What’s New
Enclosed in your quarterly report package are annual performance and management fee reports. Portfolio Management firms are required as part of CRM2 (Client Relationship Management 2) legislation to provide these reports annually. Please contact us if you have questions regarding these new reports.
Simon Chun, a Professional Engineer and CFA Level II candidate, is relocating from Calgary to join YouFirst Financial in September
The Market
Strong global economic growth led to positive investment returns in the second quarter despite the worries about escalating trade disputes and rising interest rates. The US performed well while regions such as Canada, Japan, UK, the Eurozone and a number of emerging markets experienced a slower pace of growth. The Canadian dollar lost value versus the US dollar, but otherwise appreciated versus most other major currencies.
The table below shows the market performance as of June 30th, 2018 in Canadian dollar terms.
Market Indices ($Cdn)as of 30-June-2018 |
Year 2017 |
YTD 2018 |
Q2 2018 |
| TSX (Canadian market) | 9 % | 0.4 % | 6 % |
| S&P500 (US mkt) | 14 % | 7 % | 5 % |
| Nasdaq (mainly tech.) | 20 % | 14 % | 9 % |
| MSCI World | 15 % | 5 % | 4 % |
| MSCI EAFE (Int’l) | 18 % | 2 % | 1 % |
| iShares Cdn Short Bond | -0.1% | 0.5 % | 0.3 % |
| US$ relative to Cdn$ | -7 % | 5 % | 2.5 % |
Performance
The Youfirst portfolios slightly lagged the FPX Growth and FPX Balanced benchmarks as the YouFirst portfolios have a more defensive posture such as holding more real estate and utilities. The YouFirst Growth and YouFirst Conservative Growth composites had year-to-date returns of 2.2% and 1.3%, whereas the FPX Growth and FPX Balanced indices’ benchmarks were 2.6% and 2.2%, respectively.
Portfolio Activity
During the quarter we had a company merger and a convertible debenture conversion within the portfolio holdings. Spartan Energy (SPE – TSX) was acquired by and merged with Vermillion Energy (VET – TSX). VET, about three times larger than Spartan, is an international energy company that currently pays a 5.6% dividend. It targets growth in production primarily through the exploitation of light oil and liquids-rich natural gas conventional resource plays in Canada and the United States, the exploration and development of high impact natural gas opportunities in the Netherlands and Germany, and through oil drilling and workover programs in France and Australia. Portfolios that had Spartan will now hold Vermillion instead.
Sienna Senior Living (SIA – TSX) offered an early conversion to common shares option for their 4.65% convertible debenture issue which we selectively exercised depending on the suitability for portfolios. Sienna Senior Living owns and operates long-term care homes and retirement residences, primarily in Ontario, but in British Columbia as well.
For the income portion of portfolios we participated in new issues of Emera preferred shares (EMA.PR.H – TSX) and Innergex Renewable convertible debentures (INE.DB.B – TSX). Emera is the main electrical utility serving the maritime provinces and Innergex owns and operates hydro, wind and solar electrical generating facilities, primarily in BC, Ontario and Quebec. EMA.PR.H are rate-reset preferred shares paying a 4.9% dividend for 5 years with a minimum reset rate after 5 years of 4.9%. INE.DB.B convertible debentures have a 4.75% interest rate, maturing on 30-Jun-2025.
Outlook
We continue to maintain portfolios at the lower end of the equity allocation range and hold more defensive securities such as real estate and utilities than the major market indices. We believe that we are in the later innings of the market cycle and that interest rate increases in both Canada and US will eventually cut into economic growth.
Below is a quote from an article written by David Rosenberg, chief economist with Glusken Sheff & Associates, describing his stance.
“Here is the reality: Every bull market, every bear market, every expansion and every recession had the Fed’s thumbprints all over them. Not fiscal policy. Not regulatory issues. History can’t be rewritten folks. The Fed is not on hold. It is tightening, and don’t be fooled by the funds rate alone. Since the end of the Second World War, there have been 13 Fed tightening cycles, and 10 landed the U.S. economy in recession, and the forecasting consensus missed all 10. I’m playing the odds based on history. Nothing I see on the macro side passes the smell test, and the markets themselves have sent me enough of a signal to shift into becoming much more defensive.”
If you have any questions or comments regarding items discussed in this newsletter please let us know.
Doug Garner, P.Eng., CFA
President, Portfolio Manager
Jane Garner, BA, EPC
VP Operations and Client Experience
Simon Chun, P.Eng., CFA Level III Candidate
Investment Analyst