In its latest portfolio strategy report, CIBC World Markets Inc. recommends dropping cash weightings even further under the benchmarkand boosting bond overweightings.

CIBC has dropped its cash weighting to just 2%, well below the 10% its benchmark suggests. At the same time, it has boosted its bond weighting to 42%, above the 38% called for by its benchmark. Stocks remain neutral at 48%, and income trusts are double their benchmark weighting at 8%.

“Overweight positions in long duration bonds and income trusts have given our portfolio a nearly-50-basis point outperformance of the total return benchmark during the first five months of the year,” it reports. “We’ve slightly raised our overweight in bonds this month, particularly long duration Government of Canada and provincial issues. Such issues not only benefit from falling long-term interest rate expectations but also from any flight to quality from high yield bonds.”

But income trusts continue to lead all asset classes this year in total return. Already up 7% since January, the CIBC World Markets Income Trust Index should yield a total return of 20% this year, it predicts. “Within the trust market, large cap issues are significantly outperforming smaller cap trusts, mimicking a similar trend in the TSX. Oil and gas royalty trusts continue to lead all sectors in the trust market just as oil and gas stocks have hugely outperformed the TSX,” it says.

As for stocks, it’s largely overweight in energy stocks and underweight in materials, which has driven a 43-bps lead for its portfolio compared with the TSX composite. It predicts that oil is going to $60/barrel, saying, “Chinese crude imports (the second largest oil market in the world) continue to grow at an over-20% year-over-year rate, a pace that neither Saudi nor Russian production seems capable of matching.”

“We have maintained smaller overweights in the yield-rich telecom and utilities sectors whose dividend yields will soon rival those of the 10-year Canada bond,” it adds. “We remain underweight the materials sector, expecting non-energy commodity prices to fall further. We are also underweight consumer discretionaries and info tech stocks, where valuations trade at over 30 times next year’s earnings.”