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Equity markets continued their ascent, although more modestly in the third quarter. The S&P/TSX Canadian index advanced 1.7%, while the S&P 500 U.S. index gained 1.2% in U$ terms. Year to date, equity market returns have been very strong globally. The Canadian benchmark is up 16.3% due to its strong rally in the first half of the year. Meanwhile, the S&P 500 US index gained 18.7% in U$ over the same period. The strengthening Canadian dollar, up 3.2% since the start of the year vs. the U.S. dollar, has dampened foreign returns for Canadian investors. Measured in C$, the S&P 500 index is up 15.1%.
The technology sector continues to lead equity markets in Canada and in the US. Interest sensitive sectors such as utilities and real estate have also been strong. On the other hand, the energy sector continues to lag the markets.
Our Model Portfolio was up 1.6% in the third quarter and 9.6% since January. Though the Model has outperformed in the past few years, having no exposure to technology in Canada and a material weight to healthcare in the US, our results are lagging slightly year to date. Canadian financials remain one of our favorite sectors in the long run and with the outlook for the energy sector improving, we are confident that current holdings in the Model should continue to create long term value for clients.
There were no interest rate changes by the Bank of Canada (BOC) during the quarter but a rate cut is very possible for October. Meanwhile, the Fed cut its overnight target range by 25 basis points (0.25%).We would expect that this very low interest rate environment will persist over the next few quarters.
We continue to prefer the outlook for equities over other asset classes. In 2018, with prospects of higher interest rates we had been scaling back equities modestly. Given the abysmal interest rates and the attractive risk premium in equities, we have shifted back in order to be slightly overweight equities at this time.
In the tax and estate section, we remind clients to consider donating securities with substantial capital gains instead of cash for larger donations. We also raise your attention to the concept of an Individual Pension Plan (IPP) for those with holding companies.
1. Make 2019 RRSP contribution as soon as funds are available. The maximum is 18% of 2018’s earned income to a maximum of $26,500.
2. Make 2019 $6,000 TFSA contribution as soon as funds are available.
3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
11 Sources: Bank of Canada, Bloomberg, BMO Capital Markets