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:

Economics

• 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.

Markets

• 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.