Natixis Canada Blog

News:


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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Canadian Preferred Shares Continue Their Upward Pattern in March

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

Canadian preferred share prices continued to move upward in a seesaw pattern during March. An absence of new issues and occasional ETF flows were contributing factors behind the market strength. Interestingly, increased purchases of preferred share ETFs had a delayed reaction to underlying preferred share prices. As well, when ETF volumes declined, it led to preferred share prices retracing their gains. The S&P/TSX Preferred Share index returned 1.81% in the month. The Solactive Laddered Rate Reset index gained 2.13%, as rate reset issues outperformed other types of preferred shares.

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Canadian Preferred Shares Continued to Move Upward in Price in February

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

Following their very strong gains in January, Canadian preferred shares continued to move upward in price in February, but at a more subdued pace. Reduced activity in preferred share Exchange Traded Funds (ETFs) probably accounted for the smaller preferred share gains. The Bank of Montreal Laddered Rate Reset ETF (ZPR) experienced a 45% drop in units created from January to February, although a meaningful $81.8 million still flowed into the ETF. We suspect that the lower activity in ZPR reflected reduced hedging requirements for structured notes as the RSP season wound down. Because of the lower demand for rate reset preferred shares, that sector underperformed the broad market for the first time since last September. Also in February, new issue activity increased to four issues, compared with only one the previous month. The S&P/TSX Preferred Share index returned 1.49% in the month.

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Preferred Shares Immune to the Volatility Arising From the Changeover in U.S. Administration

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

The Canadian preferred share market started 2017 with a bang, outperforming investment grade bonds, common stocks and even junk bonds by a significant margin. Unlike other securities, preferred shares were immune to the volatility arising from the changeover in the U.S. administration. In part, the strong performance of preferred shares reflected investors’ ongoing search for attractive yield combined with limited new issue supply. In addition to investors purchasing outstanding individual issues, preferred share ETF trading volumes hit a record high in January. We believe that much of the ETF activity did not reflect simple buying of the asset class, rather, it was hedging of structured notes linked to the preferred share market. The S&P/TSX Preferred Share index returned 4.05% in January.

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Divergence Between Stock and Bonds in Q4 2016 Highlights the Importance of a Balanced Strategy

Ron Patton, Portfolio Manager, Natixis Strategic Balanced Fund

Market Review & Outlook

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.

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