Markets overview

This quarter we saw the economic recovery continue to gather pace. Support for the recovery has come from easing restrictions and accommodative policy. More recently, countries have committed to expanding their spending programs to fight the remaining negative effects of the pandemic while improving longer-term growth prospects. Together this forms a positive backdrop for equities and we have seen companies significantly outpace earnings expectations. This quarter the S&P/TSX Composite Index was up 8.5% and the MSCI World ex Canada (C$) advanced 6.2%. Year to date this brings these market returns to 17.3% and 9.9%, respectively. Stronger performance from the S&P/TSX Composite reflects a strong Canadian dollar and a higher weight in the index to top performing cyclical sectors like energy and financials. Regardless, both Canadian and global results have been very strong.

Equity markets reach new highs

Source: MSCI, Refinitiv

Bond returns have shown recent improvement after declining earlier in the year. This quarter the market has largely looked through a sharp increase in inflation which has been fueled by the robust economic recovery. Bond yields have declined modestly and prices have moved higher. The result was an increase of 1.7% for the FTSE Canada Universe Bond Index this quarter. The largest contributors to performance have come from provincial and corporate bonds.

Bonds begin recovery from Q1 decline

Source: FTSE, Refinitiv

Portfolio strategy

Our view is that we are in the midst of a strong economic recovery supported by pent up demand, accommodative policy and record levels of fiscal stimulus. This is a market-friendly backdrop and portfolios have been positioned to benefit from the recovery. We have been tactically overweight equities. As equity market performance has been strong, we have taken profits and rebalanced to maintain our desired exposure. Within equities, we have an overweight to small-cap stocks and maintain an allocation to value stocks. This quarter we also increased our emerging markets position. Within bonds, we have been overweight high yield, which is attractive in the early stages of a market cycle. This asset mix positioning has served us well and remains attractive in the current environment.

Our portfolio management teams generally continue to favour more cyclical companies that are levered to the economic recovery. These stocks have done well and in select cases we have reduced our exposure. This is because while the economic recovery has been strong, results have begun to moderate. At the same time, inflation has been higher than expected. While we don’t believe inflation levels will be disruptive in the long term, current conditions may lead to market volatility. Within fixed income, similar to equity portfolios, we remain overweight companies that are benefiting from the reopening of the economy.

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.

Markets overview

Equity markets reached new highs this quarter as virus cases declined and market signals suggest that the global economic recovery remains strong (despite lockdowns). Support for the recovery has come in the form of monetary and fiscal stimulus and in March the US passed another significant fiscal package. This quarter the S&P/TSX Composite Index was up 8.1% and the MSCI World ex Canada (C$) advanced 3.5%. Stronger performance from the Canadian market reflects a higher weighting to cyclical sectors like energy, financials and industrials which have benefited from an acceleration in global growth expectations. Within equity markets value and small-cap stocks have outperformed which is a rotation away from areas that performed well for most of 2020.

Stocks led by economically sensitive segments

*Energy, financial and industrial sector average return less the average return of the remaining sectors. **Returns are relative to the growth and large-cap benchmarks, respectively, using corresponding MSCI World benchmarks. Quarterly return ending March 31, 2021. Source: MSCI, Refinitiv

Bond yields rise

Stronger economic growth and accommodative policy led to a selloff in bonds and a spike in yields across maturities. The result of increased yields was a negative return for the FTSE Canada Universe Bond Index of -5.0%, the worst quarterly performance since the first quarter of 1994. Government and provincial bonds were most affected while declines in corporate were more muted. 

Our thoughts

We believe the global economy and corporate earnings will continue to recover as more businesses gradually resume normal operations and government stimulus provides continued support. Portfolios are positioned to benefit from this improving outlook. As such, our asset mix positioning remains overweight equities. However, strong performance from equities relative to bonds led us to rebalance this quarter to maintain our desired exposure. Within equities we have an overweight to small-cap stocks and maintain an allocation to value stocks. This quarter we also increased our emerging markets position. Within bonds, allocations to short bonds and high yield have protected portfolios in a period of rising yields. This asset mix positioning has served us well this quarter and remains attractive in the current environment.

Our portfolio management teams have selectively positioned portfolios to more cyclical assets that are expected to benefit from continued improvements in the economy. Our equity teams have taken gains in some businesses that have benefited from COVID-19 and bought companies that can outperform in a more positive investment environment. This includes companies within the financial sector as well as the travel and leisure industry. Within bond portfolios we are overweight credit, inflation-protected debt and have lower sensitivity in the portfolio to changes in yield. Although our overall positioning in portfolios reflects a positive outlook we remained well diversified. 

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.

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.