December 2015 Market Update
Last week saw an end to a sore investment landscape for Canadians in 2015. The S&P/TSX Composite was down 8.32%, the price of oil dropped 39% and the Canadian dollar was at $0.72. We also saw losses in Canadian real estate and US high yield. It was not all doom and gloom though as US equities, international equities, Canadian corporate and government bonds held their ground.
Most of 2015 was spent speculating as to when and by how much the US Federal Reserve (the Fed) would increase interest rates. Finally, on December 16th the Fed announced its first interest rate increase in more than a decade. The increase was based on strong job growth and moderate economic expansion. This is a time of diverging monetary policies between Canada and the US, as Canada held its overnight rate at 0.5% while it continues to evaluate the fall of commodity prices and weak global growth.
The US High Yield market took a hit last month forcing large Wall St credit funds to close. The closures were due to a combination of poor performance and liquidity concerns. Canadian fixed income – both government and corporate – has modest returns and reduced the volatility of our portfolios. We saw US equities returning to positive performance, driven by industries such as technology and healthcare.
Overseas, equities in Europe (EURO STOXX 50, +7.3%) and Japan (Nikkei 225 +11%) had both performed well in 2015.
Recently we added preferred shares to our ETF portfolios in December. With preferred shares down almost 20% this year, we saw an opportunity to include an undervalued asset class with traditionally low correlation to Canadian equity and fixed income to add better risk-adjusted returns to the portfolio. We wrote a blog post to explain a bit more about them.
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