We continued to see downward pressure on the US dollar in the 3rd quarter with a 4% total decline in July and August bringing the year to date decline to just under 7%. This made for a difficult summer as the decline negatively affected portfolio performance for Canadian investors holding US securities. The dollar stabilized in September and started moving back in our favour and at the same time, many of our equity positions in our most widely used portfolio models surged upward, leading to one of our strongest months since inception – up 3.20%. Volatility is a good reminder that investors who stick with quality holdings are rewarded when the tide turns and kudos to the wise who added during the summer dip.
The key contributors include the US semi-conductor, Micron Technology, with a 24.94% September bringing the YTD performance to 79.42%. September also boosted some of our Canadian holdings with Magna, Dollarama, and CP Rail up 15.39%, 11.15%, and 9.19% respectively. Our US Small Cap pool managed by Brandes saw a 5.43% increase and our manager responsible for our European positions gained 4.42% for the month.
At the end of August, we had 6 positions in the portfolio below their respective 200 DMA (day moving average) which is typically a sell signal, but we decided to hold and watch these stocks given that the fundamentals for all 6 were very strong. This paid off as 5 of the 6 names rebounded strongly with CP Rail up 9.19%, Southwest Air 8.78%, Goldman Sachs 7.83%, CCL Containers 5.47%, and as mentioned Brandes came through for us on the US Small Cap side up 5.43%. The only outlier was Sierra Wireless which showed a small decline of 0.48%. Sierra is still below its respective 200 DMA, but we intend to hold it under a close watch as the trend is still positive and fundamentals are extremely strong. All other positions are now above their respective 200 DMA and will be held at least until next month.
On the fixed income side, the Bank of Canada raised the overnight rate twice by 25 bps this quarter which caused yields to rise across the board. As yields rise, prices fall and that gave us the opportunity to buy bonds at discounts to their maturity values without sacrificing the cost yield of the portfolio.
Our general feel on rates is that the Bank of Canada will not raise again this year for fear of dampening economic activity or worsening the situation for those with high debt levels. It’s worth noting that many provinces would be adversely affected by rising rates, as their debt levels have soared in the past few years.
Have a good Thanksgiving weekend!
Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
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