Despite global equity markets ending the month mostly higher, the volatility that too center stage in September and October was also very much in play in November. For example, the S&P 500 rose by more than 2%, yet the intra month swings were very pronounced. Peak to trough, the index fell more than 6.4% in the month. With worries over high rates, Brexit and trade wars front and center, markets struggled in the first three weeks of the month. That seemed to change as investor sentiment shifted in the last few days of the month as the U.S. and China appeared to have negotiated a temporary truce on trade, moving markets higher.
In Canada, the S&P/TSX Composite Index rose by 1.4%, with the more defensive sectors leading the way. Consumer staples were up nearly 7%, Telecom rose by 6.6%, and utilities gained 5.6%. Energy was the biggest headwind in the month, falling more than 10%, bringing the year-to-date loss to more than 21%. The fall in energy was the result of another sharp fall in the price of oil, with a barrel falling roughly 22% in November alone. OPEC has been negotiating production cuts that are hoped to help stem losses as inventories creep higher on lowered demand expectations.
Other equity markets were mixed with the MSCI EAFE falling 0.1% as worries over Brexit weighed on sentiment. European markets were lower by 0.9%. Asian markets were mostly higher, with China gaining more than 7% on trade.
Fixed income markets were largely positive as yields moved lower over the course of the month. In Canada, the yield on the benchmark Government of Canada ten-year bond fell from 2.49% to end the month at 2.27%. With yields down, the FTSE/TMX Universe Bond Index gained 1%, with government issues outperforming corporate bonds.
Corporate bonds were weighed down by a massive new bond issue by Loblaws in the last couple days of the month that pulled the yield spread between government and corporate bonds.
In this volatile environment, our portfolios performed well, with each finishing firmly in positive territory. Our most defensive Conservative Portfolio gained nearly 1% compared with its benchmark which was higher by 1.1%. The defensive, shorter duration fixed income positioning weighed on overall performance in a falling yield environment. The Sentry Small and Mid-Cap Income Fund was also a headwind, with the Fund ending the month 0.5% lower. Our Balanced Portfolio rose by 1.7% narrowly outpacing its benchmark. A weak showing from the fixed income holdings and the Sentry Small and Mid-Cap Income Fund were more than offset by a strong showing from the quality and value tilted Fidelity Canadian Large Cap Fund, and the Mackenzie Ivy Foreign Equity Fund. Our most aggressive Growth Portfolio gained 3.1%, outpacing the 2.0% rise in its benchmark, with all the equity offerings except Sentry outperforming.
For a more thorough review of the portfolios’ performance and risk reward metrics, you can download our standard monthly portfolio report here. More 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.
Heading into the end of the year, much uncertainty remains. Between trade wars, Brexit, fears of rising bond yields as central banks move to a more normalized rate environment, and some economic data starting to slow significantly, investors are becoming worried. Another worry is the yield curve is flattening to the point where we may see an inversion. Historically, an inverted yield curve has signaled a recession was on its way. While we are dangerously close to an inversion, the 2-10 year curve remains positive.
In this type of an environment, I continue to favour equities, although only slightly. Within the equity allocation, I continue to favour more quality and value focused funds, rather than high flying, growth type offerings. Within fixed income, I continue to favour lower-duration, higher quality issues. I also continue to watch the credit markets for signs of erosion. If we see continued weakness as we saw in November, it may be time to become even more defensive.