In This Week’s Market Observer…
- A look back at 2013 and a look ahead to 2014
- The Diversified Income & Growth (DIG) Basket: Another solid year of gains!
- Let’s Get LinkedIn!
- 2014 Tax Reminders
- NBF Forex – January 2014
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
Happy New Year to everyone!
The JMRD Wealth Management Team wishes you all the best in 2014!
In our first Market Observer of the New Year we focus on a number of items as 2013 was another year of significant change for the JMRD Wealth Management Team. Before we get to the investment comments, we wanted to review some very exciting developments and changes that have occurred over the past 12 months. Our Team is constantly striving to improve by adding new products and services to make our client offering and experience better. We feel 2013 was another transformative year as much of our hard work paid off in ‘dividends’. Here is a short list:
- Catherine Sunga-Doucet officially joined our Team full-time providing even more coverage for our clients from our Waterloo office.
- These changes result in the new Team having nine members in three convenient locations to serve you better.
- We had our most successful United Way campaign ever and this initiative continues to be spearheaded by Paul Manders on an annual basis.
- Special mention goes to Nicole Dell for leading and organizing our United Way Stair climb Team which alone raised an impressive $3,000.
- Jaden Ropp and Zach Davidson both completed and now have their Canadian Investment Management (CIM) designations
- Zach Davidson also became a Portfolio Manager which brings the Team total to three
- We welcomed Marie Blanchet, a high level Financial Planner and Camille Kanhai, a lawyer specializing in Estate Plans to continue to roll-out and improve our existing Financial and Estate Planning offering.
New Products and Services!
- We continued to improve and add new sections to our website – www.jmrdwealth.com – here you will find back issues of the weekly Market Observer as well as snippets of JMRD events and team members out and about in the Community.
- New NBF Microsites – Our new Firm based websites will be continually improved to engage our clients over the course of the coming year.
- Electronic statements. – Although it has been a long time coming, your first statements (December 2013) will be available through your online access starting early January. If you are not currently set-up for online access to your accounts please contact Erin Finnegan at email@example.com or any one of the Admin team to get started.
- “We got LinkedIn” – Most of the Team can now be found on LinkedIn which is a tool we hope to utilize more and more in the coming year to stay connected with our clients and colleagues and share updates and timely information. Please feel free to “Link up” with us!
- We launched our new JMRD All-Cap Basket (ACB). A full update will be featured in the next few weeks in the Market Observer.
- Sneak peeks: We will be launching our new JMRD US Growth Basket on January 1st, 2014
- We will be launching our Model Portfolios for January as well. We are very excited about the Models and plan on a full launch in the coming weeks.
We look forward to sharing all these new initiatives with clients in the coming year and encourage you to send us comments and suggestions on ways for us to improve further.
Top Investment Objectives for 2014 and Beyond
Our objectives have not changed from the last 4 years years and we will simply repeat them here with relevant updates.
Investors must continue to focus on their individual risk / reward profile.
Protecting portfolio values to the downside and minimizing risk continues to be our primary objective for 2014. We are constantly trying to avoid the ‘big mistake’ as we like to say in our investment committee meetings.
Investors must have an investment plan and stick to that plan.
Review your Investment Policy Statement (IPS) and ensure your asset allocation is up to date and appropriate. Please feel free to talk to us for clarification on this very important point. The new ‘Annual Financial Planning Review’ and ‘Two Year Client Check-Up’ we launched last year will provide timely opportunities for clients to review or implement plans.
Focus on income and get paid to wait. – for cash flow, invest in dividend and interest paying securities.
A primary focus for all investors should be capital preservation and income generation. Perhaps the single biggest change over the past few years and what is an inevitable trend going forward is that interest rates are no longer falling but are instead starting to creep higher. This ‘tightening’ will continue to put pressure on interest rate sensitive sectors so unlike the past few years, we need to add a caveat that investors need to sacrifice some income for growth. More on this in the coming weeks as we provide an update on our JMRD All-Cap Basket (ACB).
Though conservative by definition, these top three objectives allow us to position portfolios conservatively, but this is not a call to reduce equity exposure. 2013 was a year of contrast in which fixed income posted flat to negative returns for the first time in a number of years, depending on the type of fixed income held. The Canadian Preferred Share index was down 3.3% (taken from iShares Preferred Share Index ETF) and the broad bond index as measured by the iShares DEX Universe Bond Index ETF (XBB) was down 1.4%. Equities worked just fine and the more Japanese or US exposure an investor had, the better the overall portfolio did. We don’t want to see clients fall into the ‘equity trap’ and chase equity gains, but we do need to look at asset allocation closely and re-balance accordingly.
We would also recommend that clients review the account type that they have. We are able to offer full discretionary accounts through our ‘Discretionary Portfolio Management Services’. This account is taking our successful ‘Basket’ approach to the next level. The soon to be launched JMRD MODEL PORTFOLIOS is the next evolution in this portfolio service. For more information on whether this fully discretionary approach makes sense for you specifically, please call to discuss.
The Diversified Income & Growth (DIG) Basket: Another solid year of gains!
DIG posts 2013 gain of 16.4%
The DIG Basket performed well in 2013 and we feel it is positioned extremely well going into 2014. Before getting into specifics, we wanted to point out some milestones for the Basket that were reached (and surpassed in many cases) over the past 12 months.
- Total assets exceeded $53,000,000 for the first time in this Basket.
- Number of holders exceeded 525 for the first time.
The JMRD Wealth Management Team is excited to announce the fifth consecutive year of gains for the DIG Basket. All figures are as of December 31, 2012.
- 2009 return of 41.51%
- 2010 return of 17.27%
- 2011 return of 6.35%
- 2012 return of 8.70%
- 2013 return of 16.4% versus TSX Total Return of 12.99% over the same period.
- 3 year compounded average return of 10.35%, versus the TSX Total Return of 3.40%
- 4 year compounded average return of 12.04%, versus the TSX Total Return of 6.79%
- 5 year compounded average return of 17.40%, versus the TSX Total Return of 11.92%
We also wanted to highlight the risk-adjusted returns of the DIG Basket versus the TSX Total Return Index and the S&P 500 since January 2009. Risk adjusted return is a concept that refines an investment’s return by measuring how much risk is involved in achieving that return. An ideal situation is when an investment has a lower standard deviation (volatility) but a higher return than what it is being compared to. As you can see from the attachment, the DIG Basket achieved both a higher rate of return and a lower standard deviation over this period.
Below is a snapshot of the current holdings. The current annual cash flow is $572 for a yield of just under 4%.
We consider the DIG Basket a top pick for clients seeking income and growth and feel it is very appropriate for a portion of a client’s equity weighting. The current value of one DIG Basket is approximately $15,000 making the minimum initial position approximately $37,500, which is 2.5 Baskets. This amount will continuously change as the prices of the DIG Basket components do fluctuate. Subsequent purchases can be made in one Basket increments.
2014 Tax Reminders
- 2014 TFSA contributions – contribution limit $5,500.00 can be made in cash or securities.
- 2013 RSP contribution deadline – Monday March 3, 2014. The 2013 maximum RRSP contribution limit is 18% of “earned income” in 2012, to an annual maximum $23,820.
NBFM Forex (January 2014) – Updated FX table
With the exception of the yuan, whose near-term targets have been adjusted up a bit to reflect recent strength, we’ve left our currency forecasts unchanged from last month. We continue to expect the US dollar to strengthen in the early part of 2014 as the Fed tapers its asset purchase program en route to ending QE entirely by the end of the year. However, the end of the Fed’s currency debasement policies doesn’t mean the US dollar will soar to new heights in 2014. The FOMC’s new guidance “to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%” suggests the Fed’s target rate will remain glued at zero for at least another year.
The longer the euro remains at such heights, the longer it will take for the zone’s economy to recover. While 2014 will see GDP growth for the first time in three years, it won’t be stellar. Structural problems will continue to put a speed limit on the zone and fuel the threat of deflation. The European Central Bank may have no choice other than ease monetary policy further via another round of liquidity injections. The combination of Fed tapering and a more dovish ECB will be negative for the common currency and we’re, therefore, maintaining our 1.28 end-of-Q1 target for EURUSD.
A perfect storm hit the Canadian dollar last year as it depreciated 3% against the USD (2013 average versus 2012 average), the worst performance since 2009. A more dovish central bank, combined with soft commodity prices and bearish analyst reports caused sentiment to turn against the Canadian currency. During 2013, speculators held net short CAD positions for 45 consecutive weeks, the longest stretch on records going back to 1996. Our 1.10 end-of-Q1 target for USDCAD reflects the persistence of negative sentiment towards the loonie, although we anticipate the currency to stabilize later in the year as foreign investors eventually realize that Canada remains an attractive destination with its AAA-rating, growing resources sector, and strong ties to a US economy which is now on the upswing.
Week at a Glance
Reads of the week
Capital Economics Daily (3rd January 2014) – Gold finds support again at $1,200 per ounce Jan 03, 2014 After a dismal 2013, gold appears to be generating some more positive headlines at the start of the new year. Of course, the 2% gain on Thursday (at time of writing) is nothing to get too excited about in the context of the 28% slump last year. Nonetheless, with sentiment already so heavily negative, our view is that the risks for the coming year are firmly skewed to the upside.
Monday January 6th – Canadian Industrial Product Price, Canadian Raw Materials Price Index, U.S. Factory Orders, U.S. ISM Non-Manufacturing Composite
Tuesday January 7th – Canadian International Trade, U.S. Trade Balance
Wednesday January 8th – Fed Release Minutes from Dec 17-18 FOMC Meeting
Thursday January 9th – Canadian Housing Starts, Canadian Building Permits, U.S. Initial Jobless Claims
Friday January 10th – Canadian Unemployment Rate, U.S. Unemployment Rate, U.S. Change in Nonfarm Payrolls
Monday January 6th – None
Tuesday January 7th – Micron Technology
Wednesday January 8th – None
Thursday January 9th – Alcoa
Friday January 10th – None