Each month I bring you a roundup of all the most important market news that impacts your investments in my Market Updates. Looking back on all the news from 2016, it’s plain to see that the biggest events that shaped the market were a major correction prompted by Chinese markets, the shocking results of the Brexit referendum, the victory of Donald Trump in the US Election and decisions made by the Central Banks like increasing interest rates. Despite periods of uncertainty, we’ve seen some of the best risk-adjusted returns across all of our portfolio classes.
The year began with concerns surrounding global growth, prompted by China’s slowing economy and depreciating currency. The Chinese stock markets were hit first and hardest, declining by over 30 per cent. Other major global indices followed and saw a correction of 10 per cent in the first part of January. The markets bounced back mid-February due to the rising price of oil and strong economic data.
Oil was won of the biggest market drivers in 2016. The outlook of slower growth and over supply in the beginning of 2016 saw prices initially fall below $30/barrel. This decline turned around towards the end of the year and finished above $50/barrel after supply rebalancing and an OPEC announcement to reduce output.
Political movements like Brexit, the US presidential election and the Italian referendum not only captured headlines and caused major market fluctuations. In June, the British people chose to leave the European Union, which created uncertainty about the future of European trade, the value of the British pound and Britain’s financial institutions.
In the US, markets rallied after Donald Trump won the presidential election. The majority of his proposed market friendly policies – possible tax cuts, higher spending on infrastructure and simpler regulations – influenced the upswing. Finally, Italy closed out the year with its own referendum on constitutional reform that would overhaul the legislature in a bid to make the country more competitive. The “no” vote forced Prime Minister Matteo Renzi to quit and sparked another Eurozone crisis. Given the high levels of uncertainty proceeding each event, markets responded positively to the outcomes.
US Federal Reserve
The US Federal Reserve teased us with a potential interest rate hike all year to finally raise interest rates by 25 basis points last month in its December meeting, citing higher home prices, low unemployment and improving confidence in the economy. At home, the Bank of Canada held the rate constant as growth remained below expectations despite the rebound in the price of oil and the TSX returning over 20 per cent.
WealthBar’s portfolios of low cost ETFs delivered a range of returns for their desired level of risk. Those with a Safety portfolio saw five per cent growth, while those with a Long Term Growth portfolio experienced a gain 9.7 per cent. Furthermore, our Private Investment Portfolio delivered higher risk adjusted returns with exceptionally low volatility at about half that of a typical balanced mutual fund. They are great fit for investors who are looking for more stability and consistent returns from their investment.
Our portfolios were positioned to benefit from the increase in equity markets, and be resilient to volatility by reducing the impact of rising rates. Canadian equities and real estate delivered the highest returns (21 per cent and 18 per cent, respectively). The increased market volatility was advantageous of our option writing strategies. Our fixed income exposure in the portfolio was tailored to minimize the effects of any increase in interest rates by being either short in duration or had a buffer.
Neville Joanes is the Portfolio Manager & CCO at WealthBar. Neville oversees portfolio management and investment operations, ensuring that clients’ portfolios meet their objectives. He is dedicated to his goal of always delivering the best investment management to our clients. Neville is also a CFA® charter holder.