Mulvihill x Wealthsimple – October Commentary
Stock markets around the globe experienced severe declines in October as rising interest rates, potential trade wars, and uncertainty around mid-term elections spooked investor confidence. US and Canadian stocks had their worst monthly decline since September 2011, declining -6.8% and -6.3% respectively in October. Emerging market stocks continued to underperform, falling 8.7% for the month and are now off over 15% in 2018. The Mulvihill portfolio mandates have zero exposure to emerging market equities. We continue to view US equities as providing a superior risk reward opportunities.
Fixed income outperformed stocks in the month but continues to offer little in the way of portfolio protection for investors portfolios in a rising interest rate environment. International and Emerging Market bonds suffered the largest declines in the month down -1.9% and -1.4% respectively. Our allocation to fixed income remains as low as possible in each portfolio as interest rates rise from depressed levels globally.
The three portfolios (Growth, Moderate and Conservative) recorded negative performance in October. The best performing holding was Gold (CGL) up 1.7%. It was one of the few asset classes globally that had a positive return in the month. US Small Cap (IJR) was the largest drag down -10.5%, giving back gains experienced in previous months. The US Dollar appreciated 1.93% vs Canadian dollar, adding to gains in the US holdings. The Growth and Moderate portfolio sold out of international bonds (IGOV) and Small Cap International Stocks (SCZ) at the beginning of the month. The Growth and Moderate portfolio added to US High Quality (ZUQ) and Emerging Markets Bonds (ZEF), while the Moderate portfolio also added US High Yield (XHY), and US Aggregate bond ETFs (VBU)
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