With the end of each calendar year comes the opportunity to reflect on past events, and to contemplate the future that awaits. Today, however, I find myself looking back further than the previous year.
In September 2008, Lehman Brothers Holdings, a global financial services firm, declared bankruptcy—following the exodus of most of its clients, dramatic losses in its stock price, and devaluation of its assets by credit rating agencies. At the time, Lehman was the fourth largest investment bank in the U.S. and its filing for bankruptcy protection was a pivotal moment in the late-2000s global financial crisis.
Over the past four years investment markets around the world have been tested, developing a new reliance on the actions of policy-makers and less reliance on fundamental economic factors. In the process, we experienced the phenomenon of what has come to be known as “risk-on/risk-off” trading, in which markets swing back and forth between optimism and pessimism. This environment had become the “new normal” for global financial markets.
Entering this new year we are starting to see the return of market fundamentals to the forefront of investment decision-making. Fundamentals, in this case, are the factors used by analysts to determine the value of an investment. This movement away from the “new normal”―the heavy reliance on policy-makers―to the “old normal”―a return to fundamentals―signals, for us, the potential for a return to more normalized financial markets.
This shift does not mean that global markets are “out of the woods.” Instead, we continue to hold the view that the global economy will expand at a two-speed pace, with emerging economies leading the way, and Canada well-positioned to prosper. (You can see and hear more about MD’s thinking about risk and opportunity in a recent interview I conducted on BNN, to discuss the long-term investment horizon and emerging market opportunities.)
But with shifts come opportunities—and at MD our purpose is to seize those opportunities through the work of our expert investment managers, hired on your behalf. Over the past four years, we have refined and honed our approaches in order to be responsive to factors and influences that had previously not been in anyone’s playbook; and today we are moving forward optimistically, carefully testing the path as we go.
We are proud of the work we have undertaken over the past year, and we are inspired by your continued confidence in our management of your investments and in our advice to you. If you would like to discuss the structure of your portfolio, and the MD funds and pools that it contains, I encourage you to reach out to your MD advisor.
William R. Horton, Jr., CFA
Chief Investment Officer
MD Financial Management Inc.