MD Financial Management: Chief Investment Officer Message—Spring Brings Signs Of Growth

May 14, 2014

MD’S MARKET UPDATE: TSX outperforms global peers, bond yields decline

Canadian equities were the top performing asset class in April with the TSX rising 2.4% on the month. Due to an end of month rally, the S&P500 and MSCI EAFE were able to post small positive returns, while the MSCI Emerging Market Index declined and continues to underperform its developed peers on a year over year basis.

For the second consecutive month, the Canadian dollar strengthened slightly, but remains down significantly year over year relative to both the USD and euro.

On April 16, citing the continuing appropriateness of the current stance of monetary policy, the Bank of Canada announced its latest decision to maintain the overnight lending rate at a target of 1.0%—a rate that is unchanged since September 2010.

The FTSE TMX Universe Bond Index advanced 0.5% with the 10-year Government of Canada bond yield dropping 5 basis points (0.05%), moving in alignment with U.S. rates.

RESULTS ACROSS GLOBAL ECONOMIES: Spring brings signs of growth in developed nations

After a slow winter the Canadian economy is showing signs of life with retail sales rising, increased trade (moving the country back to a trade surplus), and a declining unemployment rate.

In the U.S., expanding payrolls have contributed to improved consumer sentiment and higher retail sales; however, home sales have weakened as housing prices continue to rise. Industrial production increased in April with expanding manufacturing output and increased capacity utilization.

Sentiment continues to rise in the European Union as both purchasing manager indices and business confidence hit three-year highs.

Emerging market growth remains uneven, with Russia tumbling into recession amidst slow growth and capital outflows.

While both Canada and the U.S. posted higher headline inflation numbers in April of 1.5%, both remain below respective central bank targets.

CAPITAL MARKET INDICATORS AT END APRIL 2014

(in Canadian dollar terms, unless otherwise indicated)

Market Indicator 1-Month Return (%) 1-Year Return (%)
Canada (S&P TSX Composite Index) +2.4 +21.3
U.S. (S&P 500 Index) +0.2 +31.4
Europe, Australasia and Far East (MSCI EAFE Index) +0.9 +24.2
Emerging Markets (MSCI EM Index) -0.2 +7.5
Canadian Bonds (DEX Universe Bond Index) +0.5 +0.2
Exchange Rate: Canadian Dollar to U.S. Dollar +0.8 -8.1
Gold Price (oz) +0.6 -12.5
Oil Price (WTI) -1.8 +6.7

Sources: StateStreet via StyleADVISOR, PC Bond Analytics, and Bloomberg

WHAT THIS MEANS FOR YOU

At MD, we take our stewardship seriously, incorporating the best thinking on global trends and investment strategy.

If you have questions about the impacts of global economic trends on your investment portfolio, or MD's investment methodology, we recommend that you take advantage of your personal MD Advisor and book a call or meeting to ensure you are fully briefed.

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

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