I hope you and your family are continuing to stay well. I wanted to share some updates on current key economic, market and pandemic-related developments.
The markets’ rebound from the depths of the mid-March pandemic-driven drawdown reflects optimism that businesses will continue to recover and that as a global society we will find ways to contain the spread of COVID-19. At the same time, government and fiscal support measures for households and businesses continue to provide a strong tailwind for many parts of the market, particularly equity and corporate bond markets. Nevertheless, economic activity remains below pre-pandemic levels and significant adjustments are still needed for many businesses to recover, presenting significant risks to the outlook.
Macroeconomic and market developments
- The number of confirmed COVID-19 cases worldwide surpassed 15 million. The U.S. continued to struggle to contain the spread of the virus, with California taking over from New York as the state with the highest number of infections. Other global hotspots include Brazil and India. Restrictions on gathering and business activity continued to be relaxed in many regions of Canada based on low infection rates.
- North American equity markets moved marginally higher as companies reported mixed earnings results and various coronavirus vaccine trials in the U.K., Germany and Canada reported continued progress, but fell later in the week as confidence in the economic recovery stalled.
- The U.S. government said it was considering a program to provide unemployment assistance for workers for the rest of the year on a reduced basis. In Canada, the government extended wage subsidies for employers still struggling with the business impacts of the pandemic to the end of December.
- The annual inflation rate in Canada was 0.7% in June, exceeding market expectations.
Canadian Equity Comments:
- Canadian equities bounced back in the second quarter, rising by 17% for the largest quarterly gain since 2009. The S&P/TSX Composite Index remains 12% below highs set in February of this year.
- Information technology has been the strongest sector in 2020, largely due to the meteoric rise in Shopify which now makes up more than two-thirds of the sector in Canada. The materials sector also benefited from a surge in the price of gold.
- Shopify Inc. surpassed Royal Bank of Canada to become the largest Canadian stock measured by market capitalization. Blackberry Ltd. and Valeant Pharmaceuticals were the last companies to accomplish the feat.
- Shopify is now the largest stock on the S&P/TSX Composite Index (6.5% weighting), and it wasn’t even in the top 10 to start the year.
U.S. Equity Comments:
- U.S. equities recovered sharply in the second quarter after the S&P 500 Index entered bear market territory for the first time in over a decade.
- Technology has been the strongest performing sector in 2020, providing better downside protection and upside participation than any other sector. Energy bounced back after oil prices briefly went negative, but it was not enough to recuperate prior losses.
- The S&P 500 Index is becoming more concentrated in its largest holdings. The popular “FAANG+M” (Facebook, Apple, Amazon, Netflix, Google, Microsoft) technology stocks now compromise approximately 22% of the benchmark index.
What does this mean for my investments?
Given recent unprecedented circumstances, we remain true to your well-established investment plan that takes your goals and tolerance for risk into account. Throughout the pandemic, your investments’ monthly distributions have remained constant which is a cornerstone of Buffetts’ investment philosophy “cash flow is key”.
Many of you are using this predictable monthly distribution/cash flow to support your retirement lifestyle needs and NOT having to sell any shares/units to do so, while many others are reinvesting the monthly cash flow into buying more shares/units, and ultimately owning an increased number of units would pay you more future cash flow each month!
Quarterly Reporting update:
Our team has been working diligently to secure the proper feeds to produce the quarterly statements we were all promised. I want them looking a certain way and the feeds that need to be drawn in have been more difficult than previously indicated to secure.
We are working very hard with Digit (the company that provides them) to get this done for you. We appreciate your patience on these quarterly reports and assure you that they will come to fruition by either this or next reporting period.
Pooled fund with lower MER’s:
My hope had been that by June 1st we would have had our pooled fund up and running for you. Given the COVID outbreak and the upheaval it has produced, this project has been delayed and unfortunately, we have had our timeline pushed back to say the least. It WILL happen but simply at a slower pace than we had anticipated.
Update on your Investment Policy Statements:
Many of you will remember completing an online Risk Tolerance Questionnaire (RTQ) that was sent out from our office. Based on the information you provided in that RTQ, along with information gathered in our discussions with you, we have created a unique IPS for each client that establishes a clear understanding of the objectives and guidelines applicable to each client’s portfolio.
What else does the IPS include?
- The framework for a well-positioned portfolio that would be expected to generate acceptable long-term returns at a suitable level of risk;
- specific parameters for creating and maintaining a prudent asset allocation;
- reasonable expectations and objectives; and
- criteria for evaluating portfolio performance.
In the coming weeks, our team will send out your IPS via email, and we ask that you review and confirm your understanding by clicking the acknowledgement button on the electronic form. Once you receive your IPS, if you have any questions or concerns, please call the office or email Nikala directly at [email protected].
In closing, I would like to remind you that my team and I are here to help. Should you have any questions about your investments, we would be happy to discuss them with you.
Sincerely,
Paul Rowan
President, Chief Executive Officer
Chairman of Investment Committee
Performance for the S&P/TSX Composite Index is presented in with reinvested dividends.
