Couch Potato Portfolio gains nearly 3%

Central bank easing plans push equity markets higher

It was a modestly positive quarter for our Couch Potato Portfolio which gained 2.75% for the three months ending October 31, 2012. With the U.S. Federal Reserve announcing plans for another round of quantitative easing and the European Central Bank announcing an unlimited bond buying program, investors’ appetite for risk returned in a big way, pushing virtually all equity markets higher.

With most of the tail risk of the European crisis having been eliminated, European shares rallied sharply higher during the period. As a result, the iShares MSCI EAFE Index Fund (XIN) gained an impressive 5.0% during the period. With more money being printed by central banks, gold and other precious metals moved higher, which pushed the iShares S&P/TSX Capped Composite Index Fund (XIC) up by nearly 7.5%, thanks to its large weighting in the materials sector. U.S. stocks rallied with the iShares S&P 500 Index Fund gaining nearly 3%. Bonds were modestly higher with the iShares DEX Universe Bond Index Fund (XBB) gaining 0.3%, with corporate bonds outpacing governments.

While the European debt crisis is far from being solved, much of the risk of a major disaster has been taken off the table. Despite this, much risk remains as the region remains mired in a recession and a sluggish at best economic outlook. In the U.S., sentiment indicates that some form of a deal to avert the fiscal cliff can be reached. Should this happen, then investors can focus on the economic fundamentals, which remain mixed at best, with housing showing signs of a rebound and other sectors slowing.

In this type of environment, we believe that an actively managed strategy can provide better risk adjusted returns for investors over a passive strategy. Quality active managers can make the necessary asset class and sector bets and position the portfolio to best take advantage of the current environment. However, for those investors looking for a simple, cost effective hassle free approach, they won’t go too far wrong with the couch potato strategy.

Here is the latest report on the couch potato portfolio performance. Results are based on the prices as of October 31, 2012.