We publish quarterly investment newsletters with timely market commentaries and performance information.
Monetary policy “normalization” returned as a major theme this quarter. As indicators for the global economy continued to show signs of strength, central bankers in many major economies—e.g., U.S., Canada, China and Europe—have signaled that the end of a very loose monetary era is nigh. Markets may be facing an important inflection point.
Investment headlines in the second quarter of 2017 were once again full of politics, with developments in Europe, the U.K. and the U.S. dominating discussion. One might say the quarter was not so good for the populists: Trump found himself embroiled in scandal, British Prime Minister Theresa May managed to lose her conservative party’s majority by calling a snap election, and Marine Le Pen was soundly defeated in France’s Presidential contest by Emmanuel Macron. Political uncertainty notwithstanding, it was a solid quarter overall for investment performance: most major equity and bond markets posted positive returns.
The themes that emerged in the fourth quarter of 2016 carried through to the first quarter of 2017. Confidence in the outlook for global economic growth continued to take hold, moving equity markets broadly higher. European and Emerging Markets were the leaders while the U.S. market achieved new all-time highs. Bond yields rose for most of the last three months, with 10-year Treasuries rising to as much as 2.6%, before falling largely in line with the levels achieved by the end of 2016.
After an extended period of highly correlated markets, (i.e., equities and bonds delivering positive returns in tandem) the fourth quarter was characterized by divergences. Bond markets moved in reaction to growing expectations that changes in the U.S. will lead to higher economic growth accompanied by rising inflation. Generally speaking, equity markets gained in local terms—although Canadian dollar strength negatively impacted most returns outside of North America.
With increased political noise and unanswered questions carrying over from previous quarters, uncertainty and instability remain stubborn themes across financial markets. One of the biggest concerns over the summer was the Brexit vote and its potential consequences. The “leave” outcome caught many by surprise, contradicting the air of optimism that had preceded the referendum. Two days after the vote, the FTSE 250 Index had lost nearly 15%, the sterling had fallen by 10%, and the U.S. dollar gained broadly.
The second quarter of 2016 was dominated by the buildup and final tally of the referendum vote heard across the world—Brexit. On June 23rd, the United Kingdom surprised many by voting to leave the European Union, with the ‘Leave’ camp securing 51.9% of the vote versus 48.1% for ‘Remain’.
Global economic weakness and deflationary forces were still at work in the first quarter of 2016. Volatility and uncertainty remained stubborn themes, with markets reacting to major central bank decisions and potential oil supply resolutions.
2015 was another busy year at the firm as we continued to add depth to our investment, client and operating teams, while changing some of our core service providers to those with more global reach. We have grown to 122 employees across our Calgary, Toronto and Singapore offices, increased the number of owners from 37 to 44, and are now managing over $30 billion for a wide range of institutional and individual clients.
Volatility increased across asset classes in the third quarter of 2015. China’s economy, weak global commodity prices, and anxiety around if, and when, the Federal Reserve will raise interest rates weighed on investors’ minds. This anxious sentiment was matched by weak, global investment returns across equity markets.
Central bank action was a dominant theme this quarter. While the ECB and Bank of Japan maintained their massive stimulus programs, the Federal Reserve, bolstered by mostly positive economic data, continued to signal for an interest rate hike sometime this year. If, when and by how much rates may rise, continued to be key questions on investors’ minds.
The threat of slowing growth and deflation were the predominant themes during the first three months of 2015. Based on mounting evidence, central bankers around the world intervened by lowering interest rates and enacting other quantitative easing measures or stimulus plans. Notable participants included Canada, the ECB, China, Japan, India and Australia. The impact of lower energy prices was cited by several central banks as having the potential to reduce inflation and act as a deflationary force.
2014 was a special year for the firm, marking 40 years since our founder, Chuck Mawer, decided to open one of the first investment counselling firms in Western Canada. Susan Hall, Mawer’s second employee who is still active with the firm today, often talks about Chuck’s legacy of “doing the right thing.” Today, we strive to follow this mantra in both the way we treat our clients and how we invest.
The U.S. economy continued to show signs of progress this quarter. The labour market improved, inflation was subdued, and manufacturing and capital expenditures indicated that an expansion is likely underway. In response, the U.S. Federal Reserve continued to taper its asset purchase program and communicated its plans to cease this program as of October. Fear that a withdrawal of economic stimulus will cause higher bond yields has not materialized thus far, as yields have actually decreased during this period.
The Q1 GDP data released in April seemed to indicate a stall in U.S. economic growth. Subsequent data revealed a much steeper economic contraction of 2.9%. Was this evidence that the U.S. economy was losing steam and requiring more aggressive intervention by the central bank? Or was this merely a statistical anomaly that was not indicative of the true state of the economy?
Global equity markets continued to rise during the first three months of 2014. This extends their rally to five years, with only periodic interruptions. One such interruption occurred when the political standoff between Russia and Ukraine prompted some investors to assess the implications of Russia’s aggression from the sidelines. The ensuing equity correction was relatively modest and short-lived, as global equity markets soon resumed their upward trajectory, with the MSCI World Index (C$) finishing the quarter with a 5.2% gain.
Last quarter, U.S. Federal Reserve Chairman Ben Bernanke surprised markets when he announced that the Fed was not ready to taper their unprecedented level of monetary stimulus. Despite repeated signals to prepare for this outcome, the Fed ultimately concluded that the economy was not healthy enough to wean itself from this monthly injection of capital. Investors celebrated this extension as both bond and equity markets rallied on the news.
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