CIBC World Markets has cut its bond allocation by 2% and raised its stock recommendation by 2% to 56% in its latest portfolio strategy report.

“In view of at least one more rate hike from the Bank of Canada we have reduced our bond weightings by 2%-pts and moved funds to stocks,” it explains. “We remain, however, overweight duration, within our fixed income portfolio. A soaring Canadian dollar should soon force the Bank of Canada to the sidelines leaving a 2-to-10s inversion in the curve later this year.”

The balance is going into stocks, it says, because it maintains a favourable outlook for energy, gold and base metals stocks. “Increasing global interest in Canadian oil sands at a time of dwindling global crude supply growth should push valuations in the energy sector up another 25% over the course of the year,” it predicts. “Elsewhere, our target for a $575-$600/oz bullion price should support double-digit gains in gold stocks this year while strong GDP growth in China should continue to keep base metal prices at near-record levels.”

“Within our equity portfolio, we are reducing our underweight in industrials given the stellar performance of the railways, which account for over 50% of the sector’s market capitalization. Rail, which is by far the most energy efficient mode of transport, continues to benefit from soaring fuel costs and strong commodity markets that have seen freight volumes rise sharply,” it says. “We remain underweight info tech and the consumer sectors.”

“Next to energy and materials stocks, our other big winner last month was income trusts, which are double-weighted in our portfolio. The trust market saw a 5% gain in January, consistent with our expectation of another year of 20%plus returns from the CIBC World Markets Income Trust Index. Within the trust sector, we are maintaining our overweight in oil and gas but moving from an underweight to a market weight on business trusts,” it adds. “At the same time we have moved to an underweight on power trusts which continue to lag well behind the rest of the trust market in total returns.”