Executive Summary

Second Quarter 


Equity markets finished the first half of 2023 on a surprisingly strong note. While inflation remains stubbornly high, the broader economic picture continues to be resilient despite widespread concern about a looming economic recession. The interest rate sensitive Canadian S&P/TSX index was basically unchanged last quarter, up 0.3%, and up 4% year to date. South of the border, The S&P500 US index gained 8.3% in the last three months for a total gain of 15.9% so far in 2023. The outperformance of the US markets is largely attributable to technology names, as well reflected by the NASDAQ index, leading the benchmarks in terms of returns with an impressive 31.7% jump since January. Globally, the MSCI World index is up 14.0% in USD.

After very strong relative performance in 2021 and 2022, the Model Portfolio, which reflects our typical balanced portfolios, is up 3.1% year to date, lagging a balanced benchmark by ~ 2.4%. Following the completion of the acquisition of Kansas City Southern by Canadian Pacific, we initiated a position in the newly named Canadian Pacific Kansas City (CPKC) in the Model this past quarter.

The Bank of Canada (BoC) and the Federal Reserve (Fed) have both raised rates by 0.25% in the second quarter. The overnight rate for the BoC is now at 4.75% and the Fed Funds rate is at 5.00% - 5.25% range. In both countries, despite the rapid rise in interest rates, the respective economies remained resilient with better-than-expected GDP growth. With inflation still above the 2% target, a tight labor market, and continued GDP growth, policy makers are poised to continue to raise rates until inflation is tamed.

As we head into the second half of 2023, we remain confident that the quality of our holdings will continue to allow us to navigate properly economic and political uncertainty, as it has in the past. This allows us to keep a significant portion into equities, which remains our preferred asset class in terms of expected returns. As longer term clients know, we do not chase trends. We prefer to focus on fundamentals and protecting the downside for our clients. Consequently, this also means that we consciously choose to remain prudent and not chase companies at hefty valuation, even if it means underperforming in the near term. Longer term, this strategy has been successful at protecting and growing our clients` capital.


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Investment Checklist


1. Make 2023 RRSP contribution as soon as funds are available. The maximum is 18% of 2022’s earned income to a maximum of $30,780.

2. Make 2023 $6,500 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $88,000.

3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.

4. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.

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