{"id":1053,"date":"2016-01-20T21:11:14","date_gmt":"2016-01-20T21:11:14","guid":{"rendered":"http:\/\/wdsinvest.com\/?page_id=1053"},"modified":"2017-01-23T21:32:47","modified_gmt":"2017-01-23T21:32:47","slug":"investment-perspectives-volume-12-no-1-december-2015","status":"publish","type":"page","link":"https:\/\/wdsinvest.com\/fr\/wds-resources\/investment-perspectives\/investment-perspectives-volume-12-no-1-december-2015\/","title":{"rendered":"Investment Perspectives Volume 11, No. 2 \u2013 December 2015"},"content":{"rendered":"
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\u201cThe stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.\u201d<\/h1>\n

\u2013 Seth Klarman (The Baupost Group)<\/em><\/p>\n\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div><\/div>

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Oil, China and the Diverging of Economies<\/h3>\n\n

The first half of the year was characterized by range-bound markets and, while oil had continued its slide, the West Texas Intermediate (WTI) light crude price appeared to be stabilizing around the US$50 per barrel range. Then oil\u2019s supply\/demand imbalance took an ill-fated twist. In late-summer China\u2019s tumbling stock markets stoked fear of a rapid, growth-deceleration of this once powerhouse economy. Plagued by global-demand concerns, the oil price collapsed below US$40 per barrel.<\/p>\n\n

The outcome for 2015 rested mostly on the shoulders of the U.S. economy, with sub-par growth momentum elsewhere in the world. As things unfolded U.S. consumers were the bright spot; employment was strong, wages were growing and cheaper energy left money in their pockets to spend. The darkening cloud was what many considered an industrial recession caused, in large part, by the continued strength of the U.S. dollar. While growth in the U.S. markets never met expectations, relative to the global economy, it continued to improve. Expressing confidence in the U.S. recovery, the Federal Reserve hiked interest rates in December, with a first move towards rate normalization. Sceptics worry, though, that rising rates--and the divergence of central bank policy--may cause a drag on the fragile economic recovery, not only in the U.S., but globally.<\/p>\n\n

A mixed bag in the U.S., China\u2019s struggling economy, and falling energy prices heightened the level of uncertainty in global equity markets. This gloomier tone persisted and investors had few, if any, places of refuge in the markets.<\/p>\n\n

When investing, we generally have an expected rate of return in mind. We tend to think in terms of long-term average return; however, returns can be radically different year-to-year and only even out with time. Although hopes were high at the beginning, the markets decided that 2015 would be one of the \u201cless-than-expected\u201d return years. Thinking long term is the key to achieving that desired return outcome.<\/p>\n\n

As always, we thank you for your support and continued confidence in WDS.<\/em><\/p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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Equities:<\/h3>\n\n

The Canadian S&P\/TSX Composite Index ($TSX) ended the year down just over 11 per cent; however, with dividends included (total return) the TSX was down 8.32 per cent. Concerns over oil\u2019s steep decline spread far beyond the energy-sector itself as materials, industrials, consumer discretionary, health care, financials, and utilities all ended in the red. <\/p>\n\n

The U.S. market closed the year almost flat, with the S&P 500 Index ($SPX) giving back 0.73 per cent on a price return basis, while gaining 1.38 per cent with dividends (total return). Strong U.S. consumer-spending delivered the three leading segments in the markets with consumer discretionary, health care and technology ending the year up 10.11, 6.89 and 5.92 per cent, respectively. The energy sector was the worst performing at negative 21.12 per cent return on the year, with materials and industrials also in loss territory. With the U.S. central bank raising interest rates for the first time since 2006, concerns abound over how the unwinding of seven years of zero-percent interest rates may impact the global recovery. <\/p>\n\n

The slowing growth of China and its shift to a consumer-driven economy was a story present in the headlines and investors\u2019 minds for most of the year. While this is part of a natural evolution for China, it does pose challenges for emerging markets and commodity producing economies. For a broader global picture, the MSCI EAFE Index ($MSEAFE) was down 3.3 per cent (U$) on the year, excluding dividends.<\/p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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Fixed income and interest rates:<\/h3>\n\n

The Bank of Canada made a surprise move to start the year as it cut the benchmark interest rate. Later, in July, the rate was cut again, although this time it was far more anticipated. 2015 ended with the Canada 10-year benchmark bond yield at 1.39 per cent and the 5-year Canada finished at a paltry 0.73 per cent.<\/p>

Returns were hard to come by in the fixed income environment as the FTSE TMX Canada Universe Bond Composite Index finished 2015 essentially flat at 0.03 per cent return. Going longer on the yield curve was not the better option as the Long Composite Index closed the year at a loss of 0.71 per cent.<\/p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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Currencies:<\/h3>\n\n

As goes the price of oil, so goes the loonie and the relationship is only getting stronger. The correlation between the price of oil and the Canadian dollar has gone from around 80 per cent historically to 94 per cent in the present day. The Canadian dollar ended the year at $0.721 per U.S. dollar, hitting levels that haven\u2019t been seen in over a decade. Our currency\u2019s devaluation isn\u2019t all bad as the low Canadian dollar makes our country\u2019s exports cheaper, especially to our biggest trading partner just south of the border. The export picture hasn\u2019t picked up at the pace that many forecasters had expected. There may be signs of improvement as recent data from November saw Canadian exports grow for the first time in four months.<\/p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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Commodities:<\/h3>\n\n

West Texas Intermediate (WTI) light crude, which opened the year at an already depressed US$53.71, closed 2015 at US$37.07. Oversupply caused by record worldwide production remains oil\u2019s big storyline. The lifting of sanctions has now cleared the way for Iran to sell oil; more potential output. OPEC remains steadfast to maintain its output levels, even as the oil glut continues. Although the supply side is the lead culprit, concerns over global demand\u2014China\u2019s slowing industrial, growth engine\u2014also factors into this grim picture. The immediate view for oil is lower for longer, with continued challenges in early 2016.<\/p>\n\n

Gold proved to be no safe haven either, tracing mostly downward from US$1,183 an ounce to end at US$1,060 per ounce. The rest of the commodity space was also extremely challenged this year, as represented by the Bloomberg broad-based commodity index, finishing 2015 down 27.6 per cent, led by price pressure on other precious metals and industrials commodities such as platinum, copper, and zinc.<\/p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/div><\/div>

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This report is provided for your information. Conclusions and opinions given do not guarantee future events or performance. Facts and data provided are from sources we believe to be reliable, but we cannot guarantee they are complete or accurate. This report is not to be construed as an offer to sell or a solicitation of an offer to buy any securities. Before making an investment or adopting an investment strategy, each investor should review his investment objectives with their investment advisor. Watson Di Primio Steel (WDS) Investment Management Ltd. and individuals and companies who are related may, at any time, buy or sell securities that are hereby described in this report.<\/em>

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