2021 Q1 Newsletter
2021 Q1 Newsletter
The start of 2021 has gone by quickly and we hope everyone is doing well. BC has just announced new restrictions, but we are hopeful the vaccine roll our will continue to improve nationwide, and we can all get back to normal. We hope you enjoy our Q1 newsletter!
Topics:
Roaring 20’s?!
Moving Forward
Portfolio Models and Process
Real Estate Prices
Local Travel
Roaring 20’s?!
Since the start of the pandemic in 2020, many Canadians have experienced an increase in their saving capacity. A good part of this will be due to the lack of activities to spend on as well as the stimulus cheques released by the government. The chart from The Economist highlights this trend with Canada being the country with the most excess savings.
When we look back in time, we may see similarities to the rest of this decade to the Roaring Twenties. That decade followed World War 1’s devastation and the Spanish Flu to then see individuals embrace the good life and literally kick their heels up (shall we see the Charleston back in vogue?). The periods after the Great Depression and the Second World War saw governments invest heavily in infrastructure, in efforts to stimulate economies and get people back to work.
Governments of many developed nations have identified infrastructure as being out of date, decaying and in need of serious upgrading. Recent events involving the Ever Given in the Suez Canal highlight the never ending battle to keep up to date. This Canal is one of the most important waterways in the world for global trade. It provides the fastest route, by water, between European and Asian counties. By the numbers, almost 1/3 of global container ship traffic flows through it each day. In 2015, Egypt spent billions on the Canal to create a second lane to allow ships to simultaneously pass through. However on March 23rd, strong winds twisted the Ever Given, a massive ship equal to the height of the Empire State Building, across the Canal, blocking billions of dollars of goods from transiting.
More on this story: https://www.visualcapitalist.com/suez-canal-critical-waterway-comes-to-halt/
The need to upgrade is being driven by multiple factors, the importance of technology, trade frictions driving “reshoring”, environmental concerns and of course, getting people back to work. Will governments invest as needed? Time will tell.
Moving Forward
In the last half of 2020, we were frequently asked why markets were recovering even though we were still facing restrictions due to the Covid pandemic. Our response was markets are forward looking.
The chart below (from Dynamic Funds) provides an illustration. After a 6-week market drop beginning the middle of February, markets began to recover. We had entered the Hope stage, where optimism pushes up stock prices before we see the growth in company earnings driven by a recovering economy. This year we have likely entered the Growth phase, where market returns are more modest even though the economy continues to improve. This is the catch up phase, stock prices continue to rise but the valuation (the Price to Earnings ratio) of companies are brought back to more reasonable levels.
Chart Below:
P/E: price of an individual share divided by the companies earnings per share
EPS: companies earning divided by the number of shares outstanding
Portfolio Models and Process
We thought this was a good time to review the investment process we take when building portfolios for clients and examine some of the constituent parts.
Traditionally, portfolios were composed of shares of companies (equities) and fixed income (bonds or debts of governments and companies).
Fixed income investments provided a good income, were less volatile (their prices did not change as much as) than equities and tended to go up in value when stock markets were dropping. Regular rebalancing of the portfolio back to its target weight of the two classes was the preferred way to manage risk.
Conditions have changed as interest rates are at historic lows, meaning returns generated from fixed income assets are also low. Interest rates will most likely rise in the future, subsequently pushing fixed income prices down. Along with those concerns, we also need to plan for people living longer. Thus, a modified approach to managing risk for our clients was required.
Our portfolios have 4 main groups (excluding cash):
Fixed Income
Core Equity
Real and Alternative Assets
Tactical Equity
As our portfolios have a more modest allocation to fixed income assets, than was historically traditional, we add income generating assets in the real and alternative asset group. Portfolios over a certain threshold also include investments with increased methods to reduce volatility.
The core equity is exactly that, designed to provide broad exposure to the equity markets.
The largest part in most of our portfolios is the tactical equity component. For this part of the portfolio, we screen individual stocks for prevailing trends (where the best opportunities lie) and for fundamental strength.
The Fixed Income and Core Equity components are held through all market conditions. In the other two groups (Real and Alternative Assets and Tactical Equity), we have a process to identify weakness and move to investments better able to preserve value or potentially grow when stock markets are in a prolonged dip. This will help stabilize the portfolio, limiting losses compared to the broader market. When conditions begin to change for the better, our resources and tools help guide us as to the best places to allocate money back into equity markets.
On a regular basis, we review all the investments within the components and screen against other options within their group.
We feel our process will allow us to react to changing conditions within security markets, preserve your wealth, and assist you in achieving your goals.
Real Estate Prices
Residential real estate has been a hot commodity in the last 3 months. We have had multiple clients tell us the difficulty in purchasing property while getting very positive feedback from individuals who just sold. Transactions are starting to increase and properties on the market seem to go quickly. The rapid rise in housing prices are most likely due to two factors: Canadians having more to spend and an all time low for borrowing rates. As the vaccine roll out continues and economies start to reopen, we would expect to see discretionary spending increase rapidly. At some point, central banks will begin to raise interest rates to slow economic growth and manage inflation.
Every year a report is created detailing the 10 least affordable cities in the world. To our surprise Canada had 2 show up on list. Hong Kong has been number 1 for ten years in a row.
Local Travel
Most of the world has got the itch to travel and get out of the house. With the summer fast approaching, finding the ideal travel location seems to be high on many family’s radar. Travis and his wife noticed this firsthand a few weeks ago when trying to book a couple of nights within the province to either the interior or the local islands. Most places are booked and there is a noticeable hike in nightly costs. For those still thinking of planning a local trip – start now!
We hope everyone has a safe and enjoyable long weekend - Happy Easter.
Jack Fournier B.Sc, FMA, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3348
jack@beaconwealthpartners.ca
Travis Kidson, B.Sc, CFP®, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3486
travis@beaconwealthpartners.ca
This information has been prepared by Travis Kidson and Jack Fournier who are Portfolio Managers for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Managers can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Insurance products are provided through iA Private Wealth Insurance Agency which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investors Protection Fund.
Beacon Wealth Partners is a personal trade name of Jack Fournier and Travis Kidson.