MD Financial Management: Chief Investment Officer Message—Canadian Equities Outpace Peers in June

July 16, 2014

MD’S MARKET UPDATE: TSX climbs 4%, Canadian dollar strengthens

Canadian equities were the top-performing asset class in June as the S&P TSX Composite index advanced 4.1%, pushing its one-year return above the S&P 500 and MSCI EAFE indices. The S&P 500 was relatively flat in June, while MSCI EAFE declined by 0.9%. The MSCI Emerging Markets index rose by 0.7%.

Following declines earlier in the year, the Canadian dollar continues to strengthen relative to the USD, up for the fourth consecutive month to close slightly below 94 cents.

Bond yields were relatively unchanged in June with the FTSE TMX returning 0.3% on the month.

RESULTS ACROSS GLOBAL ECONOMIES: Housing resilient in North America, EU recovery sluggish

The Canadian housing market continues to show resilience with reporting released in June showing starts hitting a 10-month high. Retail sales have also strengthened while Gross Domestic Product (GDP) grew by over 2% year-over-year.

Although U.S. GDP change for the first quarter of 2014 was revised downward to -2.9%, the U.S. economy picked up steam in the second quarter with job creation, industrial production, home sales and inflation all on the rise.

Economic recovery in Europe remains sluggish with manufacturing growth slowing and the Purchasing Managers’ Index (PMI) moving lower, leading the European Central Bank to drop its deposit rate into negative territory in an attempt to encourage lending.

Emerging markets rallied at the start of June, but were negatively impacted by geo-political uncertainty caused by conflict in Iraq and Ukraine. The Chinese economy, meanwhile, appears to have shown signs of recovery with higher industrial production and increasing PMIs.

CAPITAL MARKET INDICATORS AT JUNE 30, 2014
(in Canadian dollar terms, unless otherwise indicated)

Market Indicator Level 1-Month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) 15,146 +4.1 +28.7
U.S. (S&P 500 Index) 1,960 +0.1 +25.8
Europe, Australasia and Far East (MSCI EAFE Index) 1,972 -0.9 +25.3
Emerging Markets (MSCI EM Index) 1,051 +0.7 +15.8
Canadian Bonds (FTSE TMX Universe Bond Index*) - -0.3 +5.3
Exchange Rate: Canadian Dollar to U.S. Dollar 0.937 +1.6 -1.4
Gold Price (oz) 1,327 +6.2 +7.5
Oil Price (WTI) 105.4 -2.6 +9.1

*Formerly the DEX Universe Bond Index
Sources: StateStreet via StyleADVISOR, FTSE TMX Global Debt Capital Markets, and Bloomberg

MD’S INVESTMENT METHODOLOGY: LEARN MORE

At MD, we monitor global economic trends, integrating viewpoints from carefully selected managers who actively invest for the benefit of our clients.

If you would like to learn more about MD’s investment methodology and the impact of global economic trends on your investment portfolio, I encourage you to reach out directly to your MD Advisor.

William R. Horton, Jr., CFA
Chief Investment Officer
MD Financial Management Inc.

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