Commentary

1 Apr 2016

Market Overview

After underperforming the U.S. for five consecutive years, the Canadian market is finally starting to outperform… at least for now. While pessimism towards both Canadian equities and the economy is still quite pervasive, we believe that we may have seen a bottoming out on a handful of commodities, which typically bodes well for Canada. Any positive news from emerging markets, Europe or commodities will likely provide positive momentum for Canadian stocks as well.

1 Apr 2016

Market Overview

As the new year began, the outlook for the year ahead was generally optimistic, owing to the Fed’s interest rate increase on the back of a strengthening economy. This optimistic view was quickly shattered over concerns that China was slowing much faster than anticipated, and rumours of large portfolio reallocation taking place by large sovereign wealth funds. On this news, bids quickly evaporated and the market for risk assets sold off through most of January, bottoming out in mid-February. We don’t believe anyone anticipated such a weak start to the year. Although many had hoped for a market correction, when it came, those same people were challenged to find an entry point. Cash and short positions began to build as the market tried to avoid further pain.

1 Jan 2016

Market Overview

As we start the new year, we advise sticking with 2015’s leading sectors and stocks. We believe the Fed will take a dovish interest-rate path, which should extend the current equity cycle... However, we do believe that higher rates will increase volatility and thus, increase the range of returns for the S&P 500 in 2016.

31 Dec 2015

Energy Overview

The month of December capped what was a miserable year for the energy sector, and for the entire resource sector as a whole. The collapse of oil prices that began in the summer of 2014, continued in the fourth quarter of 2015.

31 Dec 2015

Market Overview

It is not with any regret that we say goodbye to 2015. It was a very tough year for the Canadian stock market.

31 Dec 2015

Market Overview

As we start the new year, we advise sticking with 2015’s leading sectors and stocks. We believe the Fed will take a dovish interest-rate path, which should extend the current equity cycle. While rising rates historically portend lower equity returns, initially it makes little difference to equity fundamentals, as average debt duration of S&P companies is 9.9 years, and 85% of companies have fixed debt. However, we do believe that higher rates will increase volatility and thus, increase the range of returns for the S&P 500 in 2016.

31 Dec 2015

Market Overview

During the last quarter of 2015, markets were volatile and liquidity was challenged. Weaker economic data out of China led many investors to attempt to reduce risk, causing a sell-off of riskier assets. Continued low commodity prices, and crude oil in particular, resulted in further weakness in commodity-exposed assets.

31 Dec 2015

Market Overview

It is not with any regret that we say goodbye to 2015. It was a very tough year for the Canadian stock market. The S&P/TSX Composite Index dropped -11.1% for the year. Top performing sectors were information technology (+14.8%) and consumer staples (+11.0%), the only two sectors that registered a gain. The worst performers were the energy (-25.7%), materials (-22.8%) and health care (-15.8%) sectors.

16 Oct 2015

Market Overview

Over the last six years, doubt and fear have seemed to always be just around the corner. So-called experts and media talking heads continue to prognosticate the market’s imminent demise. As such, we continue to believe that the recent weakness and volatility is nothing more than a normal part of a healthy bull market. More importantly, when we look at North American markets, we see no change in economic conditions over the last few months, the last year or, for that matter, the last three years.

16 Oct 2015

Market Overview

Over the last six years, doubt and fear have seemed to always be just around the corner. So-called experts and media talking heads continue to prognosticate the market’s imminent demise. As such, we continue to believe that the recent weakness and volatility is nothing more than a normal part of a healthy bull market. More importantly, when we look at North American markets, we see no change in economic conditions over the last few months, the last year or, for that matter, the last three years.

15 Oct 2015

Energy Overview

Investor sentiment was extremely bearish in the third quarter of 2015 as energy prices fell sharply. The price of a barrel of West Texas oil fell -24%, and natural gas was down -11% during this period. It was a little over a year ago, when oil was trading over $100 per barrel (USD), that OPEC decided not protect the price of oil. Saudi Arabia, OPEC’s largest and most powerful member, was trying to accomplish its objectives while protecting its market share of the oil business. First, they wanted to slow down rapid production growth from a few key areas around the world, such as U.S. shale. Second, they wanted to economically impact a few of their political rivals, such as Iran and Russia

15 Oct 2015

Market Overview

It was a very difficult quarter for Canadian equities, as the TSX fell into correction territory. Bearish sentiment reached an extreme level as the ‘sell Canada’ theme was quite evident.

While government banks outperformed, equities underperformed as commodities got slammed. The Canadian dollar dropped to a decade-low during the quarter. The economy echoed the markets, as bearish growth forecasts kept being released, to the point where the ‘R-word’ (recession) crept into the conversation. On the energy front, ‘lower for longer’ is becoming the consensus.

15 Oct 2015

Market Overview

It was a very difficult quarter for Canadian equities, as the TSX fell into correction territory. Bearish sentiment reached an extreme level as the ‘sell Canada’ theme was quite evident.

While government banks outperformed, equities underperformed as commodities got slammed. The Canadian dollar dropped to a decade-low during the quarter. The economy echoed the markets, as bearish growth forecasts kept being released, to the point where the ‘R-word’ (recession) crept into the conversation. On the energy front, ‘lower for longer’ is becoming the consensus.

15 Oct 2015

Market Overview

Rick Brown
15 Oct 2015

Market Overview

For the third quarter of 2015, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were down 23.5% on a price basis and down 22.1% on a total return basis, or including the impact of distributions. Midstream MLPs, as measured by the Alerian MLP Infrastructure Index (AMZI), fell 23.3% on a price basis and lost 22.0% on a total return basis. For context, the broader market, as measured by the S&P 500 Index, lost 6.9% on a price basis or 6.4% on a total return basis.

1 Jul 2015

Market Overview

Over the first half of the year, the underlying weakness of commodities was not unexpected, but another market segment was also surprisingly weak: Canadian banks. The Canadian Bank Index has had a negative total return of -350 basis points (bps), which is approximately 440 bps below the broader market’s total return. Since 1970, the Bank Index has underperformed the S&P TSX Composite Index in the first half of the year 22 times, and 11 of those times, it has gone on to outperform on a full year basis.

1 Jul 2015

Market Overview

Macroeconomic events have preoccupied markets for the past several months. At the end of the quarter, we saw another chapter added to the Greek debt drama and then, it was followed by a scare in China. It seems economic growth fears are mounting with the impact of the rout in stocks. In an unprecedented move to stabilize markets, Chinese authorities imposed trading halts on half the stocks in the A-listed shares, curbed short selling, and banned stock sales by major shareholders.

1 Jul 2015

Market Overview

For the second quarter of 2015, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were down 7.5% on a price basis and down 6.1% on a total return basis, or including the impact of distributions or dividends. Midstream MLPs, as measured by the Alerian MLP Infrastructure Index (AMZI), fell 7.5% on a price basis and lost 6.2% on a total return basis. For context, the broader market, as measured by the S&P 500, returned 0.2% on a price basis or 0.3% on a total return basis.

The energy sector experienced significant weakness over the last month of the quarter as the crude price recovery began to stall and crude oil futures prices began to exhibit weakness.

1 Jul 2015

Energy Overview

North American stocks traded lower during the second quarter. In the U.S., the S&P 500 Index was down -0.2%, led by the interest rate sensitive utilities group, which dropped -6.7%, and the energy sector, down -2.6%. It was a similar story in Canada, as the S&P/TSX Composite Index gave up -2.3%, with weakness led by the industrials (-9.8%), utilities (-8.7%), and energy (-5.2%) sectors.

While capital markets continued to discount some of the weather-related weak economic numbers reported during the period, markets did begin to incorporate the probabilities of U.S. Federal Reserve interest rate hikes. And while some U.S. economic statistics were somewhat subdued, employment growth and—importantly—wage gains began supporting the higher interest rate views, adding volatility to the fixed income and interest-sensitive stock groups.

1 Jul 2015

Market Overview

Over the first half of the year, the underlying weakness of commodities was not unexpected, but another market segment was also surprisingly weak: Canadian banks. The Canadian Bank Index has had a negative total return of -350 basis points (bps), which is approximately 440 bps below the broader market’s total return. Since 1970, the Bank Index has underperformed the S&P TSX Composite Index in the first half of the year 22 times, and 11 of those times, it has gone on to outperform on a full year basis

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Disclaimer:

The opinions expressed herein reflect those of the individual portfolio manager. These opinions are subject to change at any time based on market or other conditions, and Front Street Capital disclaims any responsibility to update such views. These opinions may differ from those of other portfolio managers or of Front Street Capital as a whole.

These views are for informational purposes only and are not intended to be a forecast of future events, a guarantee of future results or investment advice. All data referenced herein are from sources deemed to be reliable but cannot be guaranteed.

These views may not be relied upon as investment advice and, because investment decisions are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of Front Street Capital. Any discussion of any of the funds’ holdings are as of the podcast interview date, and are subject to change.

If specific securities are referenced, they have been selected by the portfolio manager on an objective basis to illustrate the views expressed herein. Such references do not include all material information about such securities, including risks, and are not intended to be recommendations to take any action with respect to such securities. Referenced securities may not be representative of the portfolio manager's current or future investments and are subject to change at any time.