Ottawa Investment Advisor John Bruce

October 2015 Client Letter

October 29, 2015

I hope you enjoyed your summer and are enjoying our beautiful fall season. I am writing to give you a brief update on how financial markets have fared over the past few months.

Financial markets continued to exhibit a higher degree of volatility than normal throughout the third quarter of 2015, with most equity indexes finishing the period with losses and the results for bond markets being mixed. Equity values, in many cases, declined in late August and remained choppy into the end of September due to a number of factors, including China’s decision to devalue its currency and a subsequent sell-off of Chinese stocks, slower global growth and uncertainty surrounding the U.S. Federal Reserve’s plans to raise interest rates.

By quarter-end, the S&P 500 Index in the U.S. had rebounded slightly to post a 6.4% loss for the three-month period and a 5.3% decline for the year-to-date, while the MSCI World Index was down 8.3% for the quarter and 5.6% for the first nine months of the year, both in U.S. dollar terms. For Canadian investors, however, the weak global market results were mitigated as the Canadian dollar continued to lose value relative to the U.S. dollar and other major currencies. In Canadian dollar terms, the S&P 500 was up slightly for the quarter and up 9.4% for the year-to-date, while the decline in the MSCI World Index was trimmed to 1.6% for the quarter and it posted a positive 9.0% return for the first nine months of the year.

The benchmark Canadian S&P/TSX Composite Index, meanwhile, continued to underperform other developed markets, with its resource-oriented sectors impacted by softer global demand for commodities. The index dropped 7.9% in the third quarter and was down 7.0% in the first nine months of the year.

Given the equity market uncertainty and in light of weaker economic conditions, central bankers exercised caution throughout the quarter. The U.S. Federal Reserve opted to keep its benchmark interest rate unchanged, in spite of evidence that the American economy continues on a path of modest growth and its stated goal to raise rates in the near future. In Canada, soft commodity prices continued to weigh on the economy, and two consecutive quarters of declining GDP prompted the Bank of Canada to cut its lending rate to 0.5% in July. Yields for developed market government bonds declined slightly through the quarter as investors sought out their perceived safety.

Heightened market volatility can be unsettling, but we know that financial markets cycle through periods of stronger and weaker returns. Market pullbacks often provide opportunities for investors to buy high-quality securities at attractive prices, and can help to build value over time.

Although the underlying global economy still faces challenges, it continues to grow slowly. In the U.S., the economy expanded at an impressive annual rate of 3.9% in the second quarter of this year, corporate earnings are strong and the housing and job markets are stable. Early third quarter data indicate that the Canadian economy has also returned to positive growth. Overseas, the rising U.S. dollar is putting pressure on emerging economies, but China’s economy is still expanding – albeit at a slower rate – as are many developed economies including Germany and France.

From a longer-term perspective, it is worthwhile to note that most equity markets have been strongly positive over the last five years. For example, the five-year compound annual return (to September 30, 2015) for the MSCI World Index was nearly 9% in U.S. dollars and 15% in Canadian dollar terms. While we cannot predict how markets will behave in the future, the danger in reacting to the weakness of this most recent period is that you may miss a subsequent rebound. It’s important to remember that market volatility was taken into account when we developed your investment portfolio. A sound financial plan that includes a well-diversified investment program tailored to your individual objectives remains the best approach for securing your financial goals.

Should you have any questions about your investment portfolio, Kim and I are here to help. Please do not hesitate to contact us.

Sincerely,

John S. Bruce
Senior Investment Advisor

This letter was taken from CI Investments. The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, Cambridge Global Asset Management, Globe and Mail, National Post, Bank of Montreal Economics, and Trading Economics. Index information was provided by TD Newcrest and PC Bond. This material is provided for general information and is subject to change without notice

 

Mackie Research Capital is a national investment firm with offices in Vancouver, Calgary, Regina, Toronto and Montreal.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. This newsletter is intended for distribution only in those jurisdictions where both the author and MRCC are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. MRCC and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. ¬©2014 Mackie Research Capital. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des √©pargnants.

 

Post-Election Commentary 2015

October 21, 2015

We now have a new majority Liberal Government and they have promised to change the TFSA rules by decreasing the annual contribution room from $10,000 back to $5,500. If you do not have a TFSA, you are missing out on tax free capital gains, tax free dividend income and tax free interest income. Every investment you can make in your RSP can be made in your TFSA only you don’t pay tax on your withdrawals, it does not impact other income and for seniors it will not result in claw backs to your pension income.

If you have a TFSA at a bank collecting low, low interest, then you are squandering this wealth building tool. Prepare to take advantage of the annual $10,000 TFSA contribution before it is gone.

Simply put — max out your contributions before it is too late.

Sincerely,

John S. Bruce
Senior Investment Advisor

 

Mackie Research Capital is a national investment firm with offices in Vancouver, Calgary, Regina, Toronto and Montreal.

The comments included in the publication are not intended to be a definitive analysis of tax law. The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des √©pargnants.

 

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