In this issue:
Perspective Summer 2016

Last summer at this time, we wrote about the “triple in the annual portfolio returns”. The stock market, one year bond yields and foreign exchange gain against the Canadian dollar all contributed positively to annual returns through to mid 2015. Going forward into 2016, we knew that we were eating last year’s lunch with bond yields and expected the same with the Canadian dollar and, perhaps, the stock market in general.

Now…one year forward…we indeed are seeing that prophecy play out. Annual portfolio returns remained strong from May through July of last year, and in the 3-4% range from August to December. However, they dipped into negative territory from January through April in 2016. The low-to-negative returns for the year ending in the first months of 2016 need the perspective that they were preceded by back-to-back strong years, such that the three-year compound returns still were very satisfactory. Inside this issue, you will see a more detailed analysis, by component.

On June 23rd British voters elected by a very narrow margin to leave the Eurozone (Brexit). Global markets reacted the next day with the single largest one day decline, shedding approximately US$ 2 Trillion in value. Days like Friday June 24th receive a great deal of media attention, causing a great deal of stress for global investors. What received far less Press is the market regaining its composure and quietly returning to pre-Brexit levels over the following ten days. Brexit is an extremely complicated situation and is far from over. The British government will not be filing “Article 50” formally declaring their plan to exit the Eurozone until sometime this Fall. Once filed, it will be two years before they exit and will require an extensive amount of negotiation between the parties to determine what their relationship looks like going forward. Although it is difficult to foresee a scenario where Brexit could boost the global economy, Britain’s GDP is only 4% of global GDP (only slightly larger than Canada’s)! British companies are still going to want to export their products globally (including Europe) and British consumers will continue to want to import the products they enjoy. That said, there will be some challenging times ahead for the British economy as they define their relationship with Europe post-Brexit. The positive for Britain is that the recent weakness in their currency, falling to 31 year lows, will certainly help their exporting companies. Our expectation is that over the coming years a new economic equilibrium will be found and the global economy will continue to move forward.