Commentary

15 Oct 2016

Market Overview

Equities climbed during the third quarter of 2016, despite the U.K’s vote to exit the European Union, weak global economic data and uncertainty from the Federal Reserve.

15 Oct 2016

Market Overview

Equities climbed during the third quarter of 2016, despite the U.K’s vote to exit the European Union, weak global economic data and uncertainty from the Federal Reserve.

14 Oct 2016

Market Overview

For the quarter ending September 30, 2016, the S&P/TSX Composite Index was up +4.7%, led by the consumer staples, consumer discretionary, industrials and energy sectors (IT strong as well, but it is a small group). It was perhaps a surprising result given the U.K.’s vote to exit the European Union, weak global economic data and uncertainty from the U.S. Federal Reserve. A long-awaited interest rate hike was previously proposed in September and now appears to be pushed out to December.

2 Oct 2016

Energy Overview

Stocks continued to climb during the third quarter of 2016, posting solid results. The U.K. vote to exit the European Union (“Brexit”), weak global economic data, a tightening in the U.S. presidential race along with growing tensions between Russian-American relations reinforced the likelihood that interest rates would stay “lower for longer”. The low ( to negative) interest rates globally continue to provide fuel for asset prices.

1 Oct 2016

Market Overview

For the third quarter of 2016, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were down 0.8% on a price basis but up 1.1% on a total return basis, or including the impact of distributions. As measured by the Alerian MLP Infrastructure Index (AMZI), a more concentrated measure of midstream MLPs, the sector increased 0.0% on a price basis and 1.9% on a total return basis. For context, the broader market, as measured by the S&P 500, gained 3.3% on a price basis and 3.9% on a total return basis.

1 Oct 2016

Market Overview

The third quarter of 2016 started with markets attempting to digest the impact of the U.K.’s vote to exit the European Union (“Brexit”). Despite uncertainty around the vote’s implications, it quickly became clear that the exit will involve prolonged negotiations. Because the U.K. did not immediately trigger Article 50 to begin the exit process—coupled with low yields—expectations for further stimulus and supportive economic data helped alleviate investor concerns. This, in turn, paved the way for a rally in risk assets, with most asset classes performing reasonably well.

1 Oct 2016

Market Overview

Strong capital markets took most investors by surprise in the third quarter with both the U.S. markets (S&P 500 +3.85%) and Canadian (S&P/TSX +5.45%) powering higher. Given the events at the end of June (BREXIT), ongoing global macro risks, and the Fed beginning to signal higher rates, one would have expected a negative reaction with increasing volatility. In fact, the opposite has occurred as markets moved higher in relative uniformity while volatility probed new lows.

1 Jul 2016

Market Overview

For the second quarter of 2016, master limited partnerships (MLPs), as measured by the Alerian MLP Index (AMZ), were up 17.4% on a price basis and 19.7% on a total return basis, or including the impact of distributions. As measured by the Alerian MLP Infrastructure Index (AMZI), a more concentrated measure of midstream MLPs, the sector increased 18.2% on a price basis and 20.6% on a total return basis. For context, the broader market, as measured by the S&P 500, gained 1.9% on a price basis or 2.5% from a total return perspective.

1 Jul 2016

Energy Overview

Just when you thought that the investing world could not get any more interesting, along came “Brexit”, the U.K.’s vote to exit the European Union. “Unusual”, “unorthodox”, “confusing” and “unconventional” are just a few of the words used to describe the current state of capital markets – and this by the long-time, seasoned veterans of the game. It's a capital market where approximately one-third of global government bonds are trading at negative interest rates (that's right: where the investor pays the government to own their bonds!). Will the U.S. Federal Reserve raise or lower interest rates?

1 Jul 2016

Market Overview

The S&P 500 has rebounded from the uncertainty caused by the U.K.’s vote to exit the European Union (“Brexit”), reinstating stocks as the more attractive risk/reward value over bonds. With central bank supported rotation into risk assets—likely due to continued stimulative actions and expectations of better growth in later 2016/17—we have overcome some of the concern that plagued market sentiment over the third quarter.

1 Jul 2016

About Brexit

Welcome to the summer of 2016. The violently flat paradigm that the U.S. and, to a lesser degree, global markets have been stuck in for the past two years, continues following the U.K.’s vote to exit the European Union (“Brexit”). Brexit perplexity, an enigmatic U.S. Federal Reserve Board and U.S. presidential theatrics are scaring investors away from the facts once again. Yet, with all this uncertainty, we are very close to new highs. To be sure, these are confusing times, with many negatives including Brexit, negative interest rates, Trump uncertainties, protectionism, immigration, U.K. recession risk, ISIS, employment rates, Middle East instability, central banks out of ammunition, high frequency trading, ETF’s and China risks, etc.

1 Jul 2016

Market Overview

The shift in sentiment that occurred in in the second half of the first quarter of 2016 continued to drive the market recovery from the lows we saw in mid-February. However, as we progressed through the second quarter, markets increasingly focused on the upcoming U.K. referendum vote on its membership in the European Union (also known as “Brexit”), which became one of the main drivers of daily market movements. Overall, the market priced in much greater odds of a “remain” vote than those reflected in the polls or on the various betting sites. In the evening of June 23, as polls started to come in, this optimism quickly shifted toward concern and uncertainty as it became clear that the U.K. had voted to exit the EU.

1 Jul 2016

Market Overview

The Canadian market continued its outperformance in the quarter. Momentum continues to pull the market higher. The strength has come from resource cyclicals as we have seen the stabilization of energy, and rebound in basic materials. With all the noise around the world, gold has once again become a safe haven. Certainly with over 20 trillion dollars trading at negative yields, gold becomes even more compelling.

1 Jul 2016

About Brexit

Welcome to the summer of 2016. The violently flat paradigm that the U.S. and, to a lesser degree, global markets have been stuck in for the past two years, continues following the U.K.’s vote to exit the European Union (“Brexit”). Brexit perplexity, an enigmatic U.S. Federal Reserve Board and U.S. presidential theatrics are scaring investors away from the facts once again. Yet, with all this uncertainty, we are very close to new highs. To be sure, these are confusing times, with many negatives including Brexit, negative interest rates, Trump uncertainties, protectionism, immigration, U.K. recession risk, ISIS, employment rates, Middle East instability, central banks out of ammunition, high frequency trading, ETF’s and China risks, etc.

1 Apr 2016

Market Overview

To say that U.S. stock market performance has been volatile and disappointing during the early part of 2016 would be an understatement. The main culprit seems to be ongoing weakness in commodity prices and emerging markets performance. While these challenges are not new, for some reason both investors and the Fed were spooked.

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 Apr 2016

Market Overview

To say that U.S. stock market performance has been volatile and disappointing during the early part of 2016 would be an understatement. The main culprit seems to be ongoing weakness in commodity prices and emerging markets performance. While these challenges are not new, for some reason both investors and the Fed were spooked.

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.

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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.