PWLCapital

Markets have come through a turbulent year, marked by an earthquake and tsunami in Japan, uprisings in the Arab world and European debt concerns. Despite all these events, there were some bright spots that mitigated the difficult equity market performances. Here’s a review of the major asset class results for 2011.

Fixed Income: Canadian DEX Short Term Bond Index = 4.7%, Canadian DEX Bond Universe = +9.7

• With continued decline in government and long-term bond yields, bond performances were strong again in 2011 (when bond yields go down, prices go up). US 10 Year Treasury bonds ended the year yielding an all-time low 1.88%.

Other Income: S&P/TSX Canadian REITs Index = +23.5%, Barclays Capital High Yield Bond Index = +7.6% in CAD

• The Real Estate Income Trust and Power Utilities markets both had strong years, seeing increased demand for high yielding income investments. The High Yield Bond market in the US saw a more normal year, with upside from yield compression (see above) offsetting downside from increased credit risk due to turbulent markets.

Canadian Equity: S&P/TSX Capped Composite = -8.7%

• With reduced demand from China for Canadian commodities and difficulties among Canada’s largest insurance companies.

US Equity: S&P500 Index = +4.5% in CAD

• Despite the debt ceiling negotiations and election preparations, the US economy continues to exceed expectations. Jobs are being created, albeit slowly, and economic growth is slow, but better than predicted. The biggest contributors to the US market performance were the Health Care (+12.3%) and Consumer Staples (+13.9%) sectors. Value stocks and Small Cap stocks both underperformed while the rise in the USD contributed a 2.5% currency premium to Canadian investors.

International Equity: MSCI EAFE Index = -9.66% in CAD, MSCI Emerging Market Index = -16.25% in CAD

• The earthquake in Japan early in the year and the concerns over the European periphery country’s ability to pay their debts weighed heavily on international markets. The major Emerging market countries (China, India) also had difficult years as their respective central banks tried to restrain inflationary growth by increasing interest rates and reducing liquidity.

PWL Market Stats, as at December 31, 2011

As always, don’t hesitate to contact us if you’d like to discuss.

Best regards and Happy New Year!
Tony & Peter

Lately, the media has been painting a critical picture of Exchange Traded Funds (ETFs). Most of the criticisms apply to a small subset of ‘synthetic’ ETFs, which represent only 16% of the ETF market. Unfortunately, most of these articles fail to make the distinction between ‘synthetic’ and ‘physical’ ETFs. At PWL, we only use physical ETFs in the portfolios we manage.

In Raymond’s latest Economic Pulse, he explains the difference and how PWL’s due diligence protects our portfolios.

Enjoy the read!

Tony & Peter
 

Every six months, PWL’s Portfolio Managers converge in Montreal to discuss and debate the current state of economies, markets and asset classes. Raymond Kerzerho, PWL’s Director of Research who writes the monthly Economic Pulse, compiles and tracks a number of economic statistics, market indicators and asset class valuation metrics to feed this discussion. The result is an asset class dashboard that guides our re-balancing decisions going forward.

I’ve attached the Executive Summary of our most recent meeting. As always, don’t hesitate to contact us if you have any questions or would like to discuss.

Best regards,
Tony & Peter

Elroy Dimson, Paul Marsh and Mike Staunton are not household names on Bay street or Wall street for that matter. They are three professors at London Business School who have built a long term database (since 1900!) of T-bill, bond and stock market returns for developed countries around the world. This database provides some compelling insights into the behavior of stock vs. bonds in different countries.

At PWL, we continue to base our investment decisions on this type of long term research. Read Raymond Kerzerho’s latest Economic Pulse, to find out more about their insights, as well as the research coming out of Dartmouth and Chicago Universities.

Happy reading!

Tony & Peter

Markets rebounded strongly in October, driven by improving news out of Europe. Concrete steps are being proposed and adopted to deal with the situation in Greece, and by corollary in Italy, Portugal and the rest. We know these solutions won’t be perfect, and we know they will take time (politicians are involved after all…), but the big issues are being addressed.

Perhaps more so than ever before, market pressures are bringing about political action. This is the new democracy. By the time the media see the problem as ‘solved’ the market will have long since recovered.

Please refer to PWL's October Market Statistics for more information.

Best regards,

Tony & Peter