher quality than their peers. The two most important characteristics we look for are companies with long-term earnings growth prospects and shareholder-friendly capital management. These businesses provide long-term visibility for our model forecasts and resilience during down-market periods. The challenging part is acquiring those businesses at attractive prices. To accomplish this, we look for businesses with catalysts for positive change that may be currently out of favour, either owing to investor misconception or market overreaction about a stock in the short term.

What does your asset mix look like?

We like public stocks and bonds. We don’t invest in private or alternative assets. Those products are often more expensive and complex, which doesn’t always translate into higher returns. We’re always fully invested and try to have as little cash as possible. We consider bonds as our ‘safe bucket’ and source of funds to rebalance portfolios opportunistically as things come under pressure or as equity markets run higher. Right now, we have a heavier weight on shorter-term bonds. We customize the stock-and-bond mix depending on our clients’ preferences and risk tolerance.

What have you been buying?

We bought insurance company Intact Financial Corp. IFC-T +0.35%increase in the fourth quarter of last year and have been adding to it recently. The insurance sector, particularly here in Canada, is moving through a period of consolidation, and Intact has demonstrated a history of successful acquisitions. It’s acquiring smaller players across Canada at reasonable valuations and showing strong capital generation while remaining disciplined about deployment. Insurance may be a crummy business to be a customer of, given rising prices, but it’s a great business to invest in because a few key players dominate it.

More recently, we’ve been buying Ashtead Group PLC ASHTY -1.12%decrease, a British industrial equipment rental company with significant exposure to the U.S. and North America. It’s the second-largest equipment rental company in the U.S. We see it as having scale, expertise and experience and being able to win some mega projects in manufacturing and infrastructure. We consider it a defensive name while benefiting from the growing need for equipment it rents.

What have you been selling?

Choice Properties REIT CHP-UN-T -0.91%decrease is a stock we exited recently after owning it for about a year. We originally liked Choice for its grocery-anchored exposure. While this real estate category has outperformed others, as we had expected, the market now well understands Choice’s defensive nature and diversified tenant mix. Our growing concern about the impact of higher interest rates on development activities and fewer identifiable positive catalysts in the near term led us to redeploy those assets to where we felt were better opportunities.

We also recently exited Trane Technologies PLC TT-N -1.04%decrease, a large [heating, ventilation and air conditioning] company based in Ireland. It does a lot of business in the U.S. We did well on the stock, but our investment thesis ran its course, so we decided to put the money to work elsewhere.

Name one stock that you wish you hadn’t sold, and why?

MercadoLibre Inc. MELI-Q -1.96%decrease, one of the largest e-commerce platforms in Latin America, is a stock we wish we hadn’t sold. We started buying the stock in September, 2017. Although it was doing well, foreign competitors such as Amazon.com Inc. AMZN-Q -1.68%decrease and Alibaba Group Holding Limited BABA-N -0.94%decrease had more established logistics networks.

MercadoLibre was rapidly growing due to its free shipping strategy, and analysts thought it could quickly lower the program’s costs so the drag on margins would recede. That wasn’t our expectation. We thought building a logistics network to enable efficiencies and cost reductions would be a costly multiyear process. We concluded it was overvalued and sold it in August, 2018, at a nice profit.

However, MercadoLibre was able to reduce the costs associated with its free shipping service more quickly than we expected. The stock has since increased by more than 300 per cent in Canadian dollars. We missed the broader impact of the global shift to e-commerce, which greatly outweighed our concerns about margin pressure.

What did you learn from that?

Successful investment teams talk about their mistakes at least as much as their successes. We learned that you can spend a lot of time and energy and still make the wrong decision. Today, we’re more careful about focusing our time so we don’t get lost in details while worrying about one issue. For every company we analyze, we make sure to understand the broader, important trends that could alter how the company operates.

This interview has been edited and condensed.

S&P/TSX composite makes moderate gain after rate decision, U.S. markets also rise

March 6, 2024

Canada’s main stock index posted modest gains Wednesday after the Bank of Canada continued to hold its key lending rate steady, while U.S. markets also moved higher, recovering some of Tuesday’s losses.

The S&P/TSX composite index closed up 68.03 points at 21,593.96.

In New York, the Dow Jones industrial average was up 75.86 points at 38,661.05. The S&P 500 index was up 26.11 points at 5,104.76, while the Nasdaq composite was up 91.96 points at 16,031.54.

Central bank officials on both sides of the border spoke Wednesday about the need for caution ahead of highly anticipated interest rate cuts.

The Bank of Canada held its interest rate steady at five per cent, a move that surprised practically nobody, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.

However, he said the commentary from Bank of Canada governor Tiff Macklem was more hawkish than he expected, as the governor said it’s still too early to consider lowering the policy interest rate.

“With inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of governing council is that we need to give higher rates more time to do their work,” said Macklem.

While inflation is receding and the overall economy has weakened more than that of the U.S., Canada’s housing market remains strong, said Burkett.

Macklem is likely concerned that talking about rate cuts too soon “will spur on the Canadian housing market, which really hasn’t reacted the way anyone would have guessed, given the magnitude and rapid nature of the barrage of rate hikes,” he said.

Meanwhile, U.S. Federal Reserve chair Jerome Powell’s testimony before Congress seemed more dovish on cuts than Macklem’s, said Burkett.

Powell said the Fed needs more confidence inflation is moving sustainably toward its target before it can start cutting rates.

Despite the U.S. economy’s strength compared with Canada, Burkett thinks the Fed could cut rates before its northern neighbour because of the differences in its housing market, where mortgage terms are significantly longer.

“I think there’s more sensitivity in our housing market because we didn’t see the same correction that they saw in the U.S. during 2008,” he added.

Wednesday saw fresh data on U.S. job openings, which were relatively flat at the end of January compared with a month before. It also saw the Fed’s latest report on business and economic conditions, which said economic activity increased slightly since early January while there were signs of easing in the tight labour
market.

The Canadian dollar traded for 73.92 cents US compared with 73.63 cents US on Tuesday.

The April crude oil contract was up 98 cents US at US$79.13 per barrel and the April natural gas contract was down three cents at US$1.93 per mmBTU.

The April gold contract was up US$16.30 at US$2,158.20 an ounce and the May copper contract was up three cents at US$3.88 a pound.

— With files from The Associated Press