Tactically reduced U.S. equity; increased Canadian equity
Current Target Asset Allocation Positioning as at April 8th 2015
In March, the current bull market hit the six-year mark and has continued to chug along strongly to start April. Our outlook towards equities remains favourable as inflation pressures remain absent in most developed markets, allowing central banks to remain accommodative on the monetary policy front.
U.S. stocks are now up more than 200% from their March 2009 lows. The unemployment rate recently dipped to 5.5% and there has been a notable increase in wage hike announcements, including at Wal-Mart, TJ Maxx and McDonalds. While we are confident that the underlying picture in the U.S. will remain robust, we believe this may be an opportune time to take some profits, ahead of the Q1 earnings season where corporate profits could potentially show some softness due to the strengthening U.S. dollar.
In Canada, we have some headwinds such as lower oil prices and rising household debt. But there are some offsets to this headwind. First, for 80% of Canada’s gross domestic product, lower oil prices are a good thing, just as it is in the U.S. Secondly, the lower Canadian dollar will help exporters, including resource companies, who sell a U.S. dollar priced commodity but have costs in Canadian dollars.
As a result, we remain overweight U.S. equities but have tactically trimmed this position and increased the target allocation to Canadian equities.