Ottawa Investment Advisor John Bruce

Third Quarter 2018

October 18, 2018

During a period characterized largely by trade uncertainty, global asset markets delivered mixed results for the third quarter of 2018, with the U.S. equity market reaching new highs and outpacing many of its global counterparts.

U.S. equities posted strong results, supported by positive economic data, healthy corporate earnings and favorable business conditions that included corporate tax cuts. The S&P 500 Index, a broad measure of U.S. equities, gained 7.7% for the quarter and was up 10.6% for the year-to-date in U.S. dollar terms. Although the Canadian dollar has lost ground relative to its U.S. counterpart over the course of the year, it strengthened moderately in the most recent three-month period, resulting in a 5.9% quarterly return for the index in Canadian dollars and 14.1% for the year-to-date.

The MSCI World Index, which represents large and mid-cap equity performance across 23 developed market countries, also posted positive results for the period, gaining 5.1% for the quarter and 5.9% for the year-to-date in U.S. dollars. However, much of the gains for the global index resulted from the outperformance of U.S. stocks, as several local markets in Europe and Asia posted moderate losses for the quarter. Emerging markets also continued to sell off on rising interest rate concerns, as they have since early in the year.

The Canadian S&P/TSX Composite Index dipped slightly, losing 0.6% for the quarter, but the benchmark remained up about 1.4% for the year-to-date. The Canadian market’s muted performance for 2018 resulted from weakness in the energy and materials sectors, the uncertainty of trade talks with the U.S. and a slight decline in the value of the Canadian dollar versus the U.S. dollar.

Interest rates continued to move upwards over the quarter. The Bank of Canada left its benchmark interest rate steady at 1.5% in September following a 25-basis point hike in July. The U.S. Federal Reserve, meanwhile, responded to the labour market’s strength and the continued growth of economic activity by raising its target rate to 2% to 2.25%, its highest level since April 2008. Ten-year government bond yields in Canada and the U.S. rose throughout the period, with the FTSE Canada Universe Bond Index, which measures government and corporate bonds in Canada, returning -1.0% for the third quarter and about -0.4% for the year-to-date.

Equity markets around the world have made a strong recovery in the more than 10 years since the global financial crisis, and in August the current bull market became, by some measures, the longest in history. Though the economic cycle is entering its later stages, business conditions in many regions remain constructive, and it is impossible to predict when the next downturn will occur. Some studies, in fact, have shown that attempting to “time the market” by selling your investments before a downturn can be counterproductive, as investors often miss out on significant market gains after they have cashed out. Rather, having a personalized long-term investment plan that reflects your objectives – and staying true to that plan through market highs and lows – typically yields better results.

In closing, I would like to thank you for your business and remind you that Brian and I are here to help. If you have any questions about your portfolio, please feel free to contact my office.
Sincerely,

John S. Bruce

Investment Advisor

The Market is on Sale

October 16, 2018

The market went on sale this week!

When you hear that your favorite store is having a big sale, the reaction should be excitement and enthusiasm and then you check your bank account and you see what you can afford to buy. Right?

Not so if it is the stock market on sale. Many people do the opposite. They freak out, get scared and contemplate throwing out all their favorite items, instead of buying more.

This is the market. This is how it goes. Up and down and up and down and sometimes with such volatility that it can make your head spin.

So what do you do?

You treat it as any other store that decides to have a sale. You evaluate what has great value and you buy more.

What should you not do?
Sit and wait for the sale to end then consider buying.

So with this in mind, please call me asap so I can offer suggestions of what companies are on sale and how we can buy good value.

1-866-860-4190 or direct at 613-491-3344
Sincerely,

John 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, Yahoo Canada Finance, and Trading Economics. Index information was provided by 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.

August 2018 Update

August 8, 2018

August 8, 2018

I hope you are well and are enjoying the warmer weather. I wrote to you three weeks ago about the market environment and the risk that is in the markets. I wanted to provide a brief update for you on what is unfolding now that earnings are being released.

There is an expression that states, “Buy on rumour, sell on news”. Earnings period is a practical application of this belief. As earnings are coming out, many companies are being sold -off by investors regardless of whether the news was really good or mediocre. I tend to see this type of action occurring when the market is getting over extended. That is to say, when the stock indexes have done well and have reached new highs.

Interest rates are rising in the U.S. and the 10 year U.S. Bond Yield hit a high of 3.128% in the middle of July. When bond yields rise, many conservative investors will start to shift out of stocks and into bonds, increasing the number of sellers in the stock market. This puts downward pressure on stock prices.
Add to this the escalating trade war between the U.S. and many other countries and you will have a good argument to take profits if valuations get too lofty, build a good value cash position and dividend paying companies–when the prices start to drop.

When will this happen? Who knows? What I do know is that there is a shift building and that is when I want to keep my eyes out for discounts and value when it happens and have the cash to do it.

I will talk to you if we need to make any adjustments to your portfolio with our existing holdings and let you know when I think the time is right to add to our stocks or even buy some good value bonds.

If you have any questions I will be back in the office on Thursday August 16th. In my absence please direct any inquiries to my assistant, Brian Donegan at 1-844-860-7787.

I wish you and your family a safe and pleasant summer.

Sincerely,

John Bruce
Investment Advisor

Client Letter Q2 2018

July 24, 2018

I hope you are well and are enjoying the warmer weather. With the second quarter of 2018 having recently drawn to a close, I wanted to provide a brief update for you on some of the main themes that emerged for investment markets over the period.

Following a particularly volatile start to the year in the first quarter, many global equity markets delivered somewhat steadier returns in the second quarter. The MSCI World Index finished the period with a gain of 1.9% in U.S. dollar terms, while the S&P 500 Index, a broad measure of U.S. stocks, rose about 3.4%. Overseas results varied, with gains for equity indexes in England, France and Japan offset by losses in Germany and several Asian markets. Emerging markets exhibited the largest drawdowns, with the MSCI Emerging Markets Index losing 7.9% for the three months in U.S. dollars. I saw this coming and we sold our positions before it became negative.

In Canada, the S&P/TSX Composite Index performed well, registering a broad-based advance of 6.8% for the quarter. Stronger oil prices buoyed energy shares, and the health care, information technology and financial sectors all added to performance. The Canadian benchmark has gained nearly 2% for the year-to-date.

The Canadian dollar, meanwhile, declined in value relative to the U.S. dollar over the quarter, enhancing returns in your U.S. RRSP and U.S. TFSA accounts holding assets priced in U.S. currency.  The MSCI World Index, for example, returned 4.1% for the quarter when expressed in Canadian dollars, the S&P 500’s gain was 5.6% and the loss for the MSCI Emerging Markets Index was reduced to 5.9%.

The U.S. Federal Reserve raised its target interest rate range by a quarter of a percentage point for the second time this year at its June meeting, pointing to the continued strength of the labour market and solid economic activity. Economic data for Canada was also strong, but the Bank of Canada opted to hold rates steady through the second quarter, indicating that further increases would likely come later in the year. Ten-year government bond yields in the U.S. and Canada reached a peak for the second quarter in mid-May before declining and finishing the period slightly up. The FTSE TMX Universe Bond Index, which measures Canadian government and corporate bond returns, gained 0.5% for the quarter.

Equity prices in many industries and regions continue to be supported by healthy corporate earnings, relatively low interest rates and strong economic signals. However, challenges in the form of gradually rising short-term rates and inflation, as well as rising global trade tensions, are causing uncertainty in some areas of the market. In this type of environment, the value of strong active portfolio management becomes especially important, as professional Investment Advisors have the knowledge and experience to navigate through challenging market conditions. The escalating trade war that the US Administration is unfolding is very disruptive to the current market. You may find that we have been increasing the cash position in your portfolio. Until some of the impacts of the trade war tension is absorbed, I will be very selective in entering into new positions.

I am taking into account your financial goals and risk tolerances with every decision we make. If you have any concerns about your account or if there have been any changes to your personal circumstances, I would be very happy to discuss them with you – please do not hesitate to contact my office.

I wish you and your family a safe and pleasant summer.
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, Yahoo Canada Finance, and Trading Economics. Index information was provided by 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.

April 2018 Update

April 27, 2018

In contrast to the relative market calm of 2017, volatility returned to equity markets in the first quarter of this year. Most global markets dropped sharply in early February, with some falling into correction territory (a decline of 10% or more). The initial decline was apparently due to market participants’ concern about rising inflation based on strong U.S. economic data.

Though they recovered somewhat over the ensuing weeks, equity indexes remained choppy through February and March, and many finished the period with negative returns in local currency terms. The S&P 500 Index, a broad measure of U.S. stocks, lost 0.8%, the MSCI World Index fell about 1.2% and developed markets in Europe also declined. Markets in Asia were mixed. Canada’s S&P/TSX Composite Index underperformed its global counterparts, losing 4.5% during the three-month period. The Canadian benchmark is heavily weighted toward sectors that exhibited weak performance for the quarter, such as energy and materials. It also has modest representation in information technology, which outperformed.
The Canadian dollar fell 2.7% relative to the U.S. dollar over the first quarter. As a result, many foreign markets were positive when expressed in Canadian dollars. Including dividends, the S&P 500 Index gained 2.0% and the MSCI World Index was up 1.6% in Canadian dollar terms.

After raising rates in January, the Bank of Canada announced it was maintaining the target for its key overnight interest rate at 1.25% at its meeting on March 7. The central bank raised concerns about the heightened uncertainties surrounding international trade. The U.S. Federal Reserve under new Chairman Jerome Powell raised its target range for the federal funds rate by a quarter point to 1.5-1.75% during its March 2018 meeting. This was in line with market expectations, based on a stronger U.S. economic outlook.

U.S. 10-year Treasury yields rose in the quarter, reflecting the market’s expectations for continued growth and higher interest rates, while Canadian government bond yields were up slightly. Rising yields are generally negative for the prices of bonds and other income securities, and as a result, the FTSE TMX Canada Universe Bond Index, which reflects a wide range of Canadian government and corporate bonds, had a gain of just 0.1% for the quarter.

The re-emergence of equity volatility in the first quarter may have surprised some investors, but it represented a return to normal. In fact, 2017 was unusual for its relative stability. During the month of February 2018, the S&P/TSX Composite Index had three trading days in which losses were greater than 1.50%, while 2017 only had two trading days during the entire year in which losses were greater than 1.50%[i] .

It’s important to remember that market declines are a natural part of investing. Such market movements often present experienced portfolio managers with their best investment opportunities, while passive strategies will remain exposed to the fluctuations of the entire market. It’s also worth noting that this bout of volatility was not driven by a change to company fundamentals. Overall, business prospects remain solid, with continued economic growth, strong confidence levels and favourable U.S. tax reforms.
The developments in the first quarter remind us that markets are highly complex, interconnected, dynamic entities. Given that short-term pullbacks are an expected part of investing, I continue to recommend a long-term, diversified strategy tailored to your individual financial goals.

If you have any questions about your portfolio, please contact me toll free at:
1-888-860-4190 or direct 613-491-3344.

John S. Bruce
Senior Investment Advisor
Private Client Division
Direct Line- 613-491-3344
Fax- 613-491-2292
Toll Free- 866-860-4190
Email- jbruce@mackieresearch.com

https://www.creatingwealth.ca

http://www.mackieresearch.com

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, Yahoo Canada Finance, and Trading Economics. Index information was provided by 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. Although every effort has been made to compile this material from reliable sources; no warranty can be made as to its accuracy or completeness, and we assume no responsibility for any reliance upon it. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.
[i] For February 2018, the days are February 2 (-1.61%), February 5 (-1.74%) and February 8 (-1.73%). For 2017, the days are May 17 (-1.73%) and February 24 (-1.53%). There were only 5 days with losses greater than 1% in 2017; for the first quarter of 2018 in total there were 11 days with losses of greater than 1%.

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