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Money Advisor Wealth Management Worldsource

Money Advisor Wealth Management Worldsource

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Commentary from a Portfolio Manager at Guardian Capital

Hello All!
 
The following commentary is from a Portfolio Manager at Guardian Capital, Christie Rose. Christy is a CFA and is one of the professionals that I partner with for some of your accounts. Her insight on the markets is very interesting!
The last few days we have seen a little pull back – I think it was expected and healthy especially for the stronger performing markets like the U.S. In fact, the last few days has not brought a sell off strong enough to offset the growing optimism… I would expect to see a stronger sell off – but it may not happen due to the amount of money trying to work its way into the equity markets.
There have been some very interesting themes starting to develop:
Fixed Income:
·Rising bonds yields are now a global phenomenon.
·Bonds suffered one of their worst monthly performances in years during the month of May as we saw bond yields move higher.
·There are common trends that have taken place:
  • Not only have bond yields moved higher, but inflation expectations have been declining, not increasing.
  • Normally, this would be a bullish metric for bonds, but fundamentals have taken a back-seat to financial intervention.
  • Since nominal bond yields have moved higher and inflation expectations have declined, underlying real interest rates have experienced yield moves greater than those in nominal bond markets.
·Real yields in Canada have increased over 55 basis points since April, and are currently positive, not negative.
Equities:
·It feels like there are too many under-invested ‘bulls’ waiting to buy on price weakness.
·Markets are becoming LESS correlated which offers better opportunities to add value through portfolio management.
·YTD emerging markets have under-performed the MSCI world index by over 14%. Developing economies are catching up in terms of economic growth.
·There are signs of a rotation from defensive sectors to more of a cyclical leadership.
· Strengths:
  • Signs of improving growth and increasing confidence
  •  Corporate profits are doing well and the job market is firming in the U.S.
  • Zero / low interest rates are forcing investors to take on risk
  • Inflation is low and falling 
· Weaknesses:
  • Global trade is weak
  • The euro zone recession is still intact.
  • Fiscal drag is working its way through the economy and shaving off growth
· The Nikkei has recently experienced some wide volatility swings. We need to keep in perspective that the gains in the Nikkei have almost been a straight line up since 2012. The recent weakness is not necessarily a sign of trouble ahead. Japan is attempting to recover from 20 years of economic hardship. It is their intention to foster inflation.
Portfolio Strategy:
 · Nothing has changed.
  
·We are under-weighting fixed income
  • Keeping duration short to minimize interest rate risk
  • Over-weighting high yield
·Equities; we are aiming to manage portfolios with:
  • U.S. in an over-weight
  • Canada neutral to slight under-weight
  • International / Global – bring to a neutral position

 

· We are under-weighting fixed income

  • Keeping duration short to minimize interest rate risk
    • Over-weighting high yield
    · Equities; we are aiming to manage portfolios with:
    • U.S. in an over-weight
      • Canada neutral to slight under-weight
      • International / Global – bring to a neutral position

     

    So, I may sound like a broken record here, but having a well diversified portfolio that is actively managed for fixed income and equity has shown to be less volatile and if you kept with it (or added to it) over the last 5 years you have done just fine and your capital has been preserved and in most cases increased. I like her comment that “nothing has changed”. It is impossible to know what will happen in the short term; it always has been and likely always will be.

    The last year has been much easier to deal with than the previous four, that is for sure. Let’s hope for some continued improvements in the global economy and stability in the emerging markets!

      
      
     

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