As we move forward, we remain steadfastly committed to continual improvement. In this spirit, we have introduced a survey tool that we will send out prior to each Wealth Road Map Review Meeting \u2013 the objective is to allow for reflection and the construction of an agenda based on your areas of interest. Continued feed back on this tool is greatly appreciated!<\/p>\n
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If you have any questions about the Quarterly Compass Newsletter or anything else in your financial life, please use the Calendly link below to set up a time to talk or reach out to Jordan or Scarlett, and they will be happy to set up a time!<\/p>\n
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BOOK A MEETING THROUGH CALENDLY<\/a><\/strong><\/p>\n <\/p>\n For those that believe \u201cbrevity is the soul of wit\u201d, here is the Quarterly Compass Newsletter in five key points:<\/p>\n <\/p>\n <\/p>\n The events of Q4 2023 remind me (ironically) of a quote from Lenin who once remarked that \u201cthere are decades where nothing happens; and there are weeks where decades happen\u201d. Although we did not see \u201cweeks where decades happen\u201d, we saw weeks where the year happened. Missing any of those weeks would have meant missing out on a substantial portion of your annual return. This is exactly why you want to be, with extremely rare exceptions, fully invested inline with your objectives and risk tolerance. Market turns have always come quickly and the current trends towards algorithmic trading and using exchange-traded funds (ETFs) in place of individual stocks has made the pace of reversals truly stunning.<\/p>\n <\/p>\n Key North American markets provided the following returns for Q4 2023: \u00a0the NASDAQ 100 and S&P 500 gained 14.65% and 11.65% respectively (in USD) and the Canadian S&P\/TSX Composite rose 8.11%. International markets were also positive, with the MSCI EAFE Index up 10.72% (in USD). Q4 started on a weak note in October but turned up substantially in November and December. Tame U.S. inflation data, strong economic data, the containment of the Israel-Hamas war and the pivot by the U.S. Federal Reserve (The Fed) all provided tail winds. The recovery was broad based and, in the U.S. led by the real estate, technology, financial, and industrial sectors. Only the energy sector posted negative returns. All figures are per Refinitiv.<\/p>\n \u202f <\/em><\/p>\n Per Refinitiv, key global fixed income benchmarks, such as the Bloomberg U.S. Aggregate Bond Index posted positive returns as key yields fell substantially during Q4. In its December meeting, the U.S Federal Reserve maintained it key overnight rate but hinted very strongly that rate hikes are now at an end and that cuts are now possible. In Canada, the Bank of Canada (BoC) maintained its key overnight rate and maintained its bias towards hiking. The maintenance of the hiking bias was a bit curious as the economic\/inflation data coming in has not been strong and Canadian debt\/GDP is amongst the highest in the developed world. It is worth noting that the BoC\u2019s own data shows that a significant percentage of Canadian inflation is being driven by higher mortgage finance costs \u2013 i.e., rate increases causing inflation.<\/p>\n <\/p>\n During Q4, commodity prices declined per the Bloomberg Commodity Index. Furthermore, as per Refinitiv \u2013 market-based expectations of inflation remain well-contained with longer-term inflation \u201cbreak-even\u201d rates ranging from 5 to 30 years, all remaining near or below 2.30% at the time of writing.<\/p>\n <\/p>\n Based on questions from clients I have collected a few thoughts:<\/p>\n <\/p>\n First and foremost \u2013 there continues to be a lot of questions about the market volatility that we saw in September and October. Historically, September and October are amongst the weakest months of the calendar for stock markets. There are many theories for this phenomenon including investor uncertainty about the next year\u2019s earnings, final summer holidays and the fiscal year end for many financial sector businesses. It is usual to see some sort of market pause or temporary reversal during these months. This is especially true in recent years \u2013 as pointed out by Fundstrat \u2013 the last few Septembers have been more down than the average. In addition, this year, I believe we saw an exaggerated seasonal weakness this year because the Israel-Hamas war drove fears about a wider Middle East conflict.<\/p>\n <\/p>\n The correction was also likely attributable in part to what seems to be a reaction pattern from \u201cinvestors\u201d who have very fickle macro-economic outlooks and who have adopted the habit of viewing the world through a \u201cglass half empty\u201d lens. Bad news is bad news and good news is viewed as a chance to sell. This can be seen in the fact that, per Bloomberg, U.S. mutual funds and ETFs suffered almost US$240 billion of redemptions in the 12 months ending October 31st 2023 even though the S&P 500 was up by more than 20% in that time period. Money market and bond ETF\/mutual funds saw inflows of US$1.2 trillion over the same time period. This is the exact opposite of what usually happens as good returns typically attract funds to an asset class and speaks to the profound skepticism and \u201cnegative reaction function\u201d of many \u201cinvestors.\u201d<\/p>\n <\/p>\n Bull or positively trending markets are said to \u201cclimb a wall of worry,\u201d or put another way by John Templeton, \u201cbull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria\u201d. <\/strong>There is a laundry list of worries out there (inflation, valuations, investor flows, financial conditions etc.), as such I believe that in John Templeton\u2019s frame we are somewhere between pessimism and scepticism \u2013 which implies that this bull market likely has a long way to go.<\/p>\n <\/p>\n This phenomenon is very counter intuitive which is why I have shared a \u201cfilter\u201d on the markets that can be useful in thinking about potential outcomes and why frames like Templetons are useful. The idea is to imagine that the market is a machine that wants to create the greatest amount of psychological \u201cpain\u201d for the largest number of \u201cinvestors\u201d. If \u201cinvestors\u201d are overly positioned in cash\/near cash investments, then (barring a collapse of the financial system) one of the best ways to create \u201cpain\u201d is to have markets move substantially higher. When the market you sold (or did not buy) goes up much more that what you own \u2013 that hurts. The opposite is also true, when \u201cinvestors\u201d are overly optimistic and are invested as such, then the most \u201cpainful\u201d thing that can happen is for the market to drop substantially.<\/p>\n <\/p>\n Looking forward, I remain optimistic about the year ahead but want to be direct in stating that we will likely see several corrections along the way. Examples of data points that are contributing to my belief that a positive 2024 is highly likely include:<\/p>\n Another question that came up frequently in the quarter was related to our clear overweight of U.S. equities in the equity allocations of portfolios. This decision comes down to where your capital will likely be treated best. As inflation and interest rates continue to drop it is likely that we will continue to see companies with strong secular growth profiles continue to perform well. These companies typically belong to sectors such as technology, communications, industrial or consumer discretionary.\u00a0 Unfortunately, the S&P\/TSX 60 index is dominated by sectors that do not fit this \u201cblue chip growth\u201d profile. There will be a time when Canadian equites become more appealing, but this does not appear to be that time. This is not to say that the TSX will not appreciate if equities rise in general \u2013 just that the best chance for the best possible return lies elsewhere right now.<\/p>\n <\/p>\n The last thought I would like to share in this piece relates to the evolving world of blockchain and digital assets. Blockchain technology and crypto tokens (Bitcoin, Ethereum etc.) are being brought from the fringes of the financial world into the mainstream by U.S. regulators and large U.S. asset managers such as Blackrock, Fidelity, JP Morgan, Franklin Templeton and State Street Global Advisors to name a few. In addition to Bitcoin ETFs, these Wall Street institutions have been investing heavily into blockchain technology to facilitate trading, administration, and a host of other functions. Some large global banks have begun to issue bonds on blockchain and asset managers like Templeton have launched money market funds using blockchain.<\/p>\n <\/p>\n There were times where one could easily ignore this space as a \u201cscam\u201d or \u201cplayground for criminals\u201d \u2013 I humbly opine that those times have now likely passed and that even if only partially adopted, the impact of these technologies will be profound. Like the internet in 1994 before Netscape went public in 1995, blockchain is being brought to the fore and will likely continue to become more mainstream as the months and years go by. In fact, the mass marketing has begun \u2013 here is a link to a recent ad on YouTube and the X platform (former Twitter): https:\/\/x.com\/bitwiseinvest\/status\/1736755061127020794?s=12&t=ra0LDTyCVn28mWO1v67AqA<\/a><\/p>\n <\/p>\n This does not mean that we should run headlong into the space \u2013 but it does mean that it is likely that these technologies will start to impact our daily lives and having some familiarity with the space would be useful. To that end, please find below a link to an Introduction to digital assets by Fidelity Digital Assets: Introduction to Digital Assets (fidelitydigitalassets.com)<\/a><\/p>\n <\/p>\n We have taken several actions in the portfolio entrusted to us since our last update. First, we have conducted our routine quarter-end review of all holdings and will be adjusting the names in the portfolio \u2013 we have pushed most rebalancing into 2024 to defer capital gains. As previously discussed, a key part of our process involves profiting from our successful names and looking at the worst-performing stocks with an eye to reduce or remove them in favour of stocks with a better fundamental and technical profile. We also conducted a review of our alternative strategy holdings and replaced one manager and switched products with another. With client input and where client objectives and risk tolerance aligned, we also introduced a 1% weight in the Canadian traded Fidelity Advantage Bitcoin ETF to take advantage of the adoption cycle and supply\/demand dynamic that is evolving.<\/p>\n <\/p>\n As always, the focus of the Kluge Wealth Advisory Group is on preparation and not prediction. Irrespective of any views, we always acknowledge and prepare for a wide range of events and outcomes. As we move into 2024, the picture painted by my Risk Dashboard remains optimistic about the path forward. As a result, we recommend that investors consider reducing cash and investing in both high-quality equity and fixed income, to the extent that risk tolerance and objectives allow.<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n As we move forward, we remain steadfastly committed to continual improvement. In this spirit, we have introduced a survey tool that we will send out prior to each Wealth Road Map Review Meeting \u2013 the objective is to allow for reflection and the construction of an agenda based on your areas of interest. Continued feed […]<\/p>\n","protected":false},"author":144,"featured_media":572,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-1023","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights"],"yoast_head":"\n\n
Quarterly Compass Newsletter \u2013 December 31, 2023<\/strong><\/h2>\n
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The information contained herein has been provided for information purposes only.\u00a0 The information has been drawn from sources believed to be reliable.\u00a0 The information does not provide financial, legal, tax or investment advice.\u00a0 Particular investment, tax, or trading strategies should be evaluated relative to each individual\u2019s objectives and risk tolerance.\u00a0 This does not constitute a recommendation or solicitation to buy or sell securities of any kind.\u00a0 Wellington-Altus Private Wealth Inc. (WAPW) does not guarantee the accuracy or completeness of the information contained herein, nor does WAPW assume any liability for any loss that may result from the reliance by any person upon any such information or opinions.\u202f Before acting on any of the above, please contact your financial advisor.<\/h6>\n
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