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TEXTBOOK RECOVERY?
11/18/2017 6:23:29 PM
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By Paul Moroz  | Friday, March 04, 2011


Despite a debt crisis in Europe, government austerity measures, and currency wars, the performance of global stock markets turned in a respectable year. The MSCI World Index was up 5.3% in the fourth quarter and up 6.8% in 2010. The theme of small-cap outperformance continued. The Mawer Global Small Cap Fund returned 8.0% in the quarter and 16.3% in 2010.

The Global Small Cap Fund added two new securities and eliminated one. The Fund purchased a small position in China Media Express Holdings Inc., which sells advertising through a contracted network of buses in China. The Fund purchased shares in Retail Food Group Limited, an Australian company, which owns and develops branded retail franchise systems. The Fund sold its small position in Graco, as the stock had moved higher up in its fair value range.

The economic expansion is looking more like a textbook recovery, albeit with a hangover. The European Union has make strides to improve liquidity to member bond markets, though its efforts do not guarantee immediate success. Nor does it eliminate the possibility markets will worry about the financial affairs of Spain and Portugal in coming quarters.

Readers should understand headline risks of this sort often have a small impact on the fundamentals of the portfolio, despite the exaggerated price fluctuations in the market. Equity markets have moved from a place of extremely inexpensive valuations two years ago, to a place where risk and return is balanced.

This would be a reasonable spot to declare equilibrium; however, financial markets rarely find themselves there for long. Bond yields have normalized somewhat, after an episode of “buy the rumour, sell the news,” relating to the Fed’s quantitative easing program.

Interestingly, for the first time, TIPS in the U.S. were sold at a real negative yield, reflecting the option value of protecting against both deflation and inflation. This highlights the reality of the fork-in-the-road for inflation that investors must consider.

We continue to emphasize high quality, wealth-creating companies that provide significant dividends, which should be resilient in any economic scenario.

Paul Moroz, CFA, is a Portfolio Manager at Mawer Investment Management Ltd. (Mawer). He is the asset class manager of the Mawer Global Small Cap Fund, and co-manager of the Mawer Global Equity Fund. For more information about Mawer Investments, please visit the Mawer website.

Generic Mutual Fund Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.

Personal Opinions & Recommendations Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.

 
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