The North American stock markets have been dull for the first half of 2015.
The TSX is flat on the year, while the S&P 500 is up 3.6 per cent, including dividends. Many investors are getting irritated with the lack of performance in their portfolios as their financial advisors are taking minimal action to make them a profit this year. However, if you incorporate a more active management style in your portfolio, as we have for our clients, then you could have seen great returns so far in 2015. Our group manages our own in-house portfolios for our clients and our returns this year have outperformed their respective benchmarks handedly. Year to date, our Income Growth portfolio, which is about 20 per cent fixed income and 80 per cent stocks and cash, is up 10.6 per cent. Our Select Equity portfolio, which is made up of all stocks and cash, is up even higher at 13.9 per cent. These returns are reported after fees.
How have we been able to make money in a flat market environment? Our strategy is predicated on active management. We think of the market, not as a stock market per se, but as a market full of stocks to choose from - and you don't have to choose them all!
Certain sectors like energy, utilities and materials have been a disaster this year on both sides of the border. In Canada, these sectors are down 17.3 per cent, 5.6 per cent and 15.8 per cent respectively. We have no exposure to these sectors, but have holdings in the sectors that are working and generating returns for investors, such as consumer discretionary, health care, technology and financials.
Being in the right sectors and choosing the best stocks within those sectors forms the foundation of our strategy. It's a hybrid approach of both top down (think macro outlook and sector allocation) and bottom up (think fundamental research on individual companies).
This strategy has served us well and forces us to avoid major blowups while participating in market rallies. Many Canadian investors who are hanging onto their energy and gold stocks in the hopes of them bouncing back some day can certainly appreciate this. Just last week the Canadian energy sector broke down to a new low not seen since the 2008-2009 financial crisis. Yikes! If market dynamics shift in the future, we won't fight it. We'll simply adjust our allocation into what's working and, as always, avoid what is not.
Market data and portfolio performance are as of July 30.
Lori Pinkowski is a senior portfolio manager and senior vice-president, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Past performance is not necessarily indicative of future performance. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Monday morning on CKNW at 8:40 a.m
