Up Financial – Quarterly Investment Update
It’s been a heck of a rollercoaster ride since our last investment update in mid-October, but we’ve got some positive to go with the negatives we saw at the close of 2018. Long story short, our prediction of a rocky end to 2018 was an understatement to say the least. Likewise, our recommendation to always recall your long-term goals and targets has proven correct again with January providing a nice ‘bounce’ that has helped soften some of those rough months.
All that being said, the most common question we’ve fielded since December has been ‘What is coming next?’. While we’re not prognosticators or market timers in any market conditions, our research has indicated a few common trends we expect for 2019.
These quarterly market updates are intended to be a bit longer and more in-depth than our monthly updates; if you would prefer to discuss your plan or your investments in person or on the phone we are always available to do so!
How are the markets doing right now?
Since October, global equities ended up posting the 11th worst 4th quarter returns since 1970 (-13.7%1) and the worst December since 1970 (-7.7%). All of this occurred on the back of a ‘triple whammy’ of trade war concerns, typical 4th quarter profit taking and, perhaps most substantially, the Fed in the US raising their rates sharply.
After all that negativity, we’ve seen the new year bring a pleasant and substantial ‘bounce’ from year-end lows. 2019 year to date has seen world markets recover almost 5.6% of those losses in the last 30 days of trading. This comes on positive news such as strong balance sheets in the financial sector, US household debts remaining manageable and earnings continuing to look strong into 20192.
Of course, not all is rosy with news like the US government shutdown and a potentially ‘hard’ Brexit on the horizon, but it’s not all gloom and doom for the coming year. The general consensus is that volatility will continue, but that 2019 will still show an upward trend that’s simply slower than many investors have grown to expect globally since the recovery after 2009.
1: Bloomberg, FDIC, Federal Reserve
2: FactSet, Bloomberg, UBS – Jan 14, 2019
What are my advisors doing to grow and protect my assets?
One of our favorite studies published about our industry was one published by Vanguard in 2010 and updated annually called ‘Advisor Alpha‘. Simply put, it’s a multi-faceted look at how much value a financial planner ‘adds’ to an average client above and beyond simply picking good investments.
While our role in selecting securities and portfolio managers has proven to add significant value over time, Vanguard determined (and continues to prove) that the role of an advisor becomes most valuable to clients in markets just such as this by being the calm voice of reason during turbulent times. When comparing the average ‘DIY’ investor to one who works with a professional planner, the professional (on average) can add between 1.5-3%1 to your long-term portfolio returns simply by ensuring you’re well diversified, your investments are tax efficient and that we don’t fall prey to ‘fear’ induced behaviors like moving to cash or chasing high performing sectors too late in the game.
The whole reason our firm exists is to help you take a measured, long-term approach that both smooths out the lows and helps achieve as much of the highs as possible.
Now is a perfect time to sit down and discuss your plans for your investments over the next 1-3 years as we approach the end of a business cycle. Reaffirming your time horizon and overall plan will help you sleep soundly no matter what happens in the investment world.
1: https://www.vanguard.com/pdf/ISGQVAA.pdf
What are my portfolio managers doing to grow and protect my assets?
With 2018 bringing negative returns to nearly every asset class save cash, portfolio managers entered 2019 with an eye to performance in the long term. The general consensus amongst managers we trust such as RN Croft, Edgepoint, Manulife and Fidelity is:
1. Increasing Risk Management: By using options, tactical shifts and increased cash holdings, many managers are slowly and carefully adjusting their portfolios for another year of volatility. While most equity managers expect 2019 to be characterized by growth overall, they are indicating that it will likely be slow growth with lower overall numbers than in years like 2013 and 2017.
2. Use pullbacks to keep buying businesses with intrinsic value: Edgepoint’s Tye Bousada is very fond of saying that he loves to see dips like Q4 2018 because it allows them to buy businesses they already hold at substantial discounts. High conviction means that if you and your team have put several hundred person-hours into evaluating a business’s long term value in your portfolio and have committed to owning it, what do you do when in the short term the shares suddenly drop 20%? The winning strategy over decades has always been ‘buy more’.
3. Adjust portfolios for changing world conditions: Mark Schmehl of Fidelity’s strong track record is partly due to his refusal to bury his head in the sand. By making sure they keep up with global trends such as the increasing importance of renewable energy and the ever-expanding role that technology plays in our daily life, a good portfolio manager isn’t afraid to look for opportunities in developing areas. If you had the opportunity to buy the next Google or Apple a few years before they started to really grow, would you do so knowing that those few years might be a bit of a bumpy ride? Good active portfolio managers recognize opportunities where others may not.
What’s coming up next?
March 1st, 2019 is the deadline for contributing to your RRSP for the previous tax year.
Now that we are in 2019 all Canadians over the age of 18 have an additional $6,000 of TFSA contribution room available.
A new year also means new grant room for Registered Education Savings Plans (RESPs) as well as Registered Disability Savings Plan (RDSPs).
As always, we’re hear to answer any questions you may have. Please do not hesitate to reach out and we look forward to working together in 2019.
