Equities Mostly Positive in 2014
North American stock markets were mixed in the fourth quarter of 2014. In the U.S., the S&P 500 Index was up 8.8% while Canada’s S&P/TSX Composite Index slipped 1.5%. Canada lagged the U.S. due to its larger weights in the Energy and Materials sectors, both of which were weaker over the quarter and year. On the year as a whole, however, North American markets were positive. The S&P/TSX closed the year up 10.5%, while the S&P 500 ended up 23.9% (measured in Canadian dollars). Internationally, China (as measured by the Shanghai Composite Index) was one of the best performing stock markets both on a quarterly (up 40.4%) and annual basis (up 62.6%). Emerging markets such as Dubai and Russia were among the worst performers for the year while European markets muddled along with concerns growing around the health and stability of the Greek economy.
Capital market returns were atypical over the past year. Bond yields declined as investors switched to fixed income securities. Falling commodity prices reinforced the perceived safety of bonds. On the one hand, the market worried enough to be driven to low yields in fixed income while on the other, equities – particularly, in the U.S. - continued to climb higher and point to stronger growth. Globally, the unstable political situations in Iraq and Syria, as well as ongoing tensions between Russia and the West have moved off the main stage, although they remain concerns in the background.
Volatility increased over the quarter, particularly in December. The story across markets globally is centred on the downward slide in oil prices. During the quarter, oil prices repeatedly hit new five year lows. The trend remains in place in the early days of 2015 as crude oil (Brent) traded below $US49 for the first time in 5 ½ years. Our investment specialists who have exposure to the Energy sector are mindful of the weakness in energy prices, however, they remain comfortable from a long term point of view. The valuations of many energy companies are, historically, at levels that have only been seen during times of crisis, owing to the increase in global oil supply.
Tax Loss Harvesting Opportunities
The recent weakness in the Energy sector, led to some negative returns in the Energy positions within our portfolios. This decline correlates closely with the price of oil. In general, Energy company prices have been weak. As such, we’ve taken this market opportunity to harvest tax losses for our clients in non-registered accounts. We also saw weakness in positions within the Materials sector of our portfolios. This includes the performance of companies with exposure to base metals and those with exposure to gold, providing us with further opportunities to take some tax losses by selling positions in the sector.
On-going Monitoring on Your Behalf
As always we cannot predict the market’s direction in the short term, but the IPC Private Wealth Portfolio Management Team continues to monitor your portfolios and manage them to your objectives. Through oversight and daily monitoring, the team will continue to identify opportunities to harvest losses in order to manage the overall tax implications on your investments. As market volatility is expected to continue, the team will also manage your portfolios to ensure they are rebalanced as necessary and keep them aligned to your target asset allocation weights.
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