Asset Allocation – December 2017

PDF of Global Asset Class returns click here

2017 was a remarkable year from an asset class perspective with every group providing positive returns. Whether you were in Stocks (large, small, value, growth) Bonds (treasuries, corporate, municipal, TIPS) real estate, private equity, hedge funds, gold or bitcoin you’re richer today than you were to start the year. Emerging Market equities were the best performing major asset class in 2017 up 37.5%. The S&P 500 finished the year up 21.8%, outperforming small caps (+14.6%), treasuries (+9%)  and IG Corporate bonds (+7.3%).

US markets continued to hit record highs and the monthly gain was 1.1% the 14 consecutive positive monthly print for the S&P 500. The  largest sector in the S&P 500 continues to drive returns. Technology, which makes up over 24% of the S&P 500 today, ended the year up an astonishing 38.8% While the attention has been on the FANG stocks, the move has been broad based across the group as the equally weight technology sector is up 34%. Telecom and Energy were the only two groups in the red for the year down -1.0% and -1.3% respectively, well above low points hit during the year,  In Canada, the S&P/TSX 60 Index has returned 9.8% in 2017 driven by gains in Health Care (Valeant) and Consumer Discretionary sectors. The cyclical nature of the index, with high exposure to Materials and Energy, has caused it to lag most global markets in 2017. Materials sector has been dragged down by the negative performance from gold equities and has returned 7.7%, while Energy sector was the only group in the red down -7%.

Positioning at the factor level remains the biggest question as we head into 2018. No doubt that defensive positioning has been rewarded in 2017 even as markets rallied globally. Momentum, growth stocks and large cap are up 38%, 26.8% and 22% respectively. Factors we considered to be more cyclically oriented such as Value (17.7%), High Beta (18.1%) and Small Cap (13.2%) have all lagged the market. We continue to grapple with the magnitude of current market advances and portfolio positioning. If a market correction is getting closer by the day, does one stick with defense even though it has led the market higher and trades at seemingly stretched valuations, or rotate into typically cyclical factors. Of note, high beta and value were the two best performing factors in December returning 2.6% and 1.8%. The value trade will be interesting to monitor over the coming weeks given the large weight in the Financial sector, a group we are extremely positive on given rising short rates and deregulation.

This document may contain certain forward-looking statements. These statements may relate to future events or future performance and reflect management’s current expectations. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. Although the forward-looking statements are based upon what management believes to be reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Neither the Funds nor their respective managers assume any obligation to update or revise any forward-looking statement to reflect new events or circumstances. Actual results may differ materially from any forward-looking statement. Historical results and trends should not be taken as indicative of future operations. The Fund is not guaranteed, its value changes frequently and past performance may not be repeated. Unless otherwise indicated and except for returns for period less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data take into account distributions or dividends paid to unit holders but do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns.

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