Natixis Canada Blog

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U.S. High Yields Continue to Rally in Q1 2017 With Spreads Hitting Multi-Year Highs

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

A synchronized pickup in global economic activity supported risk appetite during the quarter. Most asset classes generated positive returns, led by high yield credit, equities, and unhedged emerging market bonds. The Federal Reserve (Fed) raised rates in March, a widely anticipated move that acknowledged the strengthening U.S. economy. Corporate profits improved and volatility remained very low. Commodity performance was mixed; metals rallied while oil prices dropped.

The U.S. high yield credit rally that began in 2016 continued into the first quarter, with spreads (the difference in yield between Treasury and non-Treasury securities of similar duration) reaching multi-year tights in early March. Though spreads widened somewhat during the last weeks of the quarter, the asset class handily outperformed Treasurys of similar duration (duration refers to a security’s price sensitivity to interest rate changes).

U.S. Treasury yields reached year-to-date highs ahead of the Federal Reserve (Fed) interest rate hike, then retreated to finish the quarter essentially flat. The yield curve (a curve that shows the relationship between bond yields across the maturity spectrum) flattened as shorter-maturity Treasury yields rose while longer-maturity Treasury yields were nearly unchanged.

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Bonds and Equities Produce Positive Returns in Q1 2017, Signalling Stronger Economic Growth for 2017

Ron Patton, Portfolio Manager, Natixis Strategic Balanced Fund

Market Review & Outlook

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.

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Global Equities Benefited from the Synchronized Uptick in Global GDP Growth in Q1 2017

Charles Lannon, Portfolio Manager, NexGen Global Equity Fund

 

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.

 

 

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U.S. Election Results Sway Global Markets in Q4 2016

 

David G. Herro & Michael Manelli, Harris Associates, Portfolio Managers of Oakmark International Natixis Funds

Major global market movements in Q4 were largely influenced by the results of the U.S. presidential election in November. Although futures for the Dow Jones Industrial Average dropped nearly 900 points* in the immediate aftermath of the election, investors surprisingly absorbed the implications of this political sea change. Subsequently, key indexes rebounded and the Dow went on to close at a record high level on November 10 and finish up for the quarter. Financials led the advance, first benefiting from investors’ hopes that the new Republican administration would roll back industry regulations and second from the Federal Reserve’s (Fed) decision to raise short-term interest rates for the first time in 2016. Citing signs that the economy has improved, the Fed also stated it intends to raise rates three times in 2017.

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Upward Pressure on Yields a Global Trend in Q4

Kenneth M. Buntrock; Lynda Schweitzer; David W. Rolley; Scott M. Service; Co-Managers, Loomis Sayles Global Diversified Corporate Bond Funds

Following the US presidential election, markets adopted a view that US growth and inflation are headed higher. In December, the Federal Reserve (the Fed) raised rates and struck an unexpectedly hawkish tone, helping push Treasury yields to their highest levels since 2014. Upward pressure on yields was a global trend as investors sought equities and other higher-risk assets in response to improved economic prospects. Notably, new monetary policy tactics from the Bank of Japan kept Japanese government bond yields relatively stable and helped them outperform developed market peers.

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