Mapledene Financial Group

Mandeville Private Client Inc.

From the Desk of Jamie Hodgins FCSI

July 17th, 2017

We hope that your summer has gotten off to a good start! Hopefully the wet weather will improve during the balance of July and August.

I am writing to update you on Mandeville, overall market conditions and the economy.

What’s new at Mandeville
I am pleased to announce that Mandeville Private Client Inc. is the recipient of the 2017 Wealth Professional Award for Advisor/Network Brokerage of the year.

Our team has completed full transition of all client accounts to Mandeville. Again, we very much appreciate your business and support. Our goal at Mandeville continues to provide clients with ‘best in class’ products and services, along with delivering exceptional client services. We believe that all clients should have access to quality public and private products and invest similarly to institutions and ultra-wealthy investors.

On June 07th 2017 we held a seminar in London featuring Mandeville Founder & Chairman, Mr. Michael Lee-Chin. For those unable to attend the seminar, we will soon have a video that will be posted to our website at www.mapledene.ca.

Mandeville continues to test the new client electronic portal. We expect that the new portal will go live sometime prior to the end of September. The new portal provides additional enhancements, user-experience improvements, and performance improvements. We encourage all clients to enroll in online access which includes electronic delivery of statements. If you require any assistance with the enrollment process, please let us know. We also encourage clients to visit our website at www.mapledene.ca. We regularly post market updates and news to the site.

Investing in an Aging Bull Market
It has been over 9 years since the bottom of the market in March 2009 after the 2008 collapse. This marks the second longest bull market in Wall Street history as well as the third longest economic expansion over the same time frame. While this is an interesting statistic, it has very little practical value in telling us when the cycle will turn again. As the old stock market saying goes, bull markets do not die of old age. With old age, though, we typically find excesses in the market, increasing the need to focus on risk management. Given the severity of both the recession and bear market of 2009, it may be possible for this expansion to push on for longer, surpassing even the decade long bull market of the 1990’s. During the 1990’s we had what was referred to as the “Goldilocks” economy - a perfect balance of moderate growth and low inflation which allowed for a market-friendly monetary policy.

In a recent Bank of America Merrill Lynch Fund Manager Survey, an all-time high 34 percent of respondents described the current economy as fitting the “Goldilocks” standard.

This backdrop helped global equity markets continue their upward march over the last three months. Nearly all major markets posted gains in the second quarter, with one exception being Canada. Bond markets around the world also rallied as the perceived pick-up in inflation seemed to moderate. Again, the exception being Canada. Recent expectations of higher interest rates fueled by the Bank of Canada have caused a significant spike in bond yields, depressing bond prices. I have often said that if the economy is truly going to be healthy, interest rates must rise to a more normalized level. This doesn’t mean sky high interest rates, but it likely means somewhat higher than today.

Housing – a major support or risk for the consumer and the economy?
Consumer spending accounts for roughly two-thirds of U.S. GDP and is a major driver of the economy. The housing market is an important contributor to consumer confidence since home values are the largest part of net worth for most individuals. People feel wealthier when home prices are rising, leading to increased confidence and, in turn, spending. The U.S. market has almost recouped its losses from the 2006 bubble and continues to gather steam with a relatively low home inventory, healthy buyer demand and increasing builder confidence. This price recovery is supportive of continued improvement in the economy. Ironically, this may be too much of a good thing if it pressures the Federal Reserve to continue to hike rates. Canadian housing, on the other hand, had only a slight correction back in 2006 and has seen a few specific markets increasing at an unsustainable pace.

Signs of speculative excess have come to light causing the Bank of Canada to take note. Regulators have taken steps to tighten conditions and enable a soft landing, but that is never an easy task. The central bank recently acknowledged that Toronto is now a bigger concern than Vancouver and, most worryingly, it is much more heavily indebted. A correction in the Toronto market would have far reaching implications given that the region has been responsible for nearly half the country’s employment growth over the past two years. The Conference Board of Canada estimated that Toronto’s economy grew by roughly 3.4% last year, accounting for nearly half of the of the country’s growth in GDP. Currently, both the U.S. and Canadian housing markets are a significant support for their respective economies. However, the overall Canadian economy is at greater risk with the possibility for select overheated real estate markets to pull-back significantly. We don’t know when or if that will happen (corrections can sometimes go sideways rather than straight down), but it suggests the need for a prudently diversified Canadian equity portfolio.

Canadian market
Oil prices corrected significantly in the past quarter, suppressing returns for the Canadian marketplace. We must also remember that the Canadian market was one of the best performers in 2016, so a more muted return this year should be expected. While there will certainly be ongoing price volatility in the overall energy sector, we believe it is one of the few sectors offering attractive valuations relative to the overall market.

Canada’s main stock market, the S&P TSX has broadly underperformed the U.S. markets since 2009. While U.S. markets are far ahead of price levels prior to the 2008 crash, Canadian markets are stuck below the highs achieved during that time. The stock market in Canada is still lower today than it was during 2008. This large divergence between U.S. and Canadian stocks is likely to narrow in the years ahead. This might be achieved by Canadian outperformance relative to the U.S. or the U.S. markets declining towards the Canadian levels.

Canada’s underperformance can be solely placed on the energy and metals & minerals markets. The prices for many of the commodities that are produced in Canada such as; oil, copper, natural gas, zinc, palladium, platinum and many agricultural products have stagnated or declined for many years. Not much good news, however this should reverse in the years ahead.

Client Reviews

We have been busy conducting client reviews over the past few months since transition to Mandeville. These reviews are focused on performance, asset allocation, risk management, and how we might incorporate private investments where appropriate. We hope to have all in-person client reviews completed by the end of 2017. We have a proven investment philosophy at Mandeville, and we are excited to share it with you.

The Future
Who would have ever imagined a Donald J Trump presidency, or a New England Patriots Super Bowl after the first half, or oil prices that have ranged between $20 and $140 a barrel during the last five years. Predicting the future with great certainty is a tough business. When I think about what the future holds, I am always reminded of a Warren Buffett quote from years ago.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

Brendan and I are disciplined Investment Advisors, and we follow a sound and proven framework when allocating client accounts. We want to help you reach your goals whether it be to become wealthy or to stay wealthy. This is our passion and what keeps us laser focused throughout the daily noise that is the ‘market’.

Brendan, Susan and I hope you and your family have a great summer! Thanks again for your business.

Yours truly,
 
 
Jamie C. Hodgins, CIM, FMA, FCSI Senior Investment Advisor

 
 
 
 
 
 

Source: QVC Investment Management
This publication is solely the work of Jamie Hodgins, for the private information of his clients. Although the author is a Mandeville Private Client Inc. Advisor, he is not a financial analyst at Mandeville Private Client Inc. This is not an official publication of Mandeville Private Client. The views, opinions and recommendations are those of the author alone and they may not necessarily be those of Mandeville Private Client. This publication is not an offer to sell or a solicitation of an offer to buy any securities. This publication is not meant to provide legal, accounting or account advice. As each situation is different, you should seek advice based on your specific circumstances. Please call to arrange for an appointment. The information contained herein was obtained from sources believed to be reliable; however, no representation or warranty, express or implied, is made by the writer, Mandeville Private Client or any other person as to its accuracy, completeness or correctness.

Mandeville Private Client Inc.
Unit-2,
309 Commissioners
Road West,
London, Ontario
N6J 1Y4

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