Tactically Increased Canadian Equities, Decreased U.S. Equities
Current Target Positioning as of January 19, 2017
Since a U.S. pre-election market low on November 4, 2016, the S&P 500 index surged about 9% to date. This very strong gain was primarily fueled by optimism that a Trump presidency in the U.S. would translate into a positive growth environment from tax reform, regulatory reform, and increased Fiscal spending. Market participants viewed this as a positive and refreshing change from ultra-accommodative monetary policy, whose efficacy has increasingly come into question.
Analysis into the S&P 500’s recent advance shows that a significant level of future U.S. economic growth may already be accounted for. Among sectors leading the U.S. market since the election are Financials, Energy, Industrials, and Materials, all of which will likely benefit more in a pro-growth environment; while the defensive Consumer Staples, Utilities, and Health Care sectors are among the laggards. The trade weighted U.S. dollar also gained meaningfully since the election.
The S&P/TSX Composite Index also gained since the November 2016 low, but trailed that of the S&P 500 by 2.3%. Investors are perhaps cautious as to what an “America First” theme will mean for Canadian companies. As a result, the Canadian equity market likely does not carry with it the same degree of built-in expectations as in the U.S. As long as oil prices do not significantly decline, we believe the more attractive near term risk-adjusted opportunity is in Canada.
As a result, target allocations to Canadian dividend-oriented equities have been tactically increased, while target allocations to U.S. equities have been tactically decreased. Additionally, cash levels will be managed higher through inflow accumulation - thereby providing more protection should equities market enthusiasm temporarily dampen.
This document includes forward-looking information that is based on the opinions and views of Empire Life Investments Inc. as of the date stated and is subject to change without notice. This information should not be considered a recommendation to buy or sell nor should they be relied upon as investment, tax or legal advice. Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. and its affiliates does not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and does not accept any responsibility for any loss or damage that results from its use.
