MESSAGE TO CLIENTS:
2018 was a volatile year as far as almost all market sectors were concerned and the 4th quarter saw indices reduce substantially as did most investors’ portfolios. Using information supplied to me today by RBC Global Asset Management (RBC), the 2 major North American indices showed the following performances:
January 1, 2018 – September 30, 2018
S&P/TSX Capped Composite: 1.36%
S&P 500 Index C$: 13.61%
October 1, 2018 – December 31, 2018
S&P/TSX Capped Composite: -10.11%
S&P 500 Index C$: -8.60%
So, as the RBC statistics indicate, the 4th quarter took the indices down into loss territory. The same applies to every major stock index around the world.
Financial commentators and analysts were surprised because there were really no material changes in the fundamentals which drive stock markets, especially in the USA where leading indicators showed good growth in earnings, dividends and free cash flows across most sectors.
The following geo-political issues are viewed as contributors to the declines:
- The US/China trade war which could have negative impacts on the US economy if exports to China were curtailed;
- The US government shutdown (the longest in US history) which all relates to the disagreement between Pres. Trump & the US Congress over the border wall with Mexico;
- The ongoing stalemate regarding Brexit;
- Canada’s diplomatic issues regarding the detention of the Huawei CFO;
- Concerns in Canada about the ongoing energy sector challenges – moving Alberta oil to seaports is being held up by environmental activists and others, the oil price plunged and there seems to be no resolution in sight;
- The legalisation of Cannabis saw the listed Cannabis companies lose value as the distribution issues became severe;
- And, the decision by the US and Canadian central banks to keep raising interest rates made equity investors nervous and sent bond prices down.
I’m sure there are other factors but these, taken together, resulted in harsh declines in intra day trading across the board.
On October 11th, I sent an email to clients, pointing out the challenges which were driving values down at that time and emphasising that more losses were to be expected. At the same time I cautioned investors not to panic.
Regarding the latter, it is trite that closing out an investment which has lost value, crystallises that loss into an actual monetary loss. Even a sideways move to money market would have the same result.
Thankfully, my clients have taken my advice. Happily, this year to date has seen most of the losses eliminated or reduced very substantially and if you look at your portfolios on the FundEX client portal, you will see that the recovery has been strong.
Data provided by TD Wealth as at Friday, February 14th, shows the TSX up 10.6% and the S&P500(C$) up 7.5%, both year to that date.
Finally, I want to deal with the FundEX Investments Inc. investment statements as at December 31st, 2018. The following facts should be borne in mind when analysing the reports:
- The transition from Worldsource Financial to FundEX took place from the end of June to the middle of August 2018.
- Therefore, in the box which reports “rate of return”, the inception date is the date on which your assets transferred to FundEX, not the true date of inception of your portfolio.
- Because the asset transfer happened while the markets were still positive and then shortly after, the major correction took place, the inception rate of return actually covers only the 2nd half of 2018 or less, depending on when your account was transferred. That is why the other boxes in that report are empty.
Clearly, timing was an issue and for clients who have been with me for years, those reports were inaccurate to the extent that the inception date is not the real inception date. Of course, the data relating to your investments is absolutely accurate at fund company level, going back to day one.
My personal opinion is that the declines in the 4th quarter were more about emotional reaction to the host of geo political issues than about financial common sense, but with social media calling the shots, influences of an uninformed basis, can disrupt the orderly conduct of business.
I hope that this message will help in reviewing the state of your investments for the long term. I am always mindful of the importance of investments to everyone’s financial wellbeing and the resources I have at my disposal are geared to keep me informed about market conditions and prospects. If you need any additional information, please contact me at any time.
Regards
Richard
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice.