Commentary

Craig Porter

14 Apr 2014

By Craig Porter

In the first quarter, two of the top three subsectors on the TSX were resource related: energy and materials. The materials sector was primarily driven by its gold components, solely as a result of a higher bullion price. But something different is happening in the energy patch: companies are growing production, and expectations of higher earnings are starting to increase.

24 Jan 2014

Oil trading was fairly subdued over the quarter, with West Texas oil averaging about $97 U.S. per barrel. At their most recent meeting, OPEC felt there was no need to adjust production levels, as supply and demand remained fairly well-balanced. Global demand for oil increased by about 1 million barrels per day. However, the only region that showed any sign of growth was the U.S., where production grew by about a million barrels. OPEC is limited in its ability to increase production with issues hampering Iran, Iraq, and Libya’s production.

15 Oct 2013

The third quarter was fairly strong for commodities, and the companies that produce them. Economic data out of China showed that growth was starting to accelerate, after tailing off slightly earlier this year. In Europe, the numbers showed that the region has left behind its last recession. In North America, moderate growth continues. Expectations of further growth sent the prices of many commodities higher last quarter, including copper, oil, and iron-ore.

10 Sep 2013

After a shareholder vote this summer, the fund changed its mandate with a goal to become a somewhat less volatile, income generating resource fund. This reflects a changing resource landscape, where growth for growth’s sake is no longer acceptable, with shareholders seeking a greater return from corporations’ profits.

15 Jul 2013

At the end of May shareholders of the Front Street Resource Class Fund approved a change to the mandate. As a result, the Fund is being renamed the Front Street Resource Growth and Income Class to reflect its new emphasis on dividend paying stocks. The change is being made for a couple of reasons. First, we are attempting to lower the volatility that has come with investing in the resource sector over the last decade. Second, numerous resource companies are changing their business models to respond to shareholders seeking lower volatility, or yield.

1 Apr 2013

With continued headlines of record highs on U.S. stock exchanges in the first quarter, investors may have felt confident in their investments. However, the rally has been very sector specific. The Dow Jones 30 was up over 10% in the first quarter, while the Toronto Stock Exchange (TSX) rose only 2%. The major discrepancy can be explained by the large natural resource weighting on the TSX. Resources make up over 40% of the TSX. During this period, the energy sub-index was flat, golds were down 15%, and metals were down 14%.

1 Feb 2013

After recent market performance, investors are questioning resource stocks, and the long-term prospects of equity investing, in general, while positioned in cash, or lowpaying, fixed-income products. We believe there is an opportunity to get back into equities, much like we saw in early 2009. At that time, extreme pessimism, similar to today, ruled the markets. However, as global economic growth returned, investors gained confidence, redeployed cash, and resource markets thrived as a result.

19 Oct 2012

After a rough start to 2012, equity and resource markets rebounded quite sharply in the third quarter. Many of the economic issues that caused investors concern, while not completely solved, had solutions devised to deal with the problems. Although it has yet to be fully implemented, Europe has devised a plan to buy bonds to support its weaker members. The ECB’s president stated that they would do whatever is necessary to preserve the Euro currency, and the European Union. We also had economic data out of the U.S.

30 Jun 2012

After a strong start to 2012, equity markets, and in particular resource stocks, fell sharply in the second quarter. Political and economic turmoil in a number of countries around the globe sent investors fleeing equities into the perceived safety of bonds and cash. Many resource companies suffered due to political interference, as numerous countries raised royalties and taxes, or in the case of Argentina, expropriated outright a major oil company. Investors also stood on the sidelines, waiting for a clear picture of the economic realities unfolding in China, Europe, and the U.S.

31 Mar 2012

One of the biggest surprises year to date has been the strength in the U.S. economy, and the performance of the S&P 500 index, up 12%. On a positive note, the recovery so far has not been on the back of the consumer, who has supported the U.S. economy for decades buying retail goods. Instead, some of the strongest performers were sectors hardest hit during the global financial crisis, including banks and financial services, as well as real estate and homebuilding.

31 Jan 2012

Fear and expectations drove equity markets in 2011, as investors fled in droves. Typically they withdrew from investing in smaller-to-intermediate growth stocks, and ran to larger dividend paying stocks, driving the valuations of many companies, such as utilities, to what we feel are excessive. These concerns were fuelled by the credit downgrades and potential debt defaults in European countries, such as Greece and Italy. The front pages of the newspapers also told us about the overthrowing of governments in the Middle East, as well as the “Occupy” protest around the world.

30 Sep 2011

Global equity markets suffered dramatically in the third quarter, on the back of the European debt crisis. Fears of a Greek debt default, and the implications for the rest of Europe, sent investors to the sidelines. At the end of the quarter, the stronger members of the ECU were designing ways to create a stabilization (bailout) fund of up to two trillion dollars. Citizens of stronger nations, such as France and Germany, find it politically distasteful to bailout other governments who have lived beyond their means for years. So there are no easy or quick solutions to these problems.

31 Jul 2011

Risk aversion was the key phrase in the latter stages of the last quarter. Markets sold off in reaction to a number of political and financial issues taking place around the world. The noise from government upheavals in the Middle East, the Greek central bank bailout, and U.S. debt problems all sent investors running for the sidelines. We could see this flight to safety...

31 Dec 2010

As greater confidence in a global recovery took hold in the fourth quarter, stock markets climbed sharply higher. Resource-based economies, in particular, performed quite well, with the Toronto Stock Exchange up 8.7% this quarter alone. Two of the best performing sectors were Materials and Energy, which were up 14% and 13% respectively. Continued restocking in China and other emerging markets, as well as modest economic growth in North America, has fueled this continued demand for commodities.

30 Sep 2010

Stock markets around the world rebounded nicely in the third quarter after the selloff we witnessed earlier this spring. Resource-based economies such as Canada did very well, with the TSX ending the quarter up 9.5%, led by the materials sector, which closed 18% higher. Strong demand for commodities came from a recovering global Gross Domestic Product (GDP), which the International Monetary Fund (IMF) now predicts will come in at 4.8% growth this year, and 4.2% next year.

30 Jun 2010

After a strong start to 2010, equity markets in North America sold off in the second quarter with the TSX off 6% and the S&P 500 down by 12%. Fears of a slowing global economy or a double-dip recession sent investors to the sidelines. A number of issues were fueling these fears during the quarter. A handful of European countries, led by Greece, saw their debt downgraded, raising fears that the Euro and the European Union may be on the verge of collapse.

31 Mar 2010

Stock markets in North America continued to show the strength they exhibited last year in the first quarter of 2010. Gains were bolstered by a stabilizing housing market, stronger employment numbers and increasing consumer confidence. For 2010, the IMF is now predicting global growth of 3.9%, with China approaching 10%. This growth has led many commodities to continue their upward climb from last year. Although interest rate hikes are expected later this year off historic lows, it is typically rate increases much further into an economic cycle that cool down the resource sector.

31 Mar 2009

The year started off the same way that 2008 ended, as job losses continued to pile up and with daily announcements of bleak economic news. Global equity markets dropped a further 15-20%, adding to the losses of the previous year. In the auto sector, Chrysler and Ford were given deadlines to slash cost and sort out their balance sheets issues before they are forced into bankruptcy protection. Fears of the tens of thousands of jobs that could be lost sent investors running for the exits. Then as we entered March a more optimistic tone took over the market.

31 Oct 2008

Equity markets were extremely volatile in the quarter, as the credit crisis and collapsing housing markets in the U.S. started to spread around the world. Credit markets froze up to a point where lending stopped and banks refused to lend to each other, out of fears of counterparty risk. Lehman Brothers went bankrupt and other major investment banks were forced to merge or were nationalized to ensure survival. Markets were falling at a pace not seen since 1929. Dramatic action was required, and that’s what we saw from governments around the world.

30 Jun 2008

The second quarter was a humbling time for global stock exchanges with dramatic pullbacks including China, which was down over 40% in the first half. The U.S. economy has struggled as the impact of high energy prices, the burden of financing the war in Iraq, and a collapsing housing market have weighed on the economy. We are also experiencing a global financial crisis as bank after bank announces write-downs of bad loans brought upon them by their own risky lending practices.

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