2014 in Review

Canadian equities did well in 2014 with the S&P/TSX Composite earning 11%. The strongest performing sector was Consumer Staples (+49%) while the worst was Energy (-5%).

US equities once again had a stellar year with a third straight year of double-digit gains. The S&P 500 posted a 14% return while the Dow Jones Industrials were up 10%.

International (developed) markets as a whole ended the year down 4%.  Within this large universe, Europe was down 5% on the year, Emerging Markets gained only 1%, Asia rallied late in the year to end up 2% overall, while in contrast, Latin America faltered and finished down 11%.
[pullquote_DD span=”3″ align=”right”]Commodities as a group were down 33% in large part due to the precipitous drop in the price of oil.[/pullquote_DD]

Commodities as a group were down 33% in large part due to the precipitous drop in the price of oil. The global energy sector was down 44% in 2014, by far the worst place to be, but Canada’s energy sector only lost 5% due to gains early in the year and currency exchange rates.

(All global returns are in USD. Source: TMX Powerstream and Bloomberg).

So 2014 was a great year but not across all fronts. North America benefited from continued growth while Europe and China showed weakness and stalling growth. Geopolitical tensions appear to be heightened and volatility in the markets continued to rise from all-time lows. [pullquote_DD span=”3″ align=”right”]2014 broke the record for never having experienced more than four consecutive down days.[/pullquote_DD]

The increase in volatility is a rather recent phenomena. For most of 2014, we saw steady and consistently rising markets. In fact, I came across a rather interesting statistic via the Wall Street Journal last week which pointed out that 2014 broke the record for never having experienced more than four consecutive down days. If you missed this factoid in your regular every day travels I wouldn’t blame you but please know this is very significant. Every single market downturn during the year maxed out and was met with aggressive buying.  This “buying of the dips” is a very bullish signal as it infers there is still a lot of cash on the sidelines waiting to buy in. While this is positive news, the tail end of the year saw smaller-cap companies under-perform the market itself and this could be indicating a weaker market going forward. The energy sector was seriously sold off, oil prices continue to drop and commodities are still struggling in the basement all indicating there are concerns for the markets going into 2015.

Looking ahead to 2015

[pullquote_DD span=”3″ align=”right”]These are the basic ingredients to a solid portfolio that may endure periods of weakness in the year to come but will stand the test of time.[/pullquote_DD]Each year brings concerns of its own and 2015 is no different. I believe we need to maintain our positions in the good companies we own while continuing to collect their dividends and carefully select the bonds we own from high quality and stable companies that can pay us back along with a reasonable amount of interest. These are the basic ingredients to a solid portfolio that may endure periods of weakness in the year to come but will stand the test of time and will, if adhered to in a disciplined manner, reward you handsomely.

There are many prognostications being tossed around by experts and arm-chair experts as well.  It’s important to remember that no one… let me repeat, no one can consistently predict the future performance of the market or any particular asset. Current news is already priced into the market. Unexpected news will change prices, and that’s just it, it’s unexpected therefore no one knows it’s coming. This, coupled with the speed of the market (recall: high-frequency traders, hedge funds, etc.) no one can react fast enough to rely on this as a strategy to outperform. The best investment solution is to hold on to the quality investments throughout the difficult times knowing the next great performers are in this mix. Further, trying to actively trade through a crisis is a sure way to “chase your tail” and buy too early or sell too late as well as increase your trading costs resulting in more performance drag on the portfolio. [pullquote_DD span=”3″ align=”right”]The best investment solution is to hold on to the quality investments.[/pullquote_DD]

All of the above points us back to maintaining a portfolio of quality companies in sectors that people will always demand and remaining disciplined to the chosen asset allocation (based on your specific risk tolerance and your goals) even during the times when we really don’t want to or feel like it. I’m here to help you successfully navigate through these times and, together, we’ll capture the upside returns that our investments most certainly have in store down the road.