The Great Demand
Last month seemed to have a different market‐shaping event every other day. While the introduction of a vaccine will help mitigate some future volatility around COVID‐19 infection rates, it’s already obvious 2021 will not be a ‘snooze’ year for financial markets. Between political discord and a pseudo firefight between short-sellers, prime brokers, and those on Reddit, it’s easy to lose focus on other financial events buried in the cacophony of your daily newsfeed.
2020 saw the Canadian real estate market reach a new all‐time high for national home sales, hitting a record 551,392 transactions, an increase of 12.6% from the previous year. Lockdowns and higher input prices slowed the pace of new developments, allowing demand to drastically outpace supply. We continue to see unrealized value in the multi‐family real estate space.
Given the lag in reporting, we are only now receiving Canadian retail sales data from November 2020. During the month, retail sales also reached an all‐time high of $55.2 billion, or 5.6% above the pre‐pandemic peak. The worst performing subsectors were gas stations and clothing, as would be expected during a pandemic where people are staying home. The strong retail data gives credibility to the theory of ‘pent‐up’ consumer demand and may continue as the economy reopens, before normalizing in the second half of the year.
In January, U.S. President Biden cancelled the Keystone XL pipeline project which would have transported 800,000 barrels of crude oil per day from Alberta to U.S. refineries. Although the decision was expected as it aligns with the incoming president’s agenda, it is expected to receive pushback from Canadian politicians who may use a continuing NAFTA provision to seek compensation for damages.
There may be a sense of mania in the markets with the trading activity surrounding GameStop, but when looking at the bigger picture, capital flows into equities have been fairly muted compared to flows into money market (cash equivalents) and bond (fixed income) funds. This concentrated ‘irrational exuberance’ in retail trading has not shaken our overweight conviction on equities.
- ARK Innovation ETF (ARKK) kicked off the year with another month of impressive returns, with the ETF adding 10.77% to its Net Asset Value (NAV)
- Clean energy stocks rallied on Biden’s environmental plan, pushing iShares Global Clean Energy ETF (ICLN) up 5.87%
- Federal and provincial bond values slipped during the month due to risk‐on sentiment, causing the Vanguard Aggregate Bond ETF (VAB) to drop 1.32%
- Ninepoint Gold Bullion (NPP226) NAV dropped 2.30% along with the price of gold as investors rotated out of the commodity