2019

August Commentary

Good day,

Most of the market’s action during August was a result of the ongoing U.S.- China trade war along with reaction to President Trump’s angry tweets. The tweets ordered all U.S. companies to move out of China, while another scolded Fed chair Jerome Powell for not giving clearer guidance on the pace of interest rate cuts. For the month, the TSX gained 0.22% while the S&P 500 (CAD) fell 0.92%. Bonds rallied hard on news relating to the dispute too, with the Canadian Universe Bond Index gaining 2.05% in August; the Government of Canada 10-Year bond now pays a measly 1.16%.


Equities

Frictions between the world’s top two economies intensified on August 1st when Trump announced he was putting a 10% tariff on the remaining $300 billion of Chinese products coming into the U.S. This caused the S&P 500 to drop roughly 6% over 3 sessions after the announcement. (Canada’s main stock index fell too but much less than its U.S. counterpart, dropping only around 3%.) Not to be outdone, on August 23rd, China announced retaliatory tariffs of 5% – 10% on $75 billion American exports which caused the S&P 500 Index to fall 2% within a few hours. However, the following week both parties put out conciliatory messages, with China stressing for a calm attitude towards the dispute, which drove stock markets higher globally. Adding to this was the decline in the 30-year U.S. Treasury yield to below that of the S&P 500 dividend yield, making equities relatively more attractive from an income perspective. The end result was a choppy month with big moves both up and down (with quite a few days closing above or below 1% as indicated below). Until the dispute ultimately gets resolved, we should expect the markets to grind higher when there is no news and see bigger drops on bad news.

Fixed Income

The bond market continues to rally with longer-term interest rates moving lower as investors flocked to safer assets partially due to fears of a global economic slowdown. In the U.S., this caused the most closely followed part of the bond market to invert (meaning the rate on 2-year bonds is now higher than that of 10-year bonds).

Looking Ahead

While the bond market has done very well year-to-date (imagine you own a GIC at 2% and rates drop down to 1%, that 2% GIC now pays twice the interest of the 1% GIC, so it becomes more valuable), continuing to bet rates will go lower is not a great risk / reward play. As such, over the upcoming months, we plan on increasing our allocation to alternative asset classes including adding a real estate pool employing the “value add” approach I wrote about in previous commentaries.  This strategy increases property market value, but the real estate sector should also benefit from lower interest rates.  Focusing on private real estate rather than publicly traded real estate investment trusts further reduces portfolio volatility which we believe is paramount given that equity markets seem to react more to Trump’s tweets than to corporate fundamentals.

 

Daniel Popescu CFP, CIM, FMA, FCSI

President & CEO

 

“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.”

Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. The comments and information pertaining to any investment products (The Portfolios) sponsored by Willoughby Asset Management are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Portfolios is made pursuant to the Offering Memorandum or Simplified Prospectus and only to investors in Canadian jurisdictions. Important information about The Portfolios is contained in the Offering Memorandum or Simplified Prospectus available through Willoughby Asset Management. Commissions, trailing commissions, management fees, performance fees, and expenses all may be associated with investments in The Portfolios. Investments in The Portfolios are not guaranteed, their values change frequently, and past performance may not be repeated. Historical annual compounded total returns including changes in unit value and reinvestment of all distributions do not take into account sales, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Unit values and investment returns will fluctuate and there is no assurance that The Portfolios can maintain a specific net asset value. Harbourfront Wealth Management Inc. (“Harbourfront”) has relationships with related and /or connected issuers, which may include the securities or funds discussed in this commentary and are disclosed in our Statement of Policies Regarding Related and Connected Issuers. This policy is included in your new client package, on our website, or can be obtained from your investment advisor.

Harbourfront Wealth Management