Market Update. When the market is a yo-yo, play safe
In March, skittish investors continued to send markets up, down and all around. Facebook data shenanigans, Trump’s trade tariffs and other headline news rocked the boat.
Individually, these events might have left stock watchers unfazed during the remarkable bull run of 2016-2018. After all, the economy in North America seems robust overall, with solid jobs numbers and interest rates rising.
Overseas, markets are relatively healthy. Nonetheless, emotions and uncertainty about what to expect in the rest of 2018 are driving some extra volatility.
What does all this mean for your investments?
All portfolios were down this month. The bulk of the losses came from US equities, international equities and income strategies. However, Canadian real estate and bonds saw positive returns, thus reducing the losses.
ETF Safety Portfolio was up 3.1% over 1 year.
This portfolio’s significant weighting to Canadian bonds provided stability and minimized the losses seen in the portfolio. Both of Canadian bond ETFs (VSC & VSB) included in the portfolio are focused on short term investment grade corporate and government bonds. As they are short term bonds they are impacted less by rising interest rates.
ETF Conservative Portfolio was up 4.9% over 1 year.
Canadian bonds provided stability in the portfolio and minimized losses. Canadian real estate saw exceptional returns. This provided a good source of diversification, reducing risk. Unfortunately, losses came from US equities, international equities and US covered call income strategies.
ETF Balanced Portfolio was up 6.6% over 1 year.
The weighting to Canadian bonds provided stability and minimized the losses seen in the portfolio. Canadian real estate saw exceptional returns, providing a good source of diversification in these volatile times. Unfortunately, losses came from US equities, international equities and US covered call income strategies, which pulled down performance.
ETF Growth Portfolio was up 7.4% over 1 year.
US equities, international equities and US covered call income strategies accounted for most of the loss we saw this month. However, a stronger Canadian dollar help reduced some of the volatility for the portfolio. Canadian real estate and bonds saw positive returns while improving diversification of the portfolio overall.
ETF Aggressive Portfolio was up 8.4% over 1 year.
The bulk of the losses came from US equities, international equities and US covered call income strategies. A stronger Canadian dollar help reduced some of the volatility for the portfolio in global equity markets. Canadian real estate and bonds saw positive returns, providing a good source of diversification in these volatile times.
Private Investment Portfolios
Safety Private Portfolio was up 3.8% over 1 year.
The additional diversification to asset classes such as mortgages, commodities, real estate and private equity not only mitigated risk but generated positive returns. Canadian Bonds and mortgages further reduced the volatility of the portfolio and preserved capital in these volatility market.
Balanced Private Portfolio was up 5.8% over 1 year.
The additional diversification to asset classes such as mortgages, commodities, real estate and private equity not only mitigated risk but generated positive returns, despite recent volatility in the market more generally.
Aggressive Private Portfolio was up 4.7% over 1 year.
The additional diversification to asset classes such as mortgages, commodities, real estate and private equity not only mitigated risk but generated positive returns. The additional exposure to real estate through the NWM Real Estate Fund offset losses from the equity markets which were evident in the NWM US Tactical Income Fund.
Market movers, at a glance
Let’s take a closer look at some of the market movers in March – and what’s got investors riled up for this season of enhanced volatility.
Facebook falters, Amazon addled by Trump tweets
For a long time, Silicon Valley’s tech giants have led the way for the US economy as a whole. In March, not so much.
Facebook faced unrelenting criticism over a data scandal, which hurt its stock price. Nonetheless, Facebook still has a solid advertising revenue stream that still has room to grow. Only a few big advertisers seem to have jumped ship. Meanwhile, Donald Trump continues to tweet at Amazon with claims that the company is not paying its fair share of taxes.
As tech’s titans tip over just a little bit, so goes investor confidence as a whole. But all this might be a bit surprising to keen market observers, given that economic fundamentals are not far off from where we’d like them to be…
Interest rates rise. Oil slides up. And Trump’s economy says, “You’re hired!”
“The economic outlook has strengthened in recent months,” the US Central Bank committee noted, as they announced a quarter point interest rate hike. We appear to be in a rising rate environment, with more interest rate hikes yet to come.
Bond markets were also up. For instance, Bloomberg Barclays Global Aggregate bond index was up 1.11 percent in March. This helped stave off hints of a bear market in the bond sector.
Meanwhile, the energy sector fuelled the engined of the revved-up economy as oil crept up to $60/barrel. That can only have helped job numbers in the US. The relatively low unemployment rate of 4.1 percent was supported by gains in manufacturing, health care and mining.
The economic scene in Canada was similarly buoyant, with inflation above 2 percent. Despite a softening housing market, portfolios that invest in REITs seem to be just fine, thanks to steady income from tenants with relatively low vacancy rates in the big cities.
Brexit uncertainty continues, but Europe looks forward
Foreign markets are seeing a similar phenomenon to North America. The ups and downs of the equities market bears only limited relation to seemingly healthy business fundamentals.
The British pound was down in early March thanks to continuing uncertainty over Brexit negotiations. However, thanks to an outperforming UK services sector and other economic factors, it drifted back up over time. Whether or not Brexit has a serious impact on Britain and its European trading partners, uncertainty about a deal is already built into projections.
Loose talk about tariffs from the US caused European markets to dip, but more recently, tensions have eased.
Asian markets weather the storm of volatility
In Asia, despite long-term downward market sentiment in Hong Kong, the private sector achieved its strongest performance since 2014.
The Japanese economy has been growing for eight consecutive quarters, a remarkable streak of expansion compared to previous years of economic doldrums. Growth slowed for the Nikkei PMI, but prospects still seemed solid.
Investors also seem to be seeing more potential in emerging markets. For instance, the EEM ETF including stocks like Tencent, Samsung and Alibaba, carried a favourable forward price-earnings ratio. Investors looking for cheaper buys compared to US equities see better value in this sector.
Market update. Conclusion
The past few months have seen rising volatility. A strategy of diversification to limit risk is the way forward. For investors who are already well-positioned in this regard, stay the course. Even in times with irregular ups and downs, there are opportunities for growth.