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Jacqueline Ricci
October 25, 2019
Outlook
While the current economic conditions are challenging, we believe the last few months were a mid-cycle slowdown and not the start of a recession. With most global central bankers adding stimulus, US/China trade rhetoric improving, and the recent news that Boris Johnson has struck a Brexit deal, we anticipate global economic growth to improve over the next 12 months. Canadian small cap stocks should be the primary beneficiaries given their cyclical exposure and extremely low valuations.
Going into the last quarter, the fund was heavily overweight material, technology stocks and underweight real estate and industrials. The fund was also slightly underweight energy stocks. As 10yr bond yields moved lower through the first part of the quarter, we began selling golds in favour of energy and base metals. This served the funds well initially, as golds sold off significantly. By contrast oil appeared to have bottomed and received some extra support via the tensions in the Middle East, with Iran sending missile carrying drones to attack the Saudi Aramco facilities. Although oil spiked initially, the sell off back to the low $50’s for WTI was swift. Despite bigger than expected crude oil inventory draws this summer, oil prices remain stuck in the low $50’s on fears the ongoing economic slowdown and trade policy uncertainty. Currently the Canadian oil and gas producers are also suffering due to uncertainty with the Canadian election.
With base metal stocks, elevated economic policy uncertainty, declining cargo traffic and a strong $U.S. are all factors behind the poor performance of copper and base metal stocks year to date. However, looking at the big picture most emerging and developed market economies have started easing monetary policies; notably China through social financing and the US through cutting rates.
Our investment management team is made up of engaged thought leaders. Get their latest commentary and stay informed of their frequent media interviews, all delivered to your inbox.