With the continued volatility in the stock market I asked Christie Rose, Portfolio Manager with Guardian Capital Advisors LLP, to give us an idea of what they are thinking right now. No one knows what will happen moving forward so now more than ever (as I have always said!) a good balanced approach for long term money will allow investors to weather weakness and stay invested which is always the best way to achieve long term wealth.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
–Warren Buffet 1988
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
–Warren Buffet 2004
The current start of the year market weakness seems to be more of a lack of confidence rather than an economic correction or change of economic data. The first week of 2016 brought “the worst first week of the year for equities … EVER!”. Globally, the political backdrop remains fraught with uncertainty, and that is the one thing the market does not like. I have to blame confidence in the markets as the culprit to the current volatility because in the end the global outlook continues to be more positive than it is negative.
The TSX is challenged due to its composition being skewed towards the Energy and Material sectors, not to mention Financials; these three sectors representing greater than 60% of the TSX. While low energy and material prices are a huge benefit to the global economy it is painful for the TSX. Oil and material prices have continued their downward trend making it feel as if the world was entering a global contraction. It is not – the global economy is transitioning into more of a service focus over an industrialized power house – especially China, which has been the largest component of global growth for the last 20 years. The energy sector is further complicated by the excess supply of oil, pushing not only the prices of oil lower but the prices associated with our once treasured names in the energy sector. All of the transitions that should happen when supply is greater than demand is happening. In the end, this is not a demand problem but a supply problem brought on by the excess profits to be had at the higher oil prices. Our opinion is that oil will be priced higher in the future than it is today – but lack of certainty attached to global growth coupled with excess supply leaves oil vulnerable to further downside pressure in the short term.
The exposure to Canada in the portfolio is not an energy / material play. While we are not immune to this specific volatility the strategies have not been jeopardized to the same extent as the sectors or the underlying companies. We like Canadian exposure because we can understand what we are buying and the exposure cannot be manipulated by currency risk. Many of our Canadian companies are equally global strategies only they are priced in Canadian dollars.
Currency exposure is a complicated topic. Currently in portfolios we see great performance from non-Canadian markets. This is not because there are significantly greater growth opportunities outside of Canada – it is because the exposure is eventually converted back into Canadian dollars reaping the benefit of converting into a weaker currency. We understand this and this is a strategy that will work to our benefit as long as our currency is weak relative to the other countries we are investing in.
Our outlook for the U.S. and International economies and markets is not recessionary. Our outlook for China is not a crash but a soft landing. The markets are in state of flux due to lack of confidence regarding the strength of future global growth. Since we believe that the core markets attached to global growth are not contractionary we are maintaining our investment strategy. We have been maintaining more of a neutral stance. Not looking too aggressively over or under-weight our equity exposure.
Please let us know if you have any questions.