One of our mandates at High Rock Capital Management is to use our pricing power as an institutional asset manager to pass on cost savings to our Private Clients where we can.
Our thorough research through the month of April has identified a number of areas where we can replace ETF's and Mutual Funds (with relatively expensive MER's) by creating our own baskets of securities to replace them thereby eliminating the additional costs.
By reducing ETF / Mutual Fund use from 100% to approx. 46% we will reduce MER costs from over 0.50% to approx. 0.08% on my original 60% equity / 40% fixed income model.
Management Expense Ratios (MER's) can add up:
In a November, 2014 article in the Globe and Mail, referencing a Vanguard study: The Average Fee Based Advisor charges 1.25% fee and purchases mutual funds for client portfolios with an average MER of 1.36%.
Investors should be aware of these costs because they can, over time turn out to be significant.
In a low return environment even more so!
We believe that it is our responsibility to our clients to provide them with not only better than average risk-adjusted returns, but also to add value by reducing their costs.
As we get the first reading on Q1 US GDP growth today, it is widely acknowledged that the global economy is looking to the US economy to pull it through the 2nd half of 2015.
In his testimony to the House of Commons Standing Committee on Finance yesterday, Bank of Canada Governor Poloz stated:
"The segments of non-energy exports that we expected to lead the recovery are doing so, and we expect this trend to be buttressed by stronger U.S. growth..."
more here: http://www.bankofcanada.ca/2015/04/opening-statement-28-april-2015/
It is expected (according to a Bloomberg poll) that US Q1 GDP grew at a below average 1%. Led by reduced consumer spending and a greater savings rate.
Much of this slower growth has been blamed on the weather, but the much stronger $US has also been a significant headwind.
As the US Federal Open Market Committee ends its 2 day meeting today (statement at 2pm) it remains to be seen how this weaker economic scenario will be received.
Most expect an interest rate increase in September as the Fed begins the process of normalizing interest rates.
With the global economy needing direction, US data and US economic activity will take on an increasingly larger role and the Fed will have to take this into consideration in its decision making process.
The long standing market cliche (for short-term trading) suggests a summer break, with a return to the market in October or thereabouts.
It has not really been statistically accurate over the years.
The last couple have certainly been "break-even" propositions at best, although buying in October has ended well for most investors as markets have fared well into the end of the year:
The S&P 500 is currently breaking out of its recent consolidation, through the February highs, likely because traders are getting more comfortable with Q1 earnings announcements:
The S&P 500 remains "pricey", with the 12 month forward Price to Earnings (P/E) ratio at 17.1.
The 10 year average is 14.1.
The budget proposes to reduce the RRIF minimum withdrawal rates for taxpayers age 71 and over to reflect the
longer life spans of Canadians and existing investment return rates. These measures will be effective for the
2015 and subsequent taxation years.
If a taxpayer has already withdrawn more than the new reduced minimum amount, they will permitted
to re-contribute the excess amount up to the previous minimum back into their RRIF. The deadline for
recontributions is February 29, 2016 and the amount will be deductible for the 2015 year. Similar rules will apply
to taxpayers receiving annual payments from a defined contribution RPP or PRPP.
Are you a saver?
If you are, the TFSA is an excellent vehicle and it just got better.
If you max out your TFSA for the next 10 years ($10,000 per year), you will have an additional $100,000.
(Present Value = $40,000, 10 payments of $10,000 each year at a 7% annual growth rate, Future Value = $209,966).
If you have $40,000 in your TFSA now, you should have roughly $210,000 in 10 years.
That should provide some incentive!
Helping Families Make Ends Meet
It is difficult to comprehend how investors would want to invest in a 10 year fixed rate that provides almost no return.
In essence, they would have to be quite worried about deflation and the security of a German bond (bund) is the safety feature driving their purchasing decisions.
The European Central Bank is also assisting in this low yield as they continue to purchase bonds and reduce the supply with their version of a program of quantitative easing.
With yields as low as they are in Germany, other investors are looking to North American bond markets for higher yield (with similar credit quality) driving prices higher and yields lower.
If you would like to participate or receive a recorded version, please firstname.lastname@example.org
Until last Friday, trading volume had been lighter than average for the S&P 500 companies. On Friday, volume spiked as significant selling entered the market. The S&P 500 ended the day down more than 23 points.
This is a nervous market (as are many equity markets at the moment), being propped up by global central bank monetary stimulus.
Over the weekend the Bank of China reduced reserve requirements for lenders, adding additional stimulus to a slowing Chinese economy.
Investing is not a sport.
In Laurence Fink's (CEO of Black Rock, the worlds largest asset management company) letter to the CEO's of the S&P 500 companies (earlier this week) he suggested that :
“Investors need to focus on long-term strategies and long-term outcomes,” Mr. Fink said, suggesting we’re currently living in a “gambling society.”
It irks me to hear the media pandering to this gambling mentality.
Investing is not about the stock markets performance over 1 day, 1 week or even 1 year. Anybody who purchases stock in a company and expects immediate gratification is gambling.
Gambling is not investing.
“The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy,” Mr. Fink writes in the letter. He says that such moves were being done at the expense of investing in “innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth.”
US companies spent nearly $1 trillion on stock buy-backs and dividends last year under shareholder pressure for price appreciation and short-term gains.
More buying of shares drives prices higher in the short-term but has the ability to push valuations to unrealistic levels.
Share prices reached unrealistic levels in 2000 and 2008.
We certainly know what followed.
Sadly and unfortunately, our thirst for "at the moment" information leaves us tuned in to those who make their living by selling that information. It can be addicting. They want it to be. Increased readership / listenership brings advertising revenue. Churning short-term news keeps folks "tuned in".
When I tune in to 680 (Toronto's "all news" radio station) for "traffic and weather together" (useful and practical information) and get the "business report" that suggests that a financial market had a "winning" or "losing" day (useless information) ...
I turn it off.
Investing and the management of wealth are about setting and achieving long-term goals. The daily fluctuations (volatility) can and may be unnerving. That is why a good wealth manager is there to help you focus on those goals.
The day to day, week to week, month to month, quarter to quarter stuff is just noise.
The idea of "rockstar" portfolio management (how did they perform this quarter?) is short-term noise.
Turn it off.
Focus on your long-term goals.
Let me know.
Monetary Policy Report : April 2015
And... In Canada:
and the $C?
Is at the best levels since early January:
And the trip to Europe just got cheaper!!
A number of complex forces are shaping the outlook. These include medium- and long-term trends, global shocks, and many country- or region-specific factors:
• In emerging markets, negative growth surprises for the past four years have led to diminished expectations regarding medium-term growth prospects.
• In advanced economies, prospects for potential output are clouded by aging populations, weak investment, and lackluster total factor productivity growth. Expectations of lower potential growth weaken investment today.
• Several advanced economies and some emerging markets are still dealing with crisis legacies, including persistent negative output gaps and high private or public debt or both.
• Inflation and inflation expectations in most advanced economies are below target and are in some cases still declining—a particular concern for countries with crisis legacies of high debt and low growth, and little or no room to ease monetary policy.
• Long-term bond yields have declined further and are at record lows in many advanced economies. To the extent that this decline reflects lower real interest rates, as opposed to lower inflation expectations, it supports the recovery.
• Lower oil prices—which reflect to a significant extent supply factors—provide a boost to growth globally and in many oil importers but will weigh on activity in oil exporters.
• Exchange rates across major currencies have changed substantially in recent months, reflecting variations in country growth rates, monetary policies, and the lower price of oil. By redistributing demand toward countries with more difficult macroeconomic conditions and less policy space, these changes could be beneficial to the global outlook. The result would be less risk of more severe distress and its possible spillover effects in these economies.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist