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BMO Nesbitt Burns Managed Assets Quarterly Market Summary
In Canada, the S&P/TSX had a negative return over the quarter but was able to post a positive return for the calendar year. The Energy sector was a significant drag on performance as the price of oil continued to lose value.
The Materials sector also hurt performance and it, along with the Energy sector, were the only two to have a negative return over the past year. Consumer Staples was the best performing sector over the quarter, and was led by Alimentation Couche-Tard, which rose over 35% on news of their expansion plans as a result of their purchase of U.S. convenience operator The Pantry Inc.
Canadian small-cap companies were hurt by the downturn in natural resources and lagged larger-cap companies.
Growth investing outperformed value investing by over 4% on the quarter; continuing a significant trend with growth outperforming value by over 7% in 2014.
During the period, the Canadian dollar continued to depreciate versus the U.S. dollar; hence returns for U.S. investments benefited from currency translation. On the year, this exchange movement added over 10% in Canadian dollar returns.
Similar to Canada, the Energy sector was hard hit by lower oil prices and was the worst performing sector in the U.S. The Telecommunications and Materials sectors were also negative, while the Utilities and Consumer Discretionary sectors outperformed. For the calendar year, defensive sectors dominated over cyclical sectors and all sectors except the Energy sector were positive.
Opposite to Canada, U.S. small-caps outperformed on the quarter, making up some ground after lagging throughout the year relative to large-caps. Mid-cap stocks, however, were in line with the broad market index.
From a style perspective, growth and value performance had very similar returns over the quarter and over 2014.
Developed international markets lagged North American markets over the quarter and also over the past year as economic data from Europe disappointed. Falling oil prices also hurt certain Emerging Markets that rely on exporting the commodity.
Energy and the Materials sectors lagged the broader market during the quarter. Similar to the U.S., defensive sectors, particularly Healthcare and Utilities, outperformed during 2014.
From a country perspective, Japan and Germany performed better than the broad index while France and the United Kingdom lagged.
In Emerging Markets, the broad index significantly lagged developed markets over the quarter and for the year. Russia and Brazil, in particular, dragged down performance as companies in these markets are particularly dependant on revenue reliant on the price of oil. China and India outperformed as growth in these markets are less resource focused.
From a style and market-capitalization perspective, growth beat value and small-caps beat large-caps over the past quarter.
Despite a strengthening economy in the U.S., yields continued to fall on the back of global events and stimulative actions by central bankers around the world.
A difficult economy in Europe led the market to believe that further quantitative easing may be necessary. Continued political uncertainty in the Ukraine and Russia also added to a pessimistic view of growth in the region. A lower price for oil as well as a slowing housing market in Canada added to pressure on the central bank to delay raising interest rates in the near future.
Longer duration bonds in Canada rose over 5% on the quarter, and ended the year up 17%. The broader Canadian bond universe had a much more muted performance over the quarter, rising 3% and ended the year with a very respectable return of almost 9%. Provincial bonds outperformed over the quarter while corporate bonds underperformed.
In summary, 2014 was a good year to invest as all major asset classes, including equities and bonds, were positive in Canadian dollar(s) terms over the year.
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