Ottawa Investment Advisor John Bruce

Client letter Q3 2016

October 20, 2016

The third quarter of 2016 started on a note of uncertainty following the surprise Brexit vote result in late June. Equity markets had been volatile and bond prices rose and yields declined after the British vote to leave the European Union. Markets soon steadied, however, and volatility moderated through the quarter. By the end of September, most asset classes, supported by slow, steady global growth and expansive monetary policy, had gone on to register gains for the three-month period.

Global equity markets bounced back early in the third quarter and finished mainly higher. The S&P 500 Index in the U.S. added 3.9%, while the MSCI World Index was up 5.0% in U.S. dollar terms. With the U.S. dollar strengthening during the period, these returns grew to 5.4% and 6.6%, respectively, in Canadian dollar terms. Overseas, markets in Germany, the U.K. and France trended higher, as did indexes in China, Japan and Hong Kong.

The benchmark Canadian S&P/TSX Composite Index gained a healthy 5.5% (including dividends) in the third quarter. Energy-related companies benefited from a rally in oil prices and the market was also buoyed by strength in the financial sector. With a year-to-date return of 15.8%, Canada’s market, after lagging the U.S. market for the past five years, is among the best performers globally.

Although it is still expected to raise interest rates before the end of the year, the U.S. Federal Reserve left rates unchanged at 0.50% during the quarter, opting to wait for evidence of continued progress in the areas of employment and inflation. The Bank of Canada also kept its overnight lending rate unchanged at 0.50%, where it has been since mid-2015. Central banks in Europe and Japan, meanwhile, continued programs designed to boost economic activity. The European Central Bank’s strategy of buying corporate and government bonds, for example, has resulted in bond yields in some countries, such as Germany and France, falling below zero. The FTSE TMX Canada Universe Bond Index, a measure of corporate and government bonds, returned 1.2% for the quarter, and was up 5.3% for the year-to-date.

Looking ahead, there are a number of reasons to remain cautiously optimistic about the global economy and markets. A recent report by the International Monetary Fund in Washington, for example, forecasts a continuation of subdued global growth, and that central banks will keep monetary policy accommodative in order to stimulate business activity. However, volatility may reappear as markets contend with the results of the U.S. election, the continued fallout from the Brexit process and a potential Fed rate increase.

It has been my experience that when volatility starts to get very choppy, it is prudent to take profits on your winners, keep those holdings that are down but still fundamentally recovering and take advantage of a discounted market whenever it swings down. I have reviewed your holdings and I will call you about what we may do to capitalize on the global impact of coming events like the US election and escalating conflict in the Middle East that may impact our oil prices. Should you have any questions about your investments, please do not hesitate to contact my office at 613-491-3344 or Toll Free at 1-866-860-4190. You may also call my assistant, Brian Donegan at 416-860-7787 or Toll Free at 1-844-860-7787.

Sincerely,

John S. Bruce
Investment Advisor

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, Bloomberg, and Trading Economics. Index information was provided by Bloomberg, TD Newcrest and PC Bond, and all quoted equity index returns are on a total return basis (including dividends). This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.

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