Portfolio Advisory Group February 2016 1 2016 Market Outlook: • Global growth projections declining • Pace of Fed rate hikes and geopolitics are creating risks • Bank of Canada could cut interest rates again in 2016 • USD approaching a peak • Most commodities oversupplied; recovery to be painfully slow • Overall return expectations remain modest
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Portfolio Advisory Group
February 2016
1
2016 Market Outlook: • Global growth projections declining
• Pace of Fed rate hikes and geopolitics are creating risks
• Bank of Canada could cut interest rates again in 2016
• USD approaching a peak
• Most commodities oversupplied; recovery to be painfully slow
• Overall return expectations remain modest
2
2015 Performance
Source: Bloomberg
-50%
-40%
-30%
-20%
-10%
0%
10%
DA
X
Shan
gha
i C
om
posite
Nik
kei
Na
sd
aq
Euro
Sto
xx 5
0
Me
xic
o IP
C
S&
P500
MS
CI
world
FT
SE
10
0
Sensex (
Ind
ia)
Ha
ng S
en
g
S&
P/T
SX
Co
mpo
site
Ibovespa (
Bra
zil)
Co
rn
Gold
Silv
er
Whea
t
CR
B In
dex
Co
ppe
r
WT
I
Na
tura
l G
as
Bre
nt
Weste
rn C
da S
ele
ct
JP
Y/U
SD
GB
P/U
SD
EU
R/U
SD
CA
D/U
SD
GoC
Ca
n IG
Co
rp
US
Tre
asury
EM
Sovere
ign (
US
D)
US
IG
Co
rp
US
HY
Corp
Ca
n H
Y C
orp
S&
P/T
SX
Pre
f S
hare
s
S&
P/T
SX
Pre
f R
ate
Reset
2015 Full Year Performance
Equities Commodities Fixed IncomeCurrencies
Pref
A recap of PAG’s 2015 themes and strategy appears at the end of this report
3
2015 Performance
Source: Bloomberg
14.8%
11.0%
-1.0%-3.5%
-5.5%-7.8%
-11.1%-12.5%
-15.8%
-22.8%-25.7%
-35%
-25%
-15%
-5%
5%
15%
Info
Tech
Cons. S
taple
s
Tele
com
Co
ns. D
iscre
tion
ary
Fin
ancia
l
Utilit
ies
S&
P/T
SX
Com
posite
Industr
ials
He
alth
care
Mate
rials
Energ
y
S&P/TSX Composite Index
2015 Performance
4
2015 Performance
Source: Bloomberg
8.4%
5.2% 4.3% 3.8%
-0.7% -1.7%-3.5%
-4.7%
-8.4%-10.4%
-23.6%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Co
ns.
Dis
cre
tion
ary
He
alth
care
Info
Tech
Co
ns.
Sta
ple
s
S&
P5
00
Te
leco
m
Fin
an
cia
l
Ind
ustr
ials
Utilit
ies
Ma
teria
ls
Energ
y
S&P500 Index
2015 Performance
5
2016 Investment Themes
• Economic growth: Disappointing pace • U.S. in advanced stages of economic cycle; growth unlikely to exceed 2.5%
• Europe: leveling off in the sub-2% range
• China: growth decelerating into mid-6% range; hard or soft landing?
• Canada: downside risks could keep growth below 1.5%
• Monetary policy: The Fed hikes while everyone else cuts • After liftoff, focus now on pace of future hikes; risk if speed is too fast/slow
• Europe: could add more stimulus but is reluctant to
• China: lots of room for rates to decline further
• Canada: Another rate cut likely… maybe by mid-year
Last year’s PAG strategy What actually happened Observation
Equities: Prefer U.S. over Canada
• U.S. not cheap; better earnings growth
• Canada to struggle, anemic growth from
banks, energy, materials
• Mid-single digit returns expected
Total returns in local currency (and CAD)
• S&P500 +1.4% (20.7%)
• TSX -8.3% (big-3 sectors all negative)
• Euro Stoxx 50 +7.35% (14.8%)
Strong USD hurt S&P500
earnings
Prolonged slump in
commodity prices hurt TSX
Europe starting to benefit
from weaker EUR
Bonds:
• Stagnant Europe to continue “exporting”
low yields
• Potential flattening of yield curve
• Maintain short duration; HY risky
GoC Index: +3.8%
U.S. Treasury Index: +0.9%
U.S. curve flattened / Canada steepened
High yield bonds underperformed
Relatively flat long-term U.S.
bond yields indicating Fed
won’t be raising too much
Preferreds:
• Resets: All 2015s to be extended
• 2018-2020 IG looking friendlier
Only 1 bank rate reset redeemed
IG outperformed non-IG
‘18-’20 outperformed, ’15-’16 (still
negative)
Low bond yields and new
minimum dividend products
put further price pressure on
rate resets
Currencies: USD to remain strong USD rallied against most currencies Becoming a crowded trade
Commodities:
• Oil: supply response could take 6-12 mths
• Other: few positive catalysts
U.S. supply has started to decline, but
global supply is unrelenting
Non-energy commodities drifted lower on
decelerating Chinese growth.
Lower for longer
Bio
51
Himalaya Jain, CFA, MBA
Director, Portfolio Manager, Canadian Equities
Portfolio Advisory Group, ScotiaMcLeod
Himalaya joined ScotiaMcLeod’s Portfolio Advisory Group in March 2011. He is responsible
for providing advice on investment strategy and Canadian equities to ScotiaMcLeod
investment advisors across Canada. Himalaya is also a member of the Investment
Committee of ScotiaMcLeod’s Portfolio Advisory Group. Himalaya appears regularly on BNN
to provide market commentary.
Prior to joining the Portfolio Advisory Group, Himalaya was a top ranked Equity Research
Analyst at Scotia Capital covering the real estate, REIT, and hospitality sectors. Himalaya
has also held equity research positions at other Canadian investment firms since 1997. Prior
to the investment industry, Himalaya held corporate finance positions at TD Canada Trust,
and was an auditor at Deloitte.
Himalaya earned an MBA degree from the University of Western Ontario and holds a BA
degree (Chartered Accounting) from the University of Waterloo. Himalaya is a Chartered
Financial Analyst.
Himalaya is a civilian volunteer with 1188 Lorne Scots Royal Canadian Army Cadets and
served as Chair of the Cadet Support Committee (2011-2014).
Disclaimers
52
Important Disclosures
This report has been prepared by members of the ScotiaMcLeod Portfolio Advisory Group. ScotiaMcLeod is the full service retai l division of Scotia Capital Inc.
Scotia Capital Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
General Disclosures
The ScotiaMcLeod Portfolio Advisory Group prepares this report by aggregating information obtained from various sources as a resource for ScotiaMcLeod and
HollisWealth Advisors and their clients. Information may be obtained from the Equity Research and Fixed Income Research departments of the Global Banking
and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within
Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third party sources:
Standard & Poor’s, Valueline, Morningstar CPMS, Bank Credit Analyst and Bloomberg. The information and opinions contained in this report have been
compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness.
While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the ScotiaMcLeod Portfolio Advisory Group,
nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia
Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
This report is provided to you for informational purposes only. This report is not intended to provide personal investment advice and it does not take into account
the specific investment objectives, financial situation or particular needs of any specific person. Investors should seek advice regarding the appropriateness of
investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements
regarding future prospects may not be realized.
Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information
contained in this report, if any, is based on certain assumptions and management’s analysis of information available at the t ime that this information was
prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in
this report will be realized
Opinions, estimates and projections contained in this report are our own as of the date hereof and are subject to change without notice.
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