April 2016 Investment Market Update – The Rising Loonie
The rising price of oil in April supported the continued rebound in Canadian equities, REITs, preferred shares and US high yield. However, along with the rising price of commodities we observed a weakening U.S. dollar.
The price of oil jumped up by 19.8% in April. This was of significant benefit to the Canadian investment market which is very dependent on its resources sector. The S&P/TSX Composite, REITs and preferred shares all delivered strong returns this month. This appears to diverge from news of the Canadian economy pulling back in February after a stellar start to the year.
Canadian REITs are having a come back in 2016. Year to date they are up over 13%. This is attributed to increased demand for yield paying investments in a low-interest rate environment, low-interest rate allowing for REITs seek new financings and raising the prospect of more acquisitions moving the market up.
Stephen Poloz, Chair of the Bank of Canada, expects the bank to hold the interest rates steady and would consider further cuts in the wake of a significant economic shock. Both corporate and government bonds held steady.
The Federal Reserve stuck to its message that it would be slow to raise rates and will rely on economic data to frame expectations of when it might raise them again.
U.S. high yield bond investments returned 4% this month. The asset class remains attractive as the difference between high yield rates and treasuries in this low-interest rate environment more than compensates for expected future interest rate hike, potential defaults, and increased volatility.
Diverging monetary policies, the rising price of oil and weakness of the U.S. dollar against other major currencies has contributed to the rise of the loonie.
Although April had strong performance across most asset classes we expect May to be more turbulent given the recent news of slowing growth in China and increased supply of oil production.
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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.