July 2019 Portfolio Management Team Update

Elvis Picardo

July 3, 2019

Market & Economic Environment: May’s pullback turned out to be a temporary blip in the global equity rally, as trade tensions receded over the month of June while the Federal Reserve and European Bank signaled their commitment to support economic growth. US equity indices registered their biggest advance since January, with the S&P 500 rebounding 6.9% in June to briefly reach a new record high, and the Dow Jones Industrial Average and Nasdaq Composite surging over 7% apiece. The TSX Composite’s gains were muted in comparison, with the index up 2.15% in June. The Materials group was the best-performing sector, as gold stocks gained after the precious metal rose 8% to trade above US$1,400, a six-year high. The Canadian dollar advanced 3.5% against the US dollar after economic data confirmed that a recovery was well underway. (Data Source: FactSet)

Our Strategy: Dovish Fed policy and hopes that trade war uncertainties will dissipate are boosting risk appetites around the world. One measure of such “risk on” behavior is the performance of initial public offerings in the U.S., where 10 IPOs rose by at least 50% in their debut sessions – the most of any month since 2008 – and the average IPO return of 37% was double the gain from earlier in the year (source: Bloomberg). The S&P 500’s 17.4% surge in the first six months of 2019 marks its best first-half performance in more than two decades. Europe has turned in a similar performance, with a number of major European indices up at least 15% in the first half. In Canada, the TSX gained 14.4% in the first half of 2019. Those return numbers look much less impressive when viewed on a trailing 12-month basis. For example, the TSX Composite has only gained 0.64% over the past 12 months, while the Euro Stoxx 50 index is up 2.30%. While global equities have successfully recovered from steep declines in Q4 of 2018, there seems to be a growing disconnect between the markets’ recent strength and economic data that shows the global economy has hit a soft patch. The Portfolio Management Team (PMT) completed a significant rebalance of its smaller models in June and intends to rebalance its large models in the weeks ahead. The PMT continues to advocate a cautious approach in managing client portfolios, given rising risks on both the macroeconomic and geopolitical fronts.

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.