Much like the disparity between heavy snowfalls in Western provinces and unseasonably warm weather in the rest of Canada, “global imbalances” remain a key theme in world economies and capital markets.
Looking back on 2015, what a year it has been! Many of the same global trends continued. Notably, the ongoing commodity bear market plumbed new 21st century lows, impacting the energy sector and resource-exporting countries like Canada. Also, despite mid-year wobbles, the inexorable rise of China into a financial superpower continued (with the International Monetary Fund confirming that the Chinese renminbi is now an official major world currency).
However, new crosswinds also surfaced. In the central banking world, the European Central Bank expanded its quantitative easing program to an unprecedented level – now planning to purchase three times the net total of bonds issued by eurozone governments during the quantitative easing period. Meanwhile, the U.S. Federal Reserve Board – for the first time in over a decade – finally raised its policy rate. (Read our latest publication Super Trends and Tactical Views for our non-consensus take on the investment implications.)
Trends for 2016
Looking ahead to 2016, we continue to see more of the same: Heightened government intervention; persistent slow growth in Western economies; and continued wealth convergence of the emerging world with the developed world. To be sure, this is incredibly fertile ground for global, tactical strategies, and we continue to recommend the following approach for our clients:
1. Remain widely globally diversified
Given the tug of war between heightened central bank activity (bullish for financial assets) and the more sobering realities of slow growth (bearish), it is imprudent to go “all in” on one scenario. The best strategy for clients is to retain a balanced portfolio stance with wide global diversification.
2. Structure portfolios to “avoid the big mistakes”
This has been another year where our performance style of “winning by losing less” has delivered. Often that means simply avoiding the underperformers (energy, commodity-producing countries, etc.).
3. Include “special opportunity” investments
ETFs have been a veritable game changer for the portfolio construction process, opening up a wide number of new investment classes. Many of these are outside the subset of mainstream stocks and bonds. We strongly believe building portfolios with this additional global diversification will be essential for successful financial outcomes.
Courtesy Fundata Canada Inc. © 2016. Tyler Mordy, CFA, is President and Co-CIO of Forstrong Global Asset Management Inc. Securities mentioned are not guaranteed and carry risk of loss. This article is not intended as personalized investment advice.
onth or in the near future. If you hold a Canadian bond, you will see an immediate capital gain. And typically, investors will sell their bonds to realize that gain. But does that also mean you should sell your bond ETF holdings to realize the capital gain? Not necessarily. Here’s why.
Bond ETFs and mutual funds do not have a maturity date, so the dynamics that affect the prices of individual bonds do not apply to them – although, of course, the bonds within a portfolio will be affected.
In the case of actively run mutual funds, the managers will rarely hold a bond to maturity. Rather, they will often trade aggressively to take advantage of market movements. ETFs, which are passive investments, track an index, and the assets in the fund at any given time will reflect the composition of that index.
The bottom line is you should not expect a fund to function in the same way as an individual bond.
Courtesy Fundata Canada Inc. © 2016.Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder andThe Income Investor newsletters, available through his BuildingWealth.ca website. This article is not intended as personalized advice.
