It was another positive month for investors as both equity and bond markets rallied higher. This resulted in the fourth month in a row of gains for our Model Portfolios. Our Conservative Portfolio gained 0.25%, our Balanced Portfolio rose by 0.50%, and the all-equity Growth Portfolio was higher by 1%.
For a detailed review of the portfolios’ performance and risk reward metrics, you can download our standard monthly portfolio report here. Additional detail can be found in these reports generated by Morningstar. A summary report can be downloaded here, while the more detailed report can be downloaded here.
In Canada, the S&P/TSX Composite gained a very modest 0.5% while foreign markets fared better. The S&P 500 Index rose by 3.1%, and the MSCI EAFE Index returned 1.1%.
In Toronto, the heavyweight financial services sector rose by 0.4%, while energy and materials were lower by 1.4% and 0.4% respectively. The drop in the energy sector is somewhat surprising, given the 5.6% jump in the price of oil. In the U.S., markets rallied higher in the latter part of the month after both the House and the Senate passed tax reform bills. Investors saw these reforms as being positive for companies, which is expected to continue to drive profit growth. Globally, profit growth remains strong, which is expected to continue to be supportive to stock prices.
With the Bank of Canada on the sidelines, bond yields eased, pushing prices higher. The FTSE/TMX Canada Universe Bond Index rose by 0.8%. Long bonds rallied even higher, gaining 1.8% in November. Government bonds outperformed corporates.
Turning to the portfolios, the defensive positioning was a headwind, as each lagged its respective benchmark. With it’s shorter duration, the Dynamic Advantage Bond Fund was the biggest laggard in the fixed income sleeve, while the Mackenzie Ivy Foreign Equity Fund trailed the index and peer group largely because of its high cash weight.
Heading into the last few weeks of the year, I don’t see anything on the horizon that will drive prices sharply in either direction. For the new year, I remain cautiously optimistic as economic growth continues to be positive around the world. However, there are many risks for 2018 which include the high level of valuations for both equities and fixed income, the uncharted waters of the unwinding of the massive central bank balance sheets, and countless geopolitical threats. Any of these could lead to sharp selloffs in the markets as the worst-case scenario, with increased volatility being the most likely scenario.
These portfolios have been designed for volatile markets, and I remain confident in the funds and managers to be able to effectively navigate challenging market environments. Still, I continue to monitor the situation closely and will look for opportunities to improve the risk reward metrics of the portfolios.