All asset classes – fixed income, Canadian equities, and global equities – produced a positive return in the first quarter. Equities continued to advance higher, with the MSCI World Index, up 5.8%, outperforming S&P/TSX Composite Index, which was up 2.4%, following an excellent performance in 2016. The FTSE Canada Universe Bond Index returned 1.2%, a significant rebound from the -3.4% return seen in the fourth quarter of 2016.
Global equities, as represented by the MSCI World Index, returned 5.35% in Q1 2017 (in Canadian dollar terms, net of dividends). Sector leadership this year shows a marked shift from the types of stocks that enjoyed an initial bump in the aftermath of Trump’s victory. Thus far in 2017, cyclical stocks and industries are no longer outperforming. This likely reflects a more sanguine appreciation of the challenges that the new administration faces in implementing its agenda. It might also reflect a consideration as to whether or not the suite of policy proposals can instill the confidence necessary to accelerate U.S. GDP from the 1.6% growth rate that Bloomberg consensus expects this year. Regardless, global equities undoubtedly benefited from the synchronized uptick in global GDP growth with key PMI’s from the U.S., Europe, China and Japan remaining clearly above 50, a level that denotes growth and expansion.
The fourth quarter’s most distinctive attribute was the divergence between stock and bond performance, highlighting the importance of investing in a balanced strategy. The FTSE TMX Canada Universe Bond Index turned in its worst quarterly performance since March 1994. Yields increased ~45 basis points resulting in a -3.4% return. Stocks, represented by the MSCI World Index and the S&P/TSX Composite Index, moved higher. Canadian equities were the best performing asset class (up 4.5%), followed by global equities (up 3.9% in Canadian dollars), then bonds. As a result, our overweight position in global equities relative to Canadian equities was a slightly negative factor, while our underweight in bonds and our exposure to preferred shares was a positive factor.
Global equities, as represented by the MSCI World Index, posted modest gains in 2016 of 5.17% (in Canadian dollar terms, net of dividends). Most of the return can be attributed to the post-Trump election victory rally which characterized Q4, where the Index posted a quarterly return of 4.57%.
Global equities, as represented by the MSCI World Index, returned 6.09% in Canadian dollar terms in Q3. The sharp sell off in stocks following Britain’s unexpected vote to leave the European Union on June 23rd proved to be short lived as equities started to recover in early July. U.S. large capitalization equities, as represented by the S&P 500 Index, would go on to hit successive new highs throughout the summer, before ultimately establishing a new all-time closing high of 2190 on August 15th.
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