It seems like just yesterday that we were saying “Good Riddance” to 2020 and the pandemic-related crash in stock markets. It’s hard to believe that it has been almost three years since the pandemic set in. Yet this year again we wish Good Riddance to a year that wasn’t very pleasant for portfolios. From inflation to rising interest rates, war in Europe and the threat of deglobalization, there seem to be too many negative headlines demanding our attention. There is no doubt: it was a challenging year.
Yet instead of focusing on these negatives, I remain an optimist and prefer to focus on what did work:
- The US Dollar played its stabilizing role amidst the turmoil, appreciating against all other currencies as it typically does in times of stress. The US Dollar appreciation reduced the impact of the drop in the US stock market for us Canadian investors.
- Our tilt to Value stocks acted as a shock absorber as well, considerably outperforming the growth stocks that led the downturn in the US and almost all other stock markets.
- Rebalancing proved valuable as we shifted to shorter bonds early in the year and took profits on the stronger Canadian stock market in the spring. We reinvested primarily in International and Emerging stock markets, to see them rebound more strongly in the last two months of the year.
One of the biggest benefits coming out of this difficult year is the implication of higher interest rates: bonds are providing income for investors once again. It has been over a decade since we’ve seen bonds yield the current level of return. Higher interest rates are the biggest contributing factor to the higher expected returns that we estimate for portfolios going forward. As always, Raymond Kerzérho, our Director of Research (Shared Services), has written a balanced and objective review of the economy and markets in the last year, which you’ll find here.
Despite the downturn in markets and the corollary impact on revenues, PWL remains in a sound financial position and the team is in good shape. Many team members continued their progress towards new certifications to continually improve our strength and depth as a team. After a great first year with the team, Olivia is pursuing her dream to travel the world in 2023. Stay tuned as we look to fill her role. We are progressively spending more time together in the office each week, but also trying to stay flexible to everyone’s needs in navigating the new hybrid working world. Finally, we launched our new logo and branding in the fall and are excited about presenting our fresh face to the world.
Though we can’t change the direction of markets, we can manage your finances in line with time tested strategies that have the highest chances of yielding the best results in the long run. Along the way, we’ll save as much tax and keep fees as low as possible to get the most out of the recovery when it does come.
If you have any questions or concerns, please don’t hesitate to contact us.