Opening Notes

The cover photo for the newsletter well captures the beauty of this time of year. It is nice to get back outside in the fresh air, even if it involves working in the yard.  We have two of our kids graduating school this year - Gemma is graduating from Northern High School and heading to Brescia University College (Western) next Fall. Jaren, our youngest, is heading into grade 9 at Northern and will need to adjust, together with his parents, to being the only child at home in the near future.  Lucan, our oldest, is returning to the University of Guelph this Fall for his third year.  I know that many of you have already been through this with your own families, so I will lean on you for advice on how to handle this season of change in our home. 

Investment markets are not doing well YTD, and this includes both fixed income markets and equity markets.  It is unusual to see fixed income and equity performing poorly at the same time.  Fixed income is purposely included in a balanced portfolio to offer a "shock absorber" to weak equity or stock markets.  However, when price inflation arrives, the central banks will raise short-term interest rates to help slow down the rate of inflation by making borrowing more expensive.  The bond market makes adjustments as well causing bond prices to fall and bond yields to rise.  At the same time, equity markets don't like rising rates either and we have a situation where both fixed income and equity markets are down.  With the recent weakness in fixed income, I thought it would be beneficial to address the recent performance of various fixed income asset classes:

Cash - A great place to be this year as so many things are not working.  Many opportunities are now being created, so look for windows to get any cash steadily invested.

GICs - These don't change in price (which is nice), but rates are locked in until maturity.  With YTD increase in interest rates and bond yields, the GIC market is offering rates we haven't seen for a long time.  GIC rates tend to move slower than the bond market in both directions, so rates could move a bit more yet.  Contact us for current rates.

Canadian Bonds - These make up a significant portion of many accounts, either through individual government or corporate bonds, bond exchange-traded funds (ETFs), fixed income mutual funds, and balanced funds that carry a significant portion of these to offset equity holdings.  Unlike GICs, bond prices are always changing between the time they are issued and the time they mature.  These include very short bonds like treasury bills all the way out to 30-yr bonds.  They can either be issued by governments or corporations.  Corporate bonds tend to have higher coupons and yields to compensate for the incremental risk over a government-guaranteed alternative.  The nice thing about bond prices is that they eventually do return to par value (provided that the issuer is in good standing) - this provides an anchor to their value over time as the bond prices essentially are "pulled back to par" or the $100 original issue price at maturity.  Over the past almost 40 years, interest rates and bond yields have been on a slow and steady decline.  When rates and bond yields suddenly turn the other direction like we are seeing now in answer to inflationary pressures, if even temporarily, bond prices fall and the performance of your fixed income can suddenly look quite bleak.  The bond market, like the stock market, also tends to look ahead and build in all the bad news up front, so hopefully much of this weakness is already reflected in current prices and we can see some improvement as the year progresses should inflation concerns be less persistent than is currently priced in.  We are already seeing signs in the commodity markets that this may be the case.

Foreign Bonds - In recent years, fixed income managers have increasingly looked around the world to find better yielding fixed income alternatives.  With many central banks raising interest rates consistent with our own Bank of Canada, these bond markets are also seeing falling bond prices similar to what is happening here.

I hope this quick fixed income primer is useful in explaining some of the changes you are seeing in that part of your portfolio. Below we have included some good resources to help with understanding the recent economic and market weakness that we have been enduring. Also included at the end of the newsletter is a very useful report on joint account options here at RBC DS - in particular the Joint Gift of Beneficial Right of Survivorship (JGBRS) account that allows non-registered assets to flow to the next generation outside of the estate and probate. Enjoy the beautiful weather that is now here. Contact our team if you need anything at all.

RBC Global Insight Monthly

A regular feature in our newsletter, we like to highlight it here as this report provides the most efficient summary of RBC's current take on all things investing. Always available on our website under the 'Hazzardous Notes Blog' section, this report, updated each month, provides a concise and informative view on where RBC DS sees the economy and investment markets heading. The report is usually updated around mid-month. With all of the weakness and volatility lately, this is an especially good report to read over. Follow this link to be connected (press the back button on the browser to return to the newsletter): RBC Global Insight Monthly

What to Make of Inflation, Bear Markets & Volatility (audio presentation)

The markets remain on edge and gloomy headlines about bear markets abound. Janet Engels, Head of the Portfolio Advisory Group – U.S., just back from a series of client meetings, shares what’s on investors’ minds, provides perspective around bear markets, and discusses our current market outlook with Tylar Lunke, Senior Manager of the Portfolio Advisory Group’s Managed Portfolio Strategies team.  Follow this link to be connected to the Audio Commentary (press the back button on the browser to return to the newsletter): Audio commentary - What to make of inflation, bear markets, and volatility

Market Volatility Perspectives - from our Cdn Investment Committee

In light of the market weakness YTD, the RBC Canadian Investment Committee has compiled a selection of charts that can help provide some perspectives on market volatility, including: S&P 500 and TSX Composite intra-year drawdowns, equity market correction frequency, S&P 500 bear markets, the importance of diversification and staying invested, and how often does diversification work.  Follow this link to be connected (press the back button on the browser to return to the newsletter): Market Volatility Perspectives

Joint Ownership accounts at RBC DS - including the new Joint Gift of Beneficial Right of Survivorship (JGBRS)

There are three joint account options available at RBC Dominion Securities.  Two of them, Joint Tenants in Common and Joint with Right of Survivorship (JWROS) are more widely known and available.  The third, Joint Gift of Beneficial Right of Survivorship (JGBRS), is a newer type of joint account that is less widely available in the market.  RBC Dominion Securities' JGBRS account is a joint account which facilitates the retention by the primary accountholder of legal and beneficial ownership of the account, including the assets of the account, during his/her lifetime, while gifting the beneficial entitlement to the right of survivorship in the account to any friends and family members named as successor accountholder(s).  There are very few ways to move non-registered assets to the next generation outside of the estate and probate.  If this is something that would benefit you, please contact us for more information.  Follow this link to be connected (press the back button on the browser to return to the newsletter): Joint Ownership Accounts at RBC