Once again global markets were led by North America in the third Quarter. Most countries struggled to keep up with Canada and the United States which squeaked out 1.69% and 1.19% growth respectively.
Several economic indicators in Canada and the US – such as wage and employment growth, and consumer spending – remain strong. However, cracks are appearing in the manufacturing sector and investors began to rotate away from growth sectors in Q3 in anticipation of a slow-down in consumer behaviour.
The Global economy is currently subject to two main opposing forces: the weight of trade uncertainties, and the support of low interest rates. While the former has driven up the cost of producing goods, the latter seeks to compensate the consumer and incentivize companies to keep up production.
Meanwhile as Canadians are getting ready to head to the polls on October 21st, the political situation with our neighbours to the south is in a great deal of flux. The Democratic house of representatives has launched an official impeachment inquiry into the conduct of President Trump, putting the President’s approval rating will under pressure. Interestingly, no US president has ever been removed from office through impeachment. Richard Nixon resigned, and both Bill Clinton and Andrew Johnson were impeached by the house but not the Senate. Amongst those cases no discernable pattern in stock markets emerged. On the other hand, it has been also been uncommon for a President to be re-elected during a period of economic contraction. While Democrats push for impeachment, all eyes will be on trade negotiations with China as Donald Trump hopes keep the Economy feather in his cap.
We are not presently concerned that a recession is imminent, however our outlook has shifted from “cautiously optimistic” to just plain “cautious”.
Towards the end of the quarter higher growth sectors, such as Technology and Health Care, experienced sharper sell-offs as investors began rotating into better valued or defensive positions. Likewise, we have begun to reduce exposure in some of these areas and continue to introduce private alternative assets. This Pension-style approach to asset management provides reliable tax efficient growth during times of both equity and fixed income volatility.
Our primary blue chip stocks showed strong results again this Quarter, with 3/5 returning positive results and collectively outperforming the S&P500 by 22.92% on a Pre-Dividend basis.
The Rockridge Private Debt Pool has been consistent month after month, posting a 1 Year return of 6.95% as of August 31st.
Using a similar multi-manager approach, our product team launched the Forsyth Real Estate Pool at the end of September. Forsyth combines the strength and track record of 9 separate asset managers, focusing on Multi-Family and Commercial Real Estate projects in Canada and the United States. The pool will target an annual return of 8-10%, with a Tax-Free Return of Capital yield of 4-6% annually.
On a Risk vs Return basis, it is easy to see why Pension funds Globally have been flocking towards alternative assets for several years. We are thrilled to be able to bring this traditionally restricted asset class to the retail investor – and in particular to Harbourfront clients only.
As always, we thank you for your continued support and look forward to speaking with you in the future.
-The Gilman Deters Private Wealth team
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