Over the last year we have discussed the likely effect on portfolio returns in the coming years of a low-growth world combined with very low interest rates. That time is now upon us. As we complete Annual Reports for the year ended July 31st, we are finally starting to see the effect of that low interest rate environment on portfolio returns: current year bond returns to July 31, 2017 have been running from just under 1% to slightly negative! Although bond yields remain at historically low levels, they have been quietly rising. As a result, we are seeing just how negatively bond prices are affected by these relatively small increases in bond yields when they rise from very low levels. The Government of Canada 10 year bond yield has recently increased to 1.8% per year from the recent lows of 1.3%. Although this modest increase of one half of one percent doesn’t seem that dramatic, it has resulted in even our relatively short term 5 year bonds having a capital depreciation in the 5-6% range over the last twelve months. After adding back the interest earned, the total return is in the negative 2-3% range. The longer the maturity date of a bond, the greater the swing in the market price of those bonds due to changes in current bond yields. We have been shortening the average bond portfolio maturity over the last few years to mitigate against this negative affect of rising bond yields.
Thankfully stock markets continued to perform well and have provided almost all of the return for portfolios over this last year.
Twelve month return to July 31, 2017
|Region||Appreciation||Dividend Yield||Total Return|
|U.S. S&P 500||12%||1.5%||13.5%|
|Canada TSX 60||3%||2.85%||5.85%|
DEPOSITING FUNDS ELECTRONICALLY TO NBCN
There is a new option for depositing funds electronically to your NBCN Account if you already are an online banking customer. This facility is only available to transfer funds to your Canadian $ Cash Trading account. If you are wanting to make an RRSP or TFSA contribution, you must still transfer the funds to your Cdn $ Cash Trading Account…. and we will make the contribution for you. Let us know you are transferring funds so that we can catch it sooner. Details are on our Blog.