Our thoughts are with all of our clients as well as their family and friends who may have been impacted by the recent hurricanes in Florida and Atlantic Canada. If we can help in anyway please do not hesitate to reach out.
A few topics our newsletter touches on this month:
- Our Thoughts: High-Grading Equity for the Long-Term
- Currency Snapshot
- Other Links: Disruptors podcast, Global Insight (monthly & mid-year outlook), FP article on markets
Our Thoughts: High-Grading Equity for the Long-Term
Last week, the Ottawa Citizen included a column on market investing in volatile markets that we think is worth a quick read (link here). Long-term investors - who are well acquainted with the ebb and flow of equity valuations over time - can still get caught up in confirmation bias as negative markets and media coverage feed negative sentiment. Much like at the beginning of COVID 19 in 2020, there are two key strategies that we recommend in these types of markets: high-grading equity where appropriate and rebalancing asset allocations in order to ensure clients are best positioned for the long-term.
High-grading stocks – Market-wide pullbacks, when led by macroeconomic factors are to an extent egalitarian in that most stocks are impacted as the tide pulls out overall. A key contributing factor in portfolio recovery is analyzing current holdings to determine changes that could be made to switch from an investment that may not be able to capitalize on the eventual market rally because of underlying variables that are specific to that stock and into something that is better positioned to participate in a recovery.
Rebalancing – Though not appropriate for all client portfolios, a pullback in equity markets represents an opportunity to deploy cash and/or liquid fixed income into equities at attractive prices. This is generally done incrementally in order to best position client portfolios for the long run in line with their risk profile and investment objectives.
In navigating these markets the task remains the same – staying disciplined in decision making, focusing on long-term objectives, and not getting influenced by the short-term swings in sentiment and prices. While we watch week to week developments closely, and are constantly monitoring your portfolios, we remain committed to our long-term approach that is focused on proper planning, asset allocation, rebalancing and regular reviews of all positions.
If you have any questions about the strategies above or how they may or may not pertain to your portfolio, please do not hesitate to reach out for a consultation with Peter, Sarah or myself.
Currency spotlight: As Canadians, we naturally pay most attention to the Canadian dollar which has fallen by close to 8% this year relative to the U.S. dollar. Nearly half of that decline has come over the past month as the loonie had been quite resilient earlier this year. The Bank of Canada has been as aggressive, if not more so than the U.S. Federal Reserve with its interest rate policy. The strength in commodities witnessed through the first half of the year offered meaningful support for the loonie. Nevertheless, growth concerns have started to permeate across global markets and commodity prices have weakened of late, leaving the Canadian dollar more vulnerable over the past month. Another source of concern is the Canadian economy itself which may be more sensitive to higher interest rates compared to the U.S. given higher levels of household indebtedness.
It is hard to know exactly where currencies go from here. After all, they have been notoriously difficult to predict with any consistency through history. Yet, we recognize they can move to extremes from time to time, only to then be followed by a reversion to the mean. It’s possible we are experiencing such a scenario. Regardless, we’ll continue to appreciate the U.S. dollar exposure we have in our portfolios as it has proven to offer a bit of a hedge in what is proving to be a difficult year.
By the numbers (September): The TSX was down 4.3% while the S&P 500 was down 9.2% (down 4.4% in Canadian dollars). The Europe, Australia & Far East index (EAFE) was down 4.9%, while the Emerging Markets index was down 7.2%. The Canadian bond universe was down 0.5%.
Interesting Listening/Reading
- Disruptors (Season 4) - A dynamic ~30 min RBC podcast co-hosted by John Stackhouse and Trinh Theresa Do about reimagining Canada’s economy in a time of unprecedented change.
- To check out our Global Insight Monthly for September find the link here
- Global Insight’s Midyear outlook is a great read for more analysis on inflation’s ongoing impact on capital markets and an update to the U.S. recession scorecard.
Regards,
Mark, Peter, Sarah, Corinne and Nathalie
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