Our investment philosophy and process is primarily a bottom up strategy which focuses on investing in high quality companies which trade at a significant discount to fair value. However, we also incorporate economic and business cycle analysis into our process as a secondary consideration which at times allows for changes to sector positioning.
The portfolio management team remains optimistic on the outlook for Canadian equity markets. The Canadian economy is expected to be the beneficiary of strong global economic growth driven primarily by the United States. This backdrop is expected to result in decent earnings growth for the overall market which should be positive for equity market returns. We believe earnings growth and a re-rating will drive Canadian equity market returns in the coming period as valuations are increasingly attractive with the market trading below historical average valuation levels and a significant discount to U.S. benchmarks.
The portfolio management team remains optimistic on the outlook for Canadian equity markets. Although we are likely in the later stages of the economic cycle, the Canadian economy is expected to continue benefiting from strong demand for goods and services from the United States. This should allow for continued strength in corporate profits resulting in positive equity market returns.
The first quarter of 2018 was the most volatile since early 2016. Most likely, this volatility will temper somewhat as the year progresses. However, investor nervousness may be elevated as they look for anything that could reinforce negative sentiment.