2013 – Year in review
Diversified portfolios capture strength in equities worldwide

 

Canadians love to travel and when it comes to the number of trips we take abroad each year, we’re ranked eighth in the world. But when investing, we have a decided home bias with almost 60% of our equity portfolios invested in Canadian companies. At times that’s a strategy that can work. However, a trend that has seen Canadian markets trail internationally continued in 2013. In fact, even with the S&P/TSX Composite Index up 7.7% to Dec. 1, the bellwether US S&P 500 was up 26.6% and the Eurostoxx Index 17.3%. And so for Canadians who figuratively travelled abroad by diversifying their portfolios to capture some of those gains, 2013 was a good year to be an equity investor.

Finance, energy and resources companies account for nearly 80% of the S&P/TSX Composite Index. And for the most part, the S&P/TSX’s advance was slowed by a sluggish world economy that reduced demand for base metals like copper and nickel. Investors can expect that trend to continue over the short run. But our portfolio managers believe investors with a global outlook have reasons to be optimistic in 2014. They point out that the world economy is improving, which should lead to increased demand for specific W I N T E R 2 0 1 4 commodities. “For the first time in five years, we expect Japan, Europe and the United States and China to all turn positive,” explains Benoit Gervais, who heads the Mackenzie Resource Team. “And that will be good for some commodities.”

Energy consumption will increase

Energy, another major component of the S&P/TSX also slowed in 2013 with oil prices trading flat in the $95-a-barrel range. The consensus view suggests oil will continue to trade at that level, and Gervais says the key is to find oil companies that can grow even if the price of oil stays constant. And that also may mean investing outside of Canada, notes Gervais who points out, “oil use in China has doubled over the past three years, and is still climbing.”

For Canadians who held S&P/TSX-listed gold mining companies 2013 began optimistically, with gold reaching $1,700 an ounce before falling to the $1,250 range. Gold was hit by an almost perfect storm when the US dollar firmed, US treasury yields increased and equities climbed sharply. Even so, Gervais believes investors should keep a percentage of their portfolio in gold as an insurance policy against a major international crisis like we had in 2008.

While Canadian resource companies struggled in 2013, the share prices of Canada’s major banks surged significantly higher in the fall. Bank stocks rallied despite concerns that heavy consumer debt could limit the ability of the banks to loan money. But the outlook for the banks remains positive, with analysts predicting Canadian bank stocks will continue to do well in 2014.

Diversity for growth

In the final analysis, no one can predict how any one market will perform in 2014. But by diversifying your portfolio, you can position yourself to benefit as the global economy picks up and still do well at home if resource demand rebounds. Another way forward is to consider investing in Symmetry Portfolios. These portfolios are managed to control risk, and offer diversified access to a broad range of asset classes, including global equities. We believe that is something you should talk to your financial advisor about as 2014 begins.