{"id":730,"date":"2017-07-18T16:10:37","date_gmt":"2017-07-18T23:10:37","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=730"},"modified":"2017-07-18T16:10:37","modified_gmt":"2017-07-18T23:10:37","slug":"chalten-investment-review-q2-2017","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/chalten-investment-review-q2-2017\/","title":{"rendered":"Chalten Investment Review – Q2 2017"},"content":{"rendered":"

Welcome to the Chalten Investment Review for Q2 2017.\u00a0\u00a0 Last quarter we touted the merits of holding a passive, globally diversified portfolio of stocks and bonds versus the potential perils and pitfalls of trying to time market swings.\u00a0 Trying to beat the market is a loser\u2019s game and as Charles Ellis so rightly pointed out in 1975, the only winning move in a loser\u2019s game is not to play!\u00a0 <\/em><\/p>\n

Now of course taking a passive approach doesn\u2019t mean things will go your way all of the time.\u00a0 Indeed the only way to achieve market returns over the long term is to stay disciplined and ride through market ups and downs.\u00a0 This quarter a lot of the roller coaster ride was driven by currency movement.\u00a0 The Canadian dollar slid against the USD in April but reversed course in May and then June delivered the strongest monthly appreciation of the CAD versus the USD that we\u2019ve seen since we started writing this review 2 years ago.\u00a0 So while global diversification is the right thing to do over the long run, sometimes we wish we had just stayed home \u2013 June was one of those months!\u00a0 <\/em><\/p>\n

Over time we should expect net returns to currency to be zero but currency returns can be volatile along the way.\u00a0 For the equity side of our allocation, that volatility can be beneficial to the overall risk of our portfolio but for the bond side, currency volatility can sometimes overwhelm what we\u2019re trying to achieve in terms of safety.\u00a0 For this reason we advocate hedging currency exposure on the bond side of the allocation.\u00a0 To use June as an example, in CAD terms the Barclays US Aggregate Bond Index was down 4% over the month.\u00a0 Most of this move was related to currency as the CAD was up nearly 4% against the USD over the period.\u00a0 A hedged US bond exposure would have delivered more stable performance.\u00a0 In many ways, investing this June was like Vancouver weather – difficult to predict in advance but in retrospect it would have been better to stay local.\u00a0\u00a0 Rain is great for the garden but not for getting from A to B when we want to stay dry.\u00a0 Think of the currency hedge like carrying an umbrella for your bonds.\u00a0 <\/em><\/p>\n

Since our last review we wrote about why<\/span><\/strong> beating the market is so difficult \u2013 (see <\/em>\u201cIt\u2019s a tough job\u2026somebody has to do it, just not necessarily you!\u201d<\/em><\/a>) Outperforming stocks are rare, it\u2019s impossible to identify in advance the very few (if any) professional stock pickers that can outperform and for those few that do, it\u2019s difficult to attribute their success to luck or skill.\u00a0 However while most individual investors (amateur and professional) get it wrong, the beauty is that collectively they do a great job of allocating capital and discovering efficient market prices \u2013 the result is a market than can be accessed in a very liquid, diversified and low cost way.\u00a0 The efficiency of the market means that you can put your money at risk and be confident that over the long run sensible risk taking should be rewarded with commensurate investment returns.\u00a0 So rather than speculating, the key to success over the long run is investing in a sensible way that is appropriate for your risk profile and tuned to your financial goals.<\/em><\/p>\n

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Q2 Market Review <\/span><\/em><\/p>\n

In local currency terms, global equity markets were broadly up during the 2nd quarter of 2017.\u00a0 Canadian markets were the exception again, delivering negative performance for domestic investors.\u00a0 Furthermore, as discussed above, the strength of the CAD relative to the USD and other currencies meant that global equity performance in CAD terms was not as strong this quarter.\u00a0 As we write this Q2 review it looks as though the Bank of Canada is set to raise its benchmark rate for the first time in 7 years, apparently confident that the economy is heating up despite still low oil prices and remaining uncertainty over US trade conditions.\u00a0 In the US, there is still uncertainty about the prospects for the current government to push through major legislative measures although this didn\u2019t seem to impact the US stock market as again we saw major market indices hit record highs in USD terms.\u00a0 Stock markets outside of North America continued to move up even in CAD terms so at least while the CAD strength didn\u2019t help international holdings, stock market performance certainly made diversification outside of North America worthwhile.\u00a0<\/em><\/p>\n