Market View

Quarter 1, 2022

What Worked in Q1What Didn't in Q1
Energy StocksGrowth Stocks
Gold StocksEAFE Stocks
Telecommunications StocksBonds
Equity MarketsFirst Quarter % Change (in Cdn$)
S&P/TSX Composite3.8%
S&P 500-5.7%
TSX Energy28.7%
TSX Financials2.2%
Bond MarketsFirst Quarter % Change (in Cdn$)
Cda Universe Bond Index-6.97%

March 2022  

It is hard to believe, looking back, the economic, political and even global health changes the markets have absorbed over the last 2 years – from a global pandemic which is still with us to a war in Europe. Through this, markets have zigged and zagged and gone up, down and all around.

Markets evolve over time. That is hardly a dramatic statement, but it is topical.  In market speak, evolve translates to - what was previously an area of interest to investors can soon become yesterday’s news. It is like a pendulum swinging from one extreme to the other.  The market’s evolution over the past two years is very reminiscent of the 1998 – 2000 period.  The evolution away from the growth companies that became known as the FAANG stocks has been dramatic as currently investors are focusing on mining and energy issues. The FAANG’s have been left behind.

Taking a position “against” the markets is never easy as being in the popular areas helps keep criticism to a minimum. But if one is afraid of being wrong in the short term, being right in the long term is virtually impossible. Our team has experience across all different market types, including those characterized by rising rates, rising inflation and slow economic growth. That experience coupled with a trusted and proven investment philosophy and the patience to stay with said philosophy even if it is not working in the short term, are the ingredients for long term success.

Looking into the future several trends can be expected to influence the markets. Interest rates have started to rise, for how long and to what height is currently unknown.  There is a war happening in Europe for the first time in over 75 years. The global pandemic is weakening but the virus has yet to be totally defeated. Global markets less exposed to energy and mining have reacted negatively to those events. The rising interest rate cycle could last longer and go higher than might otherwise be expected.  Our experience tells us that the prudent course is to prepare for a slower pace of economic growth. To that end, on the equity front, we have built positions in the defensive areas of the equity market including communications and utilities. With respect to fixed income, we maintain healthy cash balances (which also cushion declines in equity prices) and have short duration bonds (in other words, if long-term interest rates continue to rise, these bonds will not decline as much in value). Overall, we are maintaining a defensive positioning in both fixed income and equities. Over the long-term, investments in high quality companies, with strong balance sheets, capable management teams, and quality business models will hold us in good stead.

Moving from investments to our team, after 18 successful years, our partner, friend, valued colleague and fellow portfolio manager, Norman Levine, hung up his cleats (in Toronto Blue Jay baseball speak). If you know Norman even a little bit, you know he has been a Jays fan since they landed in Toronto on April 7, 1977. We wish him the very best in his well-deserved retirement.

Fixed Income  March 2022  December 2021
Cdn 91 day T-Bills 0.58% 0.16%
U.S. 91 day T-Bills 0.49% 0.09%
Cdn 10 year Bond 2.43% 1.45%
U.S. 10 year Bond 2.32% 1.52%
Commodities (in U.S.$)  March 2022  December 2021
Oil 100.28 75.21
Natural Gas 5.64 3.73
Gold 1924.10 1828.60
Currency  March 2022  December 2021
Cdn/USD 1.2499 1.2636
Cdn/Eur 1.3831  1.4361