PETER DOLEZAL: Equity market lessons for 2015

Canada’s negative equity returns are due primarily to the decline in the price of resources, most notably the collapse of oil prices.

Investors in 2015 equity markets have, depending on their geographic diversification, experienced a wild ride — from a negative to solidly-positive performance.

Of all major world markets, Canada’s TSX Index, to the end of November, was among the worst performers — recording a decline of 9.2 per cent.

Had an individual been invested in this Index only, his/her portfolio — even after adding 2.7 per cent in dividends — would be showing a year-to-date negative return of 6.5 per cent.

Canada’s negative equity returns are due primarily to the decline in the price of resources, most notably the collapse of oil prices.

Our resource sector comprises only about 15 per cent of Canada’s GDP, yet it contributes almost 50 per cent to the TSX Index.

When resource prices eventually rebound, the Index should again outperform.

Cyclical negative equity returns are to be expected; they do not in themselves signal a need for change in investment strategy.

Markets encounter downturns, only to rebound and deliver solid returns over the longer term.

Had the investor held only one-third of his/her portfolio in the TSX Index, one-third in the U.S. S&P 500, and one-third in the MSCI World Index, the year-to-date results would have been much improved.

Total returns to the investor would have been:

• CDN TSX Index:

(6.5%)

• U.S. S&P 500 Index:

2.51%

MSCI World Index:

16.19%

 

This geographically-balanced portfolio would have seen a respectable 4.1 per cent total return — not spectacular, but a considerable improvement on the returns of an all-Canadian Index investment.

Once again, this lesson highlights the risk-reducing benefit of diversifying investments beyond Canada, which represents only three per cent of world market values.

Of course, the prudent investor will consider further diversifying some portion of his/her portfolio to Fixed Income products, thus further mitigating equity market risk.

With an emphasis on dividend-paying investments, minimization of investment holding costs, and currency-hedging, portfolio returns are enhanced — regardless of market direction.

With the Canadian Index heavily weighted not only in resources, but also financials (32 per cent), the prudent investor is wise to avoid purchasing the entire TSX Index.

Instead, investments in specific sectors such as energy, materials, and financials, are best limited to no more than five to 10 per cent of portfolio value; this limits the influence of any one sector, and moderates volatility of the portfolio.

The investor has neither control over, nor the ability to predict equity market direction.

He/she does however, have significant control over portfolio holding cost, degree of diversification, currency-hedging, and even the degree of contribution of portfolio income (yield) to total returns.

Careful attention to these controllable factors will significantly mitigate normal market risk, and enhance long-term returns.

2015 is ending like every other year.

Some world markets and sectors are positive — others are negative — proving once again that sector and geographic diversification remains a critical investment strategy which should not be ignored.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his most recent, The SMART CANADIAN WEALTH-BUILDER.

Just Posted

Access: A day in the life using a wheelchair in Victoria

Black Press Media teamed up with the Victoria Disability Resource Centre to learn about barriers

Popular food truck to open restaurant on Oak Bay Avenue

Dead Beetz Burgers adds brick-and-mortar restaurant

CRD aims to reduce solid waste going to Hartland Landfill by a third by 2030

District launches public engagement campaign for waste reduction strategies

Sidney wasn’t and isn’t considering leaving current library system, says mayor

Current plans call for a review of library services in 2022

More than 300 teens take to the polls at Mount Douglas Secondary for mock federal election

‘This is a pretty engaged generation,’ says Mount Douglas Secondary social studies teacher

VIDEO: Explosion, fire sends woman running from Saanich home

Heavy smoke in the area, crews on scene

Zantac, the over-the-counter heartburn drug, pulled in Canada, U.S.

Health Canada also investigates possible carcinogen in some ranitidine drugs

B.C. public safety minister says cannabis edibles not in stores til January

Mike Farnworth says he wants regional issues considered when it comes to licensing

POLL: Do you think the day of the federal election should be a statutory holiday?

Increasing voter turnout has long been a goal of officials across the… Continue reading

Greta Thunberg calls for climate action in Alberta, but doesn’t talk oilsands

Swedish teen was met with some oil and gas industry supporters who came in a truck convoy

Scheer denies spreading ‘misinformation’ in predicting unannounced Liberal taxes

Conservative leader had claimed that a potential NDP-Liberal coalition could lead to a hike in GST

Chilliwack man pleads guilty in crash that killed pregnant woman

Frank Tessman charged under Motor Vehicle Act for accident that killed Kelowna school teacher

Kawhi Leonard, former Toronto Raptor, welcomed back to Vancouver at pre-season game

Fans go wild at pre-season game between L.A. Clippers and Dallas Mavericks at Rogers Arena

Greens and NDP go head to head on West Coast; Scheer takes fight to Bernier

Trudeau turns focus to key ridings outside Toronto after two days in Quebec

Most Read