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Market Turmoil – Why your portfolio is not as bad as the market

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Over the past 6 weeks, but especially in the past week, the stock markets have experienced a meaningful pullback.

From its peak to close yesterday, the TSX was down 11.5%.

The US S&P500 was down 7.9% from its peak.

Dow Jones Germany was down 14.8% from its peak.

Our clients have typically fared much better during this period for the following reasons:

  1. The Canadian Bond Universe is up 0.7% since September 1. This is one of the main reasons to own bonds – in most cases they act as a counterbalance to stocks during weakness in the stock market. In addition, it isn’t just owning bonds, but also making the right choices in terms of corporate bonds vs. government bonds, and owning long term bonds vs. short term that can further benefit a portfolio. Fortunately, at TriDelta we have been predicting lower long term bond yields, and have benefitted from owning longer term bonds.
  2. TriDelta looks at volatility risks and builds stock portfolios that are meaningfully less volatile for our more conservative clients, but even for our growth clients, there is an element of capital preservation in our stock selection. As a result, while our stock portfolios have declined in value, we have meaningfully outperformed the TSX index over this rough period. Conservative clients would have outperformed the TSX by 8% on the stock part of their portfolio since the beginning of September (decline of only 3.5%). Growth clients would have outperformed the TSX by 3% on the stock part of their portfolio.
  3. All this means that your asset allocation and risk profile have an important impact on performance when things are going well, and when things are not going so well. For example, a conservative TriDelta client with only 40% in stocks would be down roughly 1% since September 1st. A growth TriDelta client who is 80% in stocks will be down roughly 7% since the peak of the market. In addition, our High Income Balanced Fund is down just 1.5% since September 1. While we never want to be down, this should give you a better sense of how your portfolio has fared within the pullback.

13797194_mA final note on asset mix. We believe that if your asset mix was right for you 6 months ago, it is probably still correct for you today. The only reason for a meaningful change is if your cash flow needs have changed significantly or if your overall financial position has had a meaningful change. If those haven’t happened, we wouldn’t recommend changing now. Keep in mind that in February 2009 it was almost impossible to get people to invest in the market – with most late RRSP contributions going to cash. For the full year 2009, the TSX had a return of 35.1%. The point is that it is very difficult to pick a market bottom, but we do believe it isn’t far off from here. When the bottom hits after a sudden pullback, there is quite often a very strong rally. Investors with a long term perspective do not want to miss that rally.

We will continue to monitor various factors closely, and may make some changes to portfolios as we do throughout the year, but for now, we believe it is not the time for major changes.

One factor we are monitoring is Ebola. We do not know what Ebola will become on a global basis. We do know that over the past 90 years, the fear factor on ‘new’ diseases and viruses has been much greater than the actual global impact. How many of us even remember the Swine Flu? In June of 2009, the World Health Organization and the US Centers for Disease Control announced that it was a Pandemic – and fears were rampant. While not equating the two, we believe that it is very likely that today’s fear will prove to be overdone on a global basis.

As always, we are happy to talk to and meet with all clients at any time. If you have questions or concerns, please do not hesitate to contact your Wealth Advisor.

Thank you.

TriDelta Investment Management Committee

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Executive VP

Lorne Zeiler

VP, Wealth Advisor

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