July 31, 2023 | portfolio managers' brief

Portfolio Managers’ Brief: July 2023

BY: Jason Ayres
A brief review of market conditions and how they are impacting the management decisions of our Investment Review Committee (IRC).



Market Performance:

  • US Markets: The second half of 2023 has started strong. The S&P 500 and NASDAQ have surged, recording 19% and 42% YTD growth, respectively.
  • Canadian Markets: The TSX is lagging, with a 5.40% YTD growth.

Rally Broadens:

  • Last month, we pointed out that only a few leaders were driving the U.S. stock market rally. We are now seeing the rally is expand which is essential if the current uptrend is to continue
  • A case in point: The Russell 2000, focusing on smaller U.S. companies, has seen a 12% YTD growth, with 9% of it from the last month.

FOMO in Play?

  • Investors might be experiencing FOMO (Fear Of Missing Out), leading them to buy shares in potentially undervalued companies.

Fixed Income:

  • Fixed income instruments continue suffer, mainly due to Central Bank rate hikes. The XBB – Ishares Core Canadian Universe Bond Index ETF is down by -.95% YTD. Bonds continue to deliver yield, but with little upside

Rate Hikes:

  • Both Canada (now at 5.00%) and the U.S. (5.25%) have recently experienced rate hikes. Central Bank heads in both countries stress data-dependent decisions.

CPI Trends:

  • June’s Consumer Price Index (CPI) showed a decrease for both the U.S. (3.1%) and Canada (2.8%). A sign that inflation is getting closer to the 2% target

Economic Outlook:

  • A “soft landing” seems plausible – meaning curbing inflation without causing a recession. While the current mood is optimistic, markets might feel the pressure if peak rates persist into 2024.

General Portfolio Performance:

  • While major stock market indices rise, Canadian stocks are finally catching up. However, fixed income remains underwhelming this year.
  • Canadian investors’ portfolios, mixed with Canadian and U.S. stocks across various sectors, show modest returns. However, the good news is, the rally is no longer just about tech giants like Apple, Amazon, or Tesla.

Our General Investment Approach:

  • Given the risk of a market pullback, we’ve adjusted our portfolios to focus on funds with better historical risk-return metrics.
  • We’ve employed correlation and standard deviation analysis to determine which stocks, funds, and ETFs best complement each other. This approach can help offset overall portfolio volatility in a choppy market.
  • With uncertain market conditions, our selected option strategies aim to boost cash flow in certain portfolio models.

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