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We saw relatively little fundamental change in markets this quarter.
USD-CAD currency pair; For a Canadian investor, the biggest factor in Q3 2017 was the continued weakening of the USD against the CAD, which began in early May. This movement caused our investments in underlying USD-positions to look worse in CAD-terms.
This movement continued an additional ~7% from July 1 to mid-September, then reversed and gave us back 2-3%.
Looking at the big picture, the recent USD-weakness is likely a short-term correction. We expect the USD to resume the longer-term strength against the CAD.
US Equites continued to perform modestly well, with performance largely offsetting the damage of the USD-CAD currency movement for the Canadian investor. US equity prices (P/E ratios) continue to rise well above historical averages. The modest upward trend looks steady, but the increasingly higher prices make US equity look less appealing for the future.
Combining higher prices with geopolitical risks (ie. North Korea), it is still a very reasonable time to draw profits from this sector.
Canadian Equities did little for 2.5 months of the 3-month quarter, then showed a sharp jump in the last 2 weeks, helped by oil prices and the energy sector.
Oil is still comfortably within its recent range of $43-55/bbl. Oil prices recovered 12% in Q3, following a -9% loss in Q2. Lots of movement, but we’re not going anywhere yet.
International Stocks were the hero for this quarter, posting considerable growth even in CAD-terms. This trend looks like it will continue, making both Developed and Emerging international equities more appealing moving forward.
US & Canadian Interest rates will continue to move upward over the next year or so. Rate increases should be considered in Debt Management Strategies, as well as Fixed Income Investing.
Fixed Income investors are having a difficult time. Bond funds with a focus on North American Government products are showing some weakness with interest rate increases. Bonds funds still offer a reasonable safety net. Investors needing a safety net should try to weight their portfolio toward corporate bonds and/or international government bonds.
My Benchmarks have moved. I’ve adjusted my benchmark allocations, a tool used to build all my clients’ portfolios. Clients will be advised of any recommended adjustments during their regular review. Feel free to contact me at your convenience if you have any questions or concerns about your own portfolio.