The Finish Line Commentaries: Q2 Summary
Author: Danny Popescu | July 5, 2021
Good Day,
Global stock markets continued to move higher in Q2 with the S&P 500 (CAD) rising 6.42%, and the main Canadian Index, the TSX Composite, having a strong quarter, increasing 7.91%, primarily off big gains in energy companies. For the 2nd quarter in a row, there was a large dispersion amongst equity sectors with cyclical sectors such as financials and energy stocks racing much higher, while growth sectors of healthcare (biotech) and technology were flat.
The Canadian dollar (CAD) appreciated during the quarter peaking in May at $0.83 before falling quickly back to $0.81 and closing at $0.81 for a gain of 1.42%. The Loonie continues to move higher in conjunction with oil, and should the price of oil continue to rise, we would expect the CAD to follow suit.
Bonds reversed some of the losses they suffered in Q1, with the Canadian Universe Bond Index rising 1.05% for the quarter, but still down 4.86% for the first half of 2021. Interest rate volatility continues to persist as some believe inflation is temporary, while others believe it is here to stay. The most significant marginal participant in markets, global central banks, remain steadfast that inflation will be temporary and will fall once economies are back to normal and pent-up demand fades. However, investors still appear to be seeking out inflation hedges, with big run-ups in oil and other commodities during the quarter. We continue to minimize our bond holdings and replace them with private securities such as private debt and private real estate which benefit from inflation and are uncorrelated to public equities. The result is a less volatile portfolio with better downside protection than portfolios with traditional fixed income.
With continued strength in equity markets, we are maintaining our maximum overweight position to equity assets (stocks and private real estate). Our portfolios are well-diversified from an equity sector perspective, and we will make trades when we see opportunities. We continue to monitor the actions of central banks and the bond market for clues on money flow/credit into the economy, to determine when we may need to reduce our equity exposure. On the safety side of the portfolio, private debt and private real estate continue to perform as expected, providing consistent cash flows and capital appreciation, to offset the volatility of the public securities markets.
Thank you,
“I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.”
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