THE ALBERTA ADVANTAGE?
I have written before in the Journal, here, about how attractive Alberta is as a place to live – both to new Canadians, and to Canadians living in other provinces. Our former government under premier Jason Kenney has taken some credit for its “Alberta is Calling” ad campaign, which boasts about our “lower taxes, better quality of life and endless opportunity” – in what appears to be a successful bid to attract migrants here.
You may have heard another term used to describe the greatness of living in Alberta: “The Alberta Advantage,” which essentially refers to our superior purchasing power vs. the rest of the country. But it looks like we are losing that advantage. Why?
On a relative basis at least, inflation is not the culprit: our consumer price index has risen a cumulative 11.4% since the end of 2019, which is high, but still the lowest provincial rate in Canada. The problem is that wages and income growth have not kept pace with the rest of the country. Since 2019, nominal wages and income in Canada have risen by 16.5%, while in Alberta they have increased by only 8.6%. The strong migration we’ve been experiencing has kept wages and incomes down, because with strong migration comes a strong supply of workers. In addition, while our energy economy is doing well, it is not as robust as it was in the 2000s and 2010s, when high demand for labour in this province drove wages above the national average.
I WON’T GET INTO POLITICS, BUT…
What does the diminishing Alberta Advantage mean for new premier Danielle Smith and her government? In short, they have a challenge on their hands to keep Alberta affordable. The province has clearly been successful in attracting workers, although we need to attract even more skilled workers, who will demand higher wages and thus push up incomes. This may help with affordability, especially in housing. As of June, average home prices in Alberta had increased 4% year-over-year, to $469,000. That kind of increase may not sound dramatic, but when you consider that the average Alberta home price in 2019 was $377,000, that’s a 24% increase in just four years.
GOOD REMINDERS
Reminding us that the economy and markets are a long game is a new report from the Portfolio Advisory Group here at RBC Dominion Securities. Have a look at the chart below, entitled “Staying disciplined and invested crucial to achieving long-term objectives.” If ever there was an accurate headline, that is it.
Start by looking at the top left of the image. You can see: had you invested $100 in the S&P 500 on January 1st, 1980, and left it invested until now, it would be worth a remarkable $10,823.
But what would have happened if you withdrew the investment at some point, such that you missed the market’s 10 best days (just 10!) over that 43-year period? At $4,833, your investment would be worth less than half of the stayed-invested total. And if you had missed the 25 best days in those 43 years? Your investment would be worth just $2,492.
I can’t think of a better argument for staying invested. If you have any questions about this graph or any of the others, please do not hesitate to let me know.
Below is another crucial chart: “S&P 500: Equity Sector Quilt.” What is it telling us?
-That the different sectors of the equities market bounce around unpredictably, and as a result:
-That it pays to be diversified, i.e. it is unwise to bet on just one or a few market sectors. If a high proportion of your investments were in energy, for example, (see the brown squares), you would have been smiling in 2021 and 2022. But: over the past 10 years, your performance would have been poor, given that the sector returned results that were second-worst over that timeline.
-That it pays to stay invested long term. Look at the info/tech sector. If you had become discouraged in 2018 when it posted a negative return, -0.3%, and then sold, you would have missed out on gains in the following years of 50.3%, 43.9% and 34.5%. Then info/tech had a terrible year in 2022, dropping by 28.2%...but if you stayed invested, you still would have enjoyed the highest 10-year returns of any sector, 18.3%!
Stay diversified, stay invested.
HAVE YOU HEARD OF “FAANG”?
Facebook. Apple. Alphabet. Netflix. Google. Those are the five tech companies that make up the “FAANG” acronym.
But considering Facebook changed its name to Meta, and that Microsoft is no lightweight, there is this alternative acronym: MAMAA – for Meta, Amazon, Microsoft, Apple and Alphabet.
These acronyms came to pass because there is a very small group of tech companies that drive so much of the market’s performance. We can see this phenomenon in the relative performance of the S&P 500, which is considered the best indicator of how the markets are doing overall, and the NASDAQ, which is more tech-heavy. Year-to-date, the former is up 19.4% and the latter is up 36.2%.
You can see why we continue to take a prudent and cautious approach to tech stocks. The tech sector has been, you will recall from the quilt chart above, very volatile since 2019. While we are pleased that these companies are posting impressive earnings, they represent only one part of the market, so we stay invested and diversified across a broad range of sectors.
THE FAMILY FILES
Just for a minute, this year’s Stampede felt like Oktoberfest. Sort of: we were having dinner one evening and the couple next to us was from Germany. Which made us proud, as it really says a lot about Stampede’s international drawing power. Our German neighbours were just some of the 1.38 million visitors to take in Stampede, second-highest to the record attendance of 1.4 million in 2012. Speaking of records, we can also be proud of the new Guinness World Record set July 9th at Stampede: most pancakes served in eight hours. 17,182, if you are wondering.
Tara and I went once to Stampede with friends, and once with the kids. There was rodeo, rides and junk food. And Jake learning a lesson: when you pay $10 to try hanging from a chinup bar for two minutes, for a chance to win $200, you might find out the bar is, for some strange reason, slippery.
And our dog, Bear, just turned three.
On behalf of my entire family, Colleen and the team here at RBC, I am wishing you a happy summer.
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The greatest compliment we can receive is a referral to someone you care about who would appreciate the same value we take pride in giving you. If you have someone in mind, feel free to contact me at any time. Thank you very sincerely.