The third quarter was marked with extreme volatility as investors worried about geo-politics, U.S. dollar strength, weak commodity prices and economic growth (particularly in China and Europe).  Stocks in Canada finished off the quarter on a tough note with small cap stocks selling off significantly more than large cap stocks.  The Special Equity fund lost 13.9% in the quarter while the S&P TSX fell 0.6%.  The S&P TSX Small Cap and the S&P Venture indices were off 9.4% and 11.5% respectively.

 

Sept14-01

 

Weakness in the quarter was centered in resource stocks, with the S&P TSX Material Sector falling -10.1% and the Energy Sector down -6.6%.  Small Cap resource stocks were even harder hit, with the BMO Small Cap Resource Index losing -16.3%.  Weak commodity prices were the primary reason for the pressure.  The CRB Commodity Index declined 9.6% in the quarter with losses accelerating as the U.S. dollar rallied.  Weakness was seen in almost all commodities with oil dropping 11.7%, copper down 6.0% and gold once again testing the $1200 USD level (losing 8.4%).  With the portfolio’s overweight in both Material and Energy stocks, almost all the underperformance on the quarter was due to sector allocation.

The following charts show the sector weightings of the portfolio relative to its benchmark:

Sept14-02

Sept14-03

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