Richardson GMP

As we approach the fall season, we thought it would be an opportune time to take stock of the Markets, and portfolio returns, thus far through 2018.

First, after a turbulent start to the year, the TSX managed to make it back to all-time highs in July. Despite this early rebound, the TSX is up just 0.3% YTD. This is largely due to our heavy weight Financials (35% weight of the TSX) that are flat for the year. Also, Energy (19% weight) and Materials (10%) make up the next largest weights in the index and are sitting at -0.4% and -9.6% for the year-to-date, respectively. While Healthcare (i.e. pot) is on fire, uncertain trade positions, difficult commodity price environment and a flattening yield curve have kept a lid on the TSX.

Second, the US SP$500 is humming along and is up 8.5% in USD terms year to date (up even higher in C$ +13%). The tech sector is booming and Apple and Amazon have both eclipsed $1 Trillion in value. Despite the rhetoric in the media and political turmoil, the tax cuts, trade positioning, a strong economy and a healthy consumer have made the US market the best in the world. Conversely, International and Emerging markets are down 4% and 9% YTD, respectively.

Finally, the Bond market — as measured by the FTSE TMX Universe Bond Index — is up just 0.63%. Interest rates are normalizing form historic lows, which affects the value of the principal. So while these fixed income securities pay 2-3% interest, the capital value of these investments has been negatively affected such that the total return is a bit more than half of a percent.

If you are reading this, you are most likely a client and you’ve heard us talk ad nauseum of the importance of balancing portfolios across equities, bonds, and alternatives (real estate/private equity/gold, etc). Our average client, in fact, is on what we call a Balanced Investment Policy Mandate (“Balanced Portfolio”). Normally, that means about 40-50% equities and 40-50% bonds, with some alternatives in the mix (private real estate, private equity, etc). This portfolio mix, on average is, up about 1.8-2.0% YTD after fees.

While the return on our Balanced Portfolio has been modest year-to-date, relatively speaking it has outperformed the typical balanced fund. For example, the year-to-date return of Morningstar’s Canadian Balanced Fund category — which is comprised of 67% equity and 33% fixed income — is approximately 1.5%. Despite our lower allocation to equities, the outperformance of our Balanced Portfolio is largely due to good security selection and our overweight position in US stocks relative to Canadian and International stocks.

As many of you are aware, we have been cautious on the equity markets for the past 18 months. We can’t predict when the next bear market begins, and bull markets don’t just die of old age, but every day we go on without a major correction, we feel the likelihood of one occurring gets that much greater. Therefore, we’ve been underweight equities and overweight fixed income. This call has obviously been a bit “early”, but we still think being defensively positioned is the right decision to protect your savings.

When the next bear market for stocks occurs, we will begin to trim back our fixed income, and use those proceeds to buy into equities at cheaper prices. This results in a more robust portfolio coming out of the next downturn. This, we believe, is the most important part of this letter for clients to understand. That is, rather than fear the next equity market correction, embrace it, because it will be a fantastic opportunity. We hope by writing this short letter that we can frame portfolio discussions in this way. And we would be pleased to discuss this thought process in far more detail by phone, email, or in person.


Dwight Jefferson, CIMA®
Senior Vice President
Portfolio Manager
Tel.: 604.640.0555 • Email

Tyler Steele, CFA
Senior Vice President
Portfolio Manager
Tel.: 604.640.0554 • Email

Neil Kumar, CIM®
Vice President
Portfolio Manager
Tel.: 604.640.0406 • Email

Eddie Gudewill, CFA
Portfolio Manager
Tel.: 604.640.0562 • Email

Wendy Lloyd
Tel.: 604.640.0556 • Email

Jessica Dewey
Tel.: 604.640.0405 • Email

Brenda Geib, BA
Tel.: 604.640.0559 • Email

Richardson GMP Limited
500 – 550 Burrard Street
Vancouver, BC V6C 2B5

Toll Free: 1.866.640.0400
Fax: 604.640.0300


The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Insurance services are offered through Richardson GMP Insurance Services Limited in BC, AB, SK, MB, NWT, ON, QC, NB, NS, PEI and NL. Additional administrative support and policy management are provided by PPI Partners. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.