Markets, investing and what matters most
Quarter in review - Q3, 2020
By Private Investment Counsel 16 October 2020 4 min read
Written by Curtis Huska, CFA, on behalf of Private Investment Counsel, who believe in a holistic investment counselling approach to helping high net worth clients.
The recovery continues
As the world continues to grapple with the COVID-19 pandemic, it appears that aggressive stimulus measures from central banks and governments have helped support a dramatic recovery both in global economies, and in capital markets. While global activity continues to show signs of improvement, it still remains well below pre-pandemic levels..
Some key highlights this past quarter include:
- Statistics Canada reported that all 20 sectors of the economy grew this past quarter. Hotels and restaurants and arts/entertainment/recreation were amongst the strongest performers
- Real GDP increased 3.0% in July, following a 6.5% increase in June. Economic activity still remains about 6% below February’s pre-pandemic level
- Approximately half of the jobs lost at the depths of the recession have been recouped - unemployment in Canada sits at 10.2%, as of the end of July.
- Despite a rocky September, the S&P 500 posted it’s best back-to-back quarter since 2009, advancing a total of 8.93% over the past 3 months
- All sectors of the S&P 500 had gains this quarter, except for energy, which declined almost 21%
- Although most global stock markets advanced this past quarter, most regions outside of the US (including Canada) have yet to fully recoup year-to-date declines
- Corporate bond spreads continued to narrow throughout the quarter, signalling confidence in the positive trend of economic fundamentals.
The economy faces no shortage of risks in the near term, including uncertainties associated with the upcoming US election, the progression of COVID-19, vaccine trials, and differing opinions on government stimulus.
Asset class returns
The accompanying chart highlights asset class returns for the past five years, year-to-date, and most recent quarter. Key takeaways from the illustration include:
- Asset class returns are unpredictable. There are no consistent winners or losers, making diversification vital to investment success
- Last year’s winners often become next year’s losers, so investing based on ‘looking in the rear-view mirror’ can be a recipe for underperformance
- Diversification guarantees you’ll never have all of your money invested in the best performing asset class, however it also ensures you’ll never have all of your money in the worst performing asset class either. Diversification reduces portfolio volatility, and takes the guesswork out of trying to pick next year’s winner.
Portfolio positioning and activity
The Investment Committee at ATB Investment Management Inc. is responsible but not limited to the oversight of asset allocation, portfolio construction and sub-advisor due diligence. The portfolio management team manages the portfolios on a day to day basis.
Some recent thoughts on, and adjustments to our investment strategies include:
- Target equity and fixed income exposure remain slightly tilted towards equities
- After lowering our allocation over the last few years, the dedicated passive, or indexed real estate investment trust (REIT) exposure was further reduced. This reduction reflects high valuation and the impacts COVID-19 has had on Canadian office and retail real estate. Favouring a more selective approach and a holistic Canadian equity strategy, our Canadian equity sub-advisors are actively selecting REITs that are more attractive rather than buying the broader real estate sector
- These actively managed positions focus on areas of the real estate market that have a more favourable long-term outlook in the face of the ongoing pandemic
- This change allows the portfolios to reduce any redundancy that may have previously existed between the actively managed Canadian equity and indexed REIT mandates.
Each quarter we’ll highlight what’s ‘under the hood’ of your investment portfolio by focusing on one of our sub-advisors. Each sub-advisor hired to manage our client’s investment assets is chosen based on a number of factors, including a disciplined investment process, strong internal governance, and an experienced and proven track record, particularly during periods of market decline.
Mawer Investment Management Ltd.
Founded in 1974, Mawer Investment Management Ltd. (Mawer) is a privately owned, independent investment firm that manages nearly $60 billion of assets. Its famous tagline “Be Boring, Make Money” shapes its investment philosophy of buying strong, stable companies and holding them for long periods of time.
The Mawer Canadian Equity mandate has been a staple in our investment portfolios since December 2002. This strategy invests in 40 to 60 mid and large Canadian companies with strong balance sheets and experienced management teams, who tend to hold a competitive advantage in the industries they operate in. Mawer manages concentration risk by limiting industry exposure to 20% and single stock exposure to 10%.
Ritchie Bros Auctioneers Inc. - Ritchie Bros is the leading global auctioneer of used heavy industrial equipment. We believe that Ritchie Bros offers counter-cyclical exposure, as the need for liquidations typically increases with downturns in the economic cycle. Additionally, the company has a track record of attracting large numbers of qualified buyers from around the globe to its auctions, putting sellers at ease, as they will know their equipment will be competitively bid on. Furthermore, we believe that Ritchie Bros enjoys a strong reputation for quality, honesty, and service. Ritchie Bros currently has a dividend yield of 1.42% and a five-year dividend growth rate of 8.7%.
What are we reading and listening to?
2020 has been a year of extreme challenges. From a global pandemic that has changed the way virtually everyone lives and acts, to economic hardships for many, to a contentious US election and civil unrest. It is understandable to feel as if the world is getting worse not better. It is easy to fall into a feeling of pessimism and not optimism.
Morgan Housel, a well respected financial author and writer, who we had the pleasure of hosting for a webinar this past Spring for ATB Wealth clients, has written an excellent article, ‘The Seduction of Pessimism’. Written over three years ago, it seems especially relevant in today’s times.
This document and all of the content has been prepared by ATB Investment Management Inc. (“ATBIM”) which manages the Compass Portfolios and ATBIS Pools funds. ATBIM, ATB Securities Inc. (“ATBSI”), and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and are licensed users of the registered trademark for ATB Wealth.
Opinions, estimates, and projections contained herein are subject to change without notice, and ATBIM does not undertake to provide updated information should a change occur. The information in this document has been compiled or arrived at from sources believed reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. ATB Financial, ATBIM and ATBSI do not accept any liability whatsoever for any losses arising from the use of this report or its contents. The material in this document is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any investment. This document may not be reproduced in whole or in part; referred to in any manner whatsoever; nor may the information, opinions, and conclusions contained herein be referred to without the prior written consent of ATBIM.