Natixis Canada Blog

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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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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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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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Canadian Bond Market Remarkably Stable in March

 

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

The Canadian bond market was remarkably stable in March, as a federal budget, a rate increase and legislative turmoil in the U.S. and the United Kingdom’s decision to exit the European Union were taken in stride by investors, with each event having minimal impact on the market. Bond yields in Canada and the United States remained within their respective trading ranges which began in early December. The FTSE TMX Canada Universe Bond index returned 0.41% in March.

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Canadian Bond Market Seesaws in February as Yields Rise Then Fall Twice in the Month

 

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

The Canadian bond market moved in a seesaw pattern in February, with yields rising and then falling twice in the month. The bond market remained in the trading range that began in December, once the market had initially reacted to the surprise U.S. presidential election result. The market’s focus remained on the new U.S. administration, as the correlation between Canadian and U.S. bond yields was very high. Investors were hoping for greater clarity on the new government’s fiscal, regulatory and trade policies. The economic consensus remained optimistic, with risk premia (yield spreads) for provincial and corporate bonds shrinking and the U.S. stock market continuing its post-election rally. The FTSE TMX Canada Universe Bond index returned 0.96% in February.

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