Natixis Canada Blog

Month: August 2016


Risky Assets Outperform in July

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Darren Ducharme & Harold Scheer, Baker Gilmore & Associates, Portfolio Managers of NexGen Corporate Bond Funds

Risk assets outperformed in July, as markets rebounded following the surprise UK Brexit vote in June. Equities moved to new highs in many markets and credit spreads tightened, with both investment grade and high yield bonds generating positive excess returns. Movements in global bond markets were mixed: shorter maturity yields were generally slightly higher on improving economic data – except in Australia where yields declined in expectation of Reserve Bank of Australia rate cuts – while longer maturity yields fell on falling oil prices and strong demand from yield hungry investors, except in Japan where long maturity yields increased in anticipation of additional fiscal and monetary stimulus from policymakers. Commodity prices were mixed, with metal prices increasing and energy and agricultural prices down.

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Equities Higher In July; Growth Strategies Outperformed Value

Donald Nesbitt & Mikhail Alkhazov, Ziegler Capital Management, Portfolio Managers of NexGen US Dividend Plus Funds

Equities climbed steadily higher during the month of July, as the S&P 500 Index returned 3.7%* and finished at a new monthly high level. Smaller sized stocks did even better, as the mid-cap S&P 400 Index increased 5.1%* and the small-cap S&P 600 Index was up 4.3%* for the month. Growth-oriented equity management approaches outperformed Value-tilted strategies for the month, as investors rewarded the stocks of companies exhibiting strong price momentum and higher volatility. The Russell 1000 Value Index increased 2.9%* in July, led higher by the cyclically sensitive Consumer Discretionary (+7.0%)*, Information Technology (+6.7%)* and Materials (+6.9%)*, while the defensive Utilities (-0.8%)* and Consumer Staples (-0.2%)* sectors suffered losses along with Energy (-1.9%)* stocks that fell with lower oil prices.

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Strong U.S. Economic Data Drives Increased Appetite for Risk

Dennis Ruhl, CFA J.P. Morgan Asset Management, PM of NexGen US Growth Funds

Investors’ risk appetite returned in July as a solid second-quarter earnings season and stronger economic data propelled the S&P 500 Index to a new all-time high of 2,175.03 on July 22. The risk-on environment in July was a large reversal of market trends experienced for most of the year as the top-performing sectors for the first half of the year lagged in July. Small-cap stocks measured by the Russell 2000 Index advanced 6.0%*, outperforming large-cap stocks as represented by the S&P 500 which rose 3.7%*. With July’s strong showing for small-cap stocks, the Russell 2000 Index pulled ahead of the S&P 500 for the year as the indexes gained 8.3%* and 7.7%*, respectively.

 

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Bond Prices Seesaw In July

 

Jeff Herold
Jeff Herold, J. Zechner Associates, PM of NexGen Canadian Bond Funds

The Canadian bond market experienced a quietly volatile, seesaw month in July. Bond prices continued their post-Brexit rally in the first week, hitting their highest levels of the month. Concerns about the British referendum subsequently faded, with growing expectations that Britain would delay triggering its departure decision until next year, as well as the realization that the impact was going to be relatively minor everywhere except in the U.K. As a result, over the next few weeks, bonds gave up most or all of their earlier gains. Only a strong rally late in the month resulted in noticeable gains for the period. The swings in bond prices through July were significant, as can be seen in the chart below. The FTSE TMX Canada Universe Bond Index returned 0.84% in the month.

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Preferred Shares Climb Back Into Positive Territory In July

Jeff Herold
Jeff Herold, J. Zechner Associates, PM of NexGen Canadian Preferred Share Fund

The risk-off sentiment following the British Brexit vote in late June continued into the first week of July, with bond prices moving higher and equity and preferred share prices under some downward pressure. Concerns about the British referendum subsequently faded though, with growing expectations that Britain would delay triggering its departure decision until next year as well as the realization that the impact was going to be relatively minor everywhere except in the U.K. As a result, over the next few weeks, the prices of so-called risky assets surged higher. The upward move appeared, in part, to be a relief rally. For preferred shares, a lack of new supply combined with continuing demand for yield resulted in very good gains. The S&P/TSX Preferred Share Index returned 3.61% in July, which meant that its year-to-date return finally climbed back into positive territory at +0.57%.

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