February Portfolio Update | 2022

Thoughts on the Market: February Edition

Markets Fret the Three “In’s”: Inflation, Interest Rates and International War 

Written by Jamie Murray, CFA 

The escalating war in Ukraine has roiled capital markets with swift sanctions, exacerbating supply challenges. Keep in mind, the Russian economy is insignificant on the world stage, accounting for ~1% of global GDP. A company such as Mastercard has likely lost its revenue from the region (forever) but the 2% hit to its revenue will soon be forgotten as the rest of the world continues to move to digital currency. The upshot is the inflationary effects of higher energy and commodity prices. Commodities, including wheat, oil, European gas and nickel, reached decade-high levels in early March as the West quickly shut off trade with the country. 

It adds another challenge for the Federal Reserve as it anticipates raising interest rates and scaling back its liquidity through quantitative tightening. Rate hike expectations have plateaued, with six rate hikes expected in the next year, starting this month. Higher energy prices will work their way through to the consumer, who is already challenged according to recent consumer confidence scores. The data driven Fed will need to balance these effects as it tightrope walks through the current market environment.

There is no crystal ball for the path forward. No matter the short-term outcomes, the West will look to reduce dependency on Russia. That’s good for Canada as one of the world’s largest commodity exporters. Revived renewable energy interest is likely as well. In the background, Covid lockdowns are hopefully in their final days and manufacturing supply chain shortfalls should ease in the next year. 

Risk outcomes are certainly higher. Further escalation will likely mean tougher-for-longer sanctions. Rapid de-escalation (a possibility not widely acknowledged) could cause a swift reversal of key sanctions in banking and energy trades. We argue that the stock market is much more forward looking than often credited, and thus, that long-term prosperity should support current valuations, particularly given the bearish positioning of many active managers. Technology-led productivity gains are still strong, and work-from-home processes could ease pump price shock. 


The MWG Global Equity Growth Fund fell 4.4% in the month, below the benchmark return of -1.9%. The top portfolio performers in February were Raytheon (+14%), Major Drilling (+11.5%) and Dollar Tree (+8%), while Meta (-33%), Aritzia (-18%) and Zalando (-16%) were the bottom performers. Over the past year, the Fund has increased 14.7% versus the benchmark return of 13.5%. 

On the first day of March, we initiated a 2% position in both Chevron and Whitecap Resources. While we understand this could be viewed as “buying the top,” we believe their oil and gas reserve base has been persistently undervalued, now have a catalyst to re-rate higher as long-term restructuring of energy flows increase demand for North American energy assets. In the short term, the market needs more oil, and producers are unlikely to respond until valuations make production growth more attractive than buying back shares at an 18% free cash flow yield (in the case of Whitecap). Of note, the oil price futures curve (what the market will pay for oil in later months) remains in the US$80-85/bbl range, indicating forward prices are not pricing in $100+ oil barrels. 

To fund the purchase, we sold our positions in TD Bank and WPP. 


The MWG Income Growth Fund rose 1.1% in February versus a 0.4% decline in the benchmark return. At month end, the Fund yield was 4.9%. The top three performers in the portfolio were Chorus Aviation (+20%), European Residential REIT (+12%) and Rio Tinto (+10%), while IBM (-7%), Quarterhill Debentures (-5%) and GlaxoSmithKline (-5%) were the bottom performers. Over the past year, the Fund has increased 27.2% versus the benchmark return of 19.4%. 

During the month, we added Whitecap Resources to the portfolio and sold our position in True North REIT. 

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.


You have Successfully Subscribed!