Markets overview

Equity market returns were strong this quarter as the global economy continued to show signs of healing in the face of rising virus cases and more shutdowns. The S&P/TSX Composite Index was up 9.0% and the MSCI World ex Canada Index (C$) advanced 8.8% this quarter. The start of November marked a significant inflection point for markets. The US election resulted in some short-term market volatility which subsided. This was followed by the clearly positive news of an approved COVID-19 vaccine. A better vaccine that is available to people faster than previously expected provides a boost to the economic outlook, even if it does take many months to distribute widely. This has allowed investors to look beyond near-term economic uncertainty to a more normal environment. A shift in market leadership followed as investors bought companies that were most negatively affected by lockdowns and stood to benefit the most from an eventual end of the pandemic. In addition, assets that are more sensitive to the economic cycle began to outperform. This includes cyclical sectors like energy and financials as well as asset classes like global small cap stocks.

Equity markets reach new highs in Q4

Significant shift in market leadership

Sector returns are for the MSCI World. Cyclical sectors include materials, energy, consumer discretionary, financials and real estate. Defensive sectors include consumer staples, health care and utilities. Small cap returns are based on the MSCI World Small Cap Index and large cap returns are for the MSCI World Index. All returns in Canadian dollars. Source: Refinitiv

Bond returns were mixed this quarter. Government and provincial bonds were modestly negative and corporate bonds generated positive returns. The net result was that the FTSE Canada Universe Bond Index returned 0.6% for the quarter. High yield bonds, like equities, benefited from an improved investor outlook. Despite default rates remaining elevated, demand for these investments has been strong and yields have tightened. 

Our thoughts

We have been seeing a recovery in the economy unfolding for some time and have positioned portfolios accordingly. We have maintained an overweight to equities with a bias to global stocks. We have increased our weight to asset classes that tend to do well in a recovery such as small cap stocks. This quarter we sold core bonds and bought high yield bonds as credit conditions improved. This is consistent with the beginning of a new business cycle which historically coincides with improving returns for high yield. 

Overall our equity teams continue to own resilient, stable businesses that have higher earnings growth than the market. Through the recovery we have selectively added more cyclical companies standing to benefit from an improving outlook and the start of a new business cycle. Within Canada this means increasing exposure to banks and energy companies. Within our global strategy we remain overweight emerging markets and have reduced the underweight to financials and increased positioning in select leisure companies. Within fixed income we are overweight credit and inflation-protected debt. Our positioning has benefited clients well this quarter and year.

From the desk of Jeff Guise, Managing Director, Chief Investment Officer, CC&L Private Capital.

This post is for information only and is not intended as investment advice. The views expressed are those of the author at the time of publication and are subject to change at any time.

CC&L Private Capital recently passed the milestone of managing $10 billion of clients’ assets. While this is a tremendous accomplishment, we know it is not about the dollars. It is about the trust of so many Canadian individuals, families, Indigenous communities, not-for-profits and charitable foundations. We take immense pride in our commitment to stewarding our clients’ wealth with confidence.

We founded CC&L Private Capital in 1997. Our vision was to give private clients access to the discipline and talent afforded to the institutional pension clients our progenitor firm has been managing since 1982. In those early days, our main competitors were mostly independently owned. Since then, they have merged, or the big banks have taken them over – a constant reminder of the importance of evolving and staying at the forefront of our clients’ needs.

It took a decade to get our footing, but a steady momentum of new clients joining came over time. In 2013, to address our ambitious goals for growth, performance and a best-in-class client experience, we made a meaningful change in response to an increasingly competitive, complex and regulated industry. A review of CC&L Private Capital’s leadership brought three Managing Directors to the helm to provide a new level of depth in the three areas of importance to an investment firm’s success. Catherine Dorazio, Jeff Guise, and Corey MacEachern, respectively provided expertise in sales, investments and operations, while working as one to direct the business in unison. Leveraging their combined knowledge to create and drive strategy has translated into even greater success. We have outpaced industry peers in asset growth, client retention and investment performance.

Today, our clients have access to our broad, pension-grade investment platform. It complements traditional global stocks and bonds with alternative assets, such as private loans, real estate, infrastructure, hedge funds and private equity. This goes well beyond the early days of a traditional investment offering. We have also strengthened our client experience, delivered by more than 40 investment professionals countrywide, supported by a growing team dedicated to advancing all business areas. On top of this, CC&L Private Capital is part of CC&L Financial Group, which has grown in parallel over these decades. It provides our clients with a strong backbone of 11 affiliated investment teams managing approximately $80 billion in assets.

Over the past 20 years, we have evolved and adapted to the challenges of a continually changing financial market environment. More and more clients have trusted us to steward their wealth so they will comfortably live out their lifetime dreams. Our unique corporate structure, investment platform and high-calibre team put us in a position to succeed alongside them in achieving this.

Most importantly, we have never wavered on implementing our conditions for success: putting our clients’ interests first, attracting and retaining top talent, and protecting and nurturing our entrepreneurial corporate culture. These same guiding principles will serve us well into the future.

Portfolio markets summary

Equity markets continued to rise this quarter but at a slower pace. Despite continued concerns about the health crisis and unemployment, the S&P/TSX Composite Index was up 4.7% and the MSCI World ex Canada Index (C$) was up 6.0% this quarter. Higher returns reflect rebounding corporate earnings and investors’ expectations that the economy will continue to recover from low levels. The continued recovery is supported by historic levels of stimulus and a commitment by policy makers to remain supportive through the recovery. While stimulus payments to people who lost their jobs have ended in some countries, it’s likely that there will be further policy responses, especially if there are setbacks to the recovery. One such setback is if COVID-19 daily cases rise to levels requiring further social distancing. Despite the rise in cases we saw this quarter, hospitalizations are down which makes the health crisis more manageable. 

Bond returns benefited from an improved investment outlook this quarter.  The FTSE Canada Universe Bond Index was up 0.4% this quarter. Most of the return came from corporate bonds which saw yields decline back to more normal levels. The decline in yields was helped by the Bank of Canada buying these bonds and signaling a willingness to increase their purchases. Canada government bond returns by comparison were lower as bond yields ended the quarter modestly higher than where they started.

Equity markets decline and recovery

Growth significantly outperforms value

Portfolio strategy

Our tactical allocation investment process continues to point to an improving economic backdrop. To reflect this, portfolios are modestly overweight equities. As our conviction in the recovery grew this quarter, we chose to increase the portfolio weighting to asset classes that tend to do well at in the early part of a market cycle. Within equities we increased the weight to Canadian small caps and within fixed income we increased high yield bonds. A more positive economic backdrop supports increasing the weight of these more cyclical asset classes.

Overall our equity teams continue to own resilient, stable businesses that have strong earnings growth relative to the market. These factors fall under the growth style of investing and have been rewarded by the market over time. This has been especially true this year, both during the market decline and recovery. As the economic outlook improved we have moved cautiously towards cyclical companies. Within Canadian equities this means adding companies in industrials, consumer discretionary and financials. Within our global strategy the biggest change has been to increase emerging markets exposure. Within fixed income portfolios we have increased our weight to corporate bonds and have an underweight to provinces that have most significantly expanded their budget deficits. 

From the desk of Jeff Guise, Managing Director, Chief Investment Officer, CC&L Private Capital.

This post is for information only and is not intended as investment advice. The views expressed are those of the author at the time of publication and are subject to change at any time.