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Up Financial – Quarterly Investment Update

With Spring starting to peek its head around the corner, the outlook for Q2 2019 is mirroring the typical season in Calgary – frosty periods but with positive ‘warming’ trends. As we look further ahead to the rest of 2019 and into 2020, the theme of increasingly volatility is the one common point that we see from nearly every analyst. Volatility doesn’t always mean that returns are plummeting, of course, but rather that the ride to positive long-term results becomes bumpy in the short term. 

Long story short, the theme of Q1 for Up Financial that will continue throughout 2019 is preparing our clients and their portfolios for those volatile markets, although that means different things for each and every family we work with. 


How are the markets doing right now?

As we mentioned in our last market update, Q1 2019 was characterized with a healthy ‘bounce’ back from the recent market low on December 24th, 2018. While the bulk of this recovery occurred in January and the first couple weeks of February, we’ve seen positive trends throughout global markets continue through March and April. It’s true that some investors who first entered the markets in early October might still see a small loss on the books, however the average global investor is positive from January 2018 through April 2019(1). As it so often does, the old adage ‘this too shall pass’ proved true once again. 

There are a couple common market themes that we anticipate dominating the 2019 landscape: 

  1. Doves vs. Hawks: Interest rate policy driven by central banks was a major factor in 2018’s volatility. Central banks use their control over key interest rates to both control inflation (rather than letting it run away as we’ve recently seen in Venezuela) as well as provide the ability to use important tools such as fiscal stimulus during recessions and depressions. When central banks raise rates (‘hawkish’ policy) to discourage lending, they tend to cool markets by making cash less accessible. What we saw in Q4 last year was impacted heavily by rates increasing very quickly, which compounded other negative trends to create a hard drop in global equities – a result no bank wants to see. Accordingly, many central banks have softened their outlook by pledging less frequent and less dramatic interest rate increases for the remainder of the year and into 2020(2), which generally creates more favorable markets. 

  2. Macroeconomic Trends: Most successful active managers have worked through multiple recessions and, with the strength of modern data analytics, are spoiled for indicators and predictive tools to try to pinpoint when and how the next recession or boom is likely to occur. That being said, the ‘art’ of predicting what security to buy or sell is one that no one has perfected. Two different managers with the same set of data will often reach radically different conclusions. While there is plenty of noise around topics like inverted yield curves (a traditional recessionary indicator) and growing corporate profits (a traditional growth indicator), the general consensus remains that the markets are at the stage where a careful review of holdings and their individual risk characteristics is especially prudent. A number of those active fund managers are taking the opportunity to carefully trim their portfolios of holdings that might be more volatile in the coming months (or even holding more cash than normal); preparing their portfolios so that they are well positioned to take advantage of unique opportunities afforded by the business cycle or wholesale shifts in industries that turn traditionally ‘safe’ companies on their heads. Volatility, while scary, can also be an excellent opportunity to jump into new positions that still make good business sense when the rest of the markets are acting in fear.

(1): Morningstar Indices
(2): Bank of Canada Holds Interest Rates


What is being done to protect and grow my assets? 

Most of the conversations we had with our clients in the first quarter were centered around rebalancing and shifting how & where assets were managed to ensure that we continued to recover from a rocky Q4 2018 while reducing volatility. Our recommendations never come from a place of fear – rather we work with managers who have demonstrated a long-term ability to manage through markets of all types. Sometimes, those managers have styles that are better suited for a specific type of market; it’s our job to make sure we understand those styles and that our clients are aligned with asset managers who are best able to meet your individual goals. 

With that in mind, much of what we are doing now and will continue to do as we continue to discuss with you about your individual plan centers on three main items:

  1. Ensure we understand your goals for each account: While it’s always nice to shoot for the stars and achieve aggressive style returns, there are times when being aggressive isn’t appropriate for your specific situation. Likewise, if you are invested for the very long term it becomes our duty to make sure you’re invested as aggressively as you can personally tolerate specifically so that you don’t miss out on those greater returns in the future (remembering always that more time invested in the markets is a fantastic cure for volatility). 

  2. Align your investments with the correct manager: Your goals are unique to you and you are spoiled for choice. We take your trust in our expertise very seriously and make sure you are invested with managers that are most likely to achieve your goal in the time frame you have to achieve it. Sometimes that means short-term changes while other times we simply buckle in and ride the waves; trusting those managers to do what they do best. 

  3. Re-balance when needed: Depending on how you are invested, we make periodic adjustments to how we want portfolios weighted to asset types. At different times for different portfolios, we may recommend more cash being held (particularly if you need the asset in a short time frame) or we may want to see the ratio of fixed-income to equity adjusted to help control your individual volatility. Re-balancing ensures that your investment portfolio stays in line with both current market conditions and your personal risk tolerance. 

 


As always, we’re here to answer any questions you may have. Please do not hesitate to reach out to chat. 
Have a happy Spring!

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