Video - The geographical distribution of your investments
May 2016 : The geographical distribution of your investments with our experts Michel Doucet and Jean-René Ouellet
SUBJECT : The geographical distribution of your investments
EXPERTS : Michel Doucet and Jean-rené Ouellet
Note: The information in brackets "[...]" describes the visual and audio content of the video other than the dialogue or the narration.
[Elegant music begins. The firm's logo appears on screen, as well as the video’s title: Market Trends – May 2016 - The geographical distribution of your investments.
These images give way to Mr. Michel Doucet and Mr. Jean-René Ouellet sitting in a newsroom like set, in front of a screen on which the following is written: ‘’Market Trends’’].
Jean-René Ouellet (MBA, CFA, Portfolio Manager, Portfolio Advisory Group)
Hello and welcome to Market Trends!
I’m Jean-René Ouellet, here with my colleague Michel Doucet, to discuss about investment opportunities with a focus on geographical allocation.
Michel Doucet (B. Sc., CIM®, Vice-President and Portfolio Manager, Portfolio Advisory Group)
Jean-René, hasn’t the Canadian stock market been a surprise for so far this year?
It sure has! The TSX is outperforming most forecasts. But just because you start the season strong doesn’t mean you’re a shoo-in for the playoffs!
Like the Habs?
True, for the first quarter, the TXS easily outperformed the S&P500 and the MSCI World, paralleling the indexes of emerging markets. Stabilizing oil prices, followed by a rebound to $40, has been particularly positive.
So, does this mean that it’s time to reduce exposure to the Canadian market?
Since we’re already underweight in Canadian equities, we don’t plan to reduce our investments there, and we might even increase them if the markets give us some opportunities.
Fine, so does it still make sense to be overweight in U.S. equities?
We’re still impressed with the strength of the U.S. economy and the proactive steps the Fed is taking, but valuations are cooling our enthusiasm somewhat. The S&P500’s price-to-earnings ratio is near twenty—the highest it’s been since 2010. At the time, earnings growth was strong, taxes and interest rates were dropping and profits were up. Today, companies are struggling to increase revenue, taxes are already low and debts have already been refinanced at more attractive rates. But at this point, even salary increases could put pressure on record profit margins. As far as bonds and cash go, the market is fine, but in absolute terms, we should lower our expectations in terms of future returns. Investors who keep a close eye on the markets may, however, want to increase exposure to leverage erratic swings like those we saw in August 2015 or in early 2016.
A recent survey by the European Central Bank showed that a lot of companies were finally benefiting from lower taxes and easier access to credit for refinancing. It’s kind of an interesting parallel to what was going on in the U.S. in 2010, isn’t it?
Yes it is, but earnings growth potential is higher in Europe and more concrete. The economic climate is improving, domestic confidence is rising and higher profits should boost the markets. Tactically speaking, the fragility of the Spanish government and the Brexit referendum are the only clouds in the otherwise blue sky. So if these have a negative impact on the markets, there could be some windows of opportunity for us to increase our exposure there.
And how do emerging markets fit into all this and what about Greece?
I’m going to answer your question with a question: Do you think the Fed will really stay on the sideline for the rest of the year?
Great question! The Fed won’t be happy if the markets diverge from its predictions. It was sensitive to the fluctuations in August 2015, but started an upswing in December. It’s still sensitive to the fluctuations from earlier this year, but will probably come back twice this year, and a few more times next year.
In this context, emerging economies could be very volatile. In the past 30 years, each time the Fed shifted, emerging economies took a hit, so caution is clearly called for. But in any case, experts agree that underweighting emerging economies is the way to go right now.
If I hear you right, we’re maintaining a cautious approach to Canada and emerging countries, but their time will come. Until then, Europe and the U.S. remain important core markets investments.
And we’re got one last message for investors: Keep your expectations reasonable, even modest, when it comes to market rebounds. And remember: Volatile markets equal opportunities.
Thanks for tuning in, and see you next time for Market Trends.
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