By Fund Library News Wire | Friday, January 30, 2015
Stock markets sagged on the week against a backdrop of slowing GDP growth in Canada and the U.S., growing political turmoil in the eurozone, and a stand-pat monetary policy announcement from the U.S. Federal Reserve Board. The blue-chip U.S. S&P 500 Composite Index lost 2.8% on the week, and retreated 3.1% in all of January, its biggest monthly loss in a year. Toronto’s S&P/TSX Composite Index edged down 0.7% on the week, while just barely staying in the black for the month, with a 0.3% overall gain.
Q – With Canadian bonds gaining in value as yields fall, and with some experts expecting another rate cut from the Bank of Canada, I’m thinking now might be a good time to raise the Canadian fixed-income allocation in my RRSP. Would this be a good idea, and what are the risks involved? – Terry R., Burlington, Ontario
At this time of the year, many economists like to issue their annual forecasts. Will 2015 be as rewarding – or challenging – as last year? The trouble is that forecasters as a group are notoriously wrong in their projections. Yet some assessment of future conditions is imperative. How, then, can money managers proceed as responsible asset stewards? At HAHN Investment Stewards we also forecast prospects for asset markets. However, we do this somewhat differently than may be the norm. We’d like to explain how.
When it comes to bond funds in Canada, RBC subsidiary Phillips Hager & North (PH&N) is easily one of the best shops in the country. Their fixed-income funds are run by a very skilled, well-staffed management team with expertise in both government and corporate bonds. Risk management is a key pillar to their approach, which will certainly help when we see an uptick in volatility in the bond markets.
In March 2012, I started a High Yield Portfolio for readers of my Income Investor newsletter who wanted above-average cash flow and were willing to live with a higher level of risk. This is a 100% equity portfolio; there are no bonds to cushion losses when stock markets retreat. So it is not suitable for very conservative investors or for RRIFs where capital preservation is important. There have been some changes to the portfolio since the launch. It now consists mainly of small/mid-cap companies with one exception (Sun Life). All the stocks are Canadian except for FLY Leasing, which is an Irish-based ADR that trades in New York. Here’s a review and update of the portfolio.