Natixis Canada Blog

Month: November 2016

Despite Better-Than-Expected Earnings Results, U.S. Equity Markets Decline in October

Dennis Ruhl, Portfolio Manager, NexGen U.S. Growth Funds

Despite better-than-expected earnings results, U.S. equity markets declined in October amidst rising bond yields and increasing anxiety over the U.S. presidential election. Given higher market volatility, large-cap stocks as represented by the S&P 500 Index declined 1.8%*, outperforming small-cap stocks measured by the Russell 2000 Index, which fell 4.8%*. With the larger decline in small-cap stocks, their leadership over large-cap stocks has narrowed significantly. Ten months into the year, the Russell 2000 Index has gained 6.2%*, just slightly ahead of the 5.9%* return for the S&P 500 Index.

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US Equities Pulled Back in October Amidst Uncertainty

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

U.S. equities gave up ground over the month of October over uncertainty regarding the Presidential election and a rocky start to third quarter earnings season. The S&P 500 Index lost 1.8%*, while the large-cap S&P 100 Index lost 1.4%*.  Smaller stock indices registered weaker performance, with the small-cap S&P 600 Index posting a 4.5%* loss for the month and the mid-cap S&P 400 Index down 2.7%*. Value-oriented equity management approaches outperformed Growth-tilted strategies for the month, as investors rewarded the stocks of companies exhibiting relatively favorable valuation and better capital efficiency. The Russell 1000 Value Index declined 1.6%* in October, led lower by the cyclically sensitive Telecommunication Services (-6.2%)* and the recently broken out GICS sector of Real Estate (-5.8%)*. The best performing sectors in the month were Financials (+2.6%)*, whose stocks reported relatively good third quarter earnings results, and Utilities (+0.8%)*.

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Canadian Bond Market Moves to Higher Yields In October


Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

Global bond markets moved to higher yields in October and the Canadian market was caught up in the trend. The catalyst for the increased yields appeared to be a growing consensus that monetary policy was out of options to provide additional stimulus. In particular, quantitative easing programmes (i.e. large scale central bank purchases of government bonds to push yields lower) seemed unlikely to be expanded beyond current levels. Given that quantitative easing by the European Central Bank, the Bank of Japan, and the Bank of England had pushed global bond yields to all-time record lows, investors began discounting the potential for bond yields to start rising again. As a result, they sold bonds, which lowered their prices and increased their yields. The benchmark FTSE TMX Canada Universe Bond Index returned -0.91% in the month.

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Preferred Share Market Enjoys Robust Returns In October

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Preferred Share Fund

The preferred share market enjoyed robust returns in October, powered by growing institutional participation and buying of preferred share Exchange Traded Funds (ETF). Rate reset issues had particularly strong returns, but still trail perpetual issues by a wide margin on a year-to-date basis. The S&P/TSX Preferred Share Index returned 2.32% in the month.

There was only one new preferred share issue in October, but it was particularly noteworthy because it set a couple of records. The issue was from Bank of Montreal (BMO.PR.B), and it had a 4.85% dividend rate and a +406 basis point reset spread. Initially sized at $350,000,000, the deal was upsized to $600,000,000 after the order book surpassed $2 billion. The issue was allocated 70% to institutional buyers and 30% to retail investors. A record number of 84 institutional investors participated in the issue and its first day of trading also set a record as 6.95 million shares changed hands.

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Q3: Credit Markets Supported by Low Volatility & Decent Economic Data

Dan Fuss; Matt Eagan; Elaine Stokes; Brian Kennedy; Co-Managers, Loomis Sayles Strategic Monthly Income Fund

Fixed income markets increased year-to-date gains. Limited volatility over the summer months and decent economic data supported credit markets, which generally outperformed US Treasurys.

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