1 First Canadian Place
2nd Quarter 2015
The first half of 2015 has proven to be a roller coaster for the financial markets. "Uncertainty" seemed to be the media word du jour to sum up the directionality of global market sentiments. As we look at it now, North American equity markets are essentially flat for the year.
We entered 2015 with a crisis in Russia and as we write this, there is now a crisis brewing again in Greece. As the quarter comes to an end, Greece is front page news. It is surprising how complacent the market became in the first half of the year with respect to Greece. If there was a significant global sell-off as a result, we would use it as an opportunity to deploy cash into companies that have no direct business activities in Greece, or significant correlation to the news about Greece.
Periphery countries’ fixed income markets are behaving very well in comparison to the spring of 2012 (Italy, Spain etc.). This was the last time a departure of Greece from the Eurozone was widely considered probable. Yields have been very well contained and haven’t risen as many feared. As such, we do not see this event spreading to other countries in the euro zone.
We continue to position our fixed income portfolios in Canadian mid-length maturity corporate bonds. The REIT space looks relatively attractive as well. We continue to selectively make purchases in companies in this sector.
The energy space continues to be under pressure, and as we have stated in the past, we continue to be significantly underweight equities in this sector. We continue to use any strength in this sector to further decrease our positions.
All of this points to a further declining Canadian dollar. We selectively used the late spring rally in the Canadian Dollar to add to US Dollar positions for clients who already didn’t have significant US Dollar exposure. We continue to believe that over the next few years, there is more room for the Canadian Dollar to decrease.
We continue to expect volatility to pick up at some point in 2015. For the first half, market volatility was quite complacent. The last few weeks have definitely seen an increase in volatility. We embrace volatility and look to take advantage of volatility by purchasing good quality equities at price points we are comfortable with.
Regardless of where equity and fixed income markets are headed, we continue to believe a good quality portfolio consisting of high quality fixed income and equities (on which we have a high degree of visibility on) with strong balance sheets, consistent cash flows, and a history of consistent dividend increases at or above inflation will continue to provide strong returns.
Daniel J. Gruchala B.Comm, CIM, DMS, FCSI
Radek Wojtal B.Comm, CIM
Associate Investment Advisor
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