While Canada is undoubtedly a great place to invest, to achieve broad portfolio diversification it is generally recommended to have exposure in both the US and internationally. However, when we invest outside of Canada we face what is known as “exchange rate risk”. Specifically this is the currency exchange rate between Canada and other countries. In my opinion, it’s an important consideration for your portfolio.

We’ll begin by looking at the US broad market. A representative mutual fund would be the TD US Index Fund (f-class). The investment objective of the fund is to provide long-term growth of capital by primarily purchasing U.S. equity securities to track the performance of The Standard & Poor’s 500 Total Return Index (S&P 500 Index). The S&P 500 Index is comprised of 500 widely-held U.S. companies. If we compare it to the currency hedged version of the same fund (the “currency-hedged version” has a similar objective except it also seeks to eliminate substantially the fund’s foreign currency exposure.) you’ll see the performance is quite different.
 

TD US Currency Hedged versus TD US Index

TD INTL Currency Hedged versus TD INTL Index

Source: Morningstar Paltrak as of August 31, 2009

Whether you choose to currency hedge your portfolio or not, is a matter of strategy. It’s best to inquire if a currency-hedged version of your investment exists and analyze whether the impact of currency is substantial or not.

Don Maycock, P. Eng, CFP, CIM is an independent financial advisor …advising you to and through retirement! Don is licensed for mutual funds which are provided through Armstrong & Quaile Associates Inc and insurance which is provided through Armstrong & Quaile Insurance Agency Inc.  If you have a question or comment, email Don at dmaycock@a-q.com, call (613) 966 8289, or go to www.donmaycock.com for more information. Subscribe to “The MAYCOCK e-Newsletter” to receive valuable financial planning tips each month.

This office is being shared with my colleague, Mr. Garry Quinn, PFPC, Financial Planner who is also an Armstrong and Quaile advisor. Garry and I continue to operate as separate entities and he has no access to any of your client information.

This office is open by appointment only. There are two buildings that make up McNabb Towers. The office is located in the lower level of the McNabb Tower that is furthest off the road. There is free parking in the area designated between the two buildings.

There is no change of email address or phone numbers.

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Over the past year I have spent time reviewing the history of the markets. While it does not predict the future, there are some interesting observations that you may be unaware of which could make a significant impact on how you view the markets and how you invest going forward.

Over the longer term (75 to 100 years) markets go up. However, most investors do not invest over that time-frame. Generally, an investor’s long-term time horizon is in the neighbourhood of 20 or so years and would be defined as an intermediate timeframe. The trends for “secular” markets generally last longer than market or business cycles. During these intermediate timeframes, markets are either in “secular bulls” (going up) or “secular bears” (going sideways or down). Below I have labelled the “secular bear” markets for the Dow Jones Industrial Average since 1898.

 Source: Reuters Data, Metastock software, (see note below)

A worthwhile book on the subject is “Unexpected Returns: Understanding Secular Stock Market Cycles” by Ed Easterling. While this book was published in 2005, it provides a great overview of history. Note: The chart in this article was derived from Figure 5: Secular Bear and Bull Markets Profile of this book.

Since 2000, we have been in a “secular bear” market. How long will it last? No one knows for sure. What kind of investment strategy is necessary in this environment? In my opinion, whether you are a do-it-yourself investor, advisor, portfolio manager or pension fund, “tactical asset allocation” will be the key! Shifting assets when necessary away from the long term strategic asset allocation will be necessary to achieve and protect returns going forward.

Don Maycock, P. Eng, CFP, CIM is an independent financial advisor …advising you to and through retirement! Don is licensed for mutual funds which are provided through Armstrong & Quaile Associates Inc and insurance which is provided through Armstrong & Quaile Insurance Agency Inc. If you have a question or comment, email Don at dmaycock@a-q.com, call (613) 966 8289, or go to www.donmaycock.com for more information. Subscribe to “The MAYCOCK e-Newsletter” to receive valuable financial planning tips each month.

Disclaimer:” “Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”

This is the question on everyone’s mind. Unfortunately no one knows for sure!

Leading economic indicators change before the economy changes

You may have noticed that the equity markets have risen of late even though the economic news continues to be bad. Company earnings are down but in many cases are beating expectations and their stock price rises. Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and improve before the economy begins to pull out of a recession. Leading economic indicators are important because they help predict what the economy will be like in the future.

Market Returns

While returns were negative for most equity markets, it’s interesting to note that in March the equity markets listed below were all positive for the first time since April 2008.

* adjusted for Canadian/US dollar exchange.
**Source: Morningstar Paltrak March 31, 2009 data.

Where do we go from here?

I’ve shown this slide many times in the past. As you look at the chart below, how do you feel? Most likely it’s somewhere between “despondency” and “depression” or maybe an even stronger term that I can’t put in print. I understand your feelings.

Only when we look back some time from now, will we be able to confirm that this was indeed the “point of maximum financial opportunity”.

Don Maycock, P. Eng, CFP, CIM is an independent financial advisor …advising you to and through retirement! Don is licensed for mutual funds which are provided through Armstrong & Quaile Associates Inc and insurance which is provided through Armstrong & Quaile Insurance Agency Inc. If you have a question or comment, email Don at dmaycock@a-q.com, call (613) 966 8289, or go to www.donmaycock.com for more information. Subscribe to “The MAYCOCK e-Newsletter” to receive valuable financial planning tips each month.

Disclaimer:” “Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”

Market Data December 31, 2008

EQUITY MARKETS

In Canada, the S&P/TSX represents the broad Canadian Market.

Click here to view the S&P/TSX

In the United States, the S&P500 represent the 500 largest US companies based upon market capitalization.

Click here to view the S&P500

The international (equities outside of North America) market is best represented by

the EAFE (Europe, Austrail and Far East) index is used.

Click here to view the EAFE Index

You will notice two lines on each chart.

The blue line represents the 50-day simple moving average.This is a common short-term indicator.

The red line represents the 200-day simple moving average. This is a common long-term indicator.