Chalten Investment Review – Q2 2019

Global stock and bond market returns were generally positive across the three month period however it was by no means a straight line from the beginning to the end of the quarter.  In last quarter’s review we highlighted that the investment environment was characterized by central banks appearing more accommodative, by an easing of international trade tensions and by rising markets — the opposite of what we saw in Q4 of 2018.  Q2 demonstrated that the market is still sensitive to trade and monetary policy issues.  While April delivered more of the positive return pattern we enjoyed in Q1, May brought a sharp reversal which seemed to coincide with a return of fears over trade and central bank policy.  Perhaps the old adage, “Sell in May and go away,” would have actually worked this year (at least if you had sold at the beginning of May!).  Those fears seemed to subside in June and global markets rebounded over the final month of the quarter. 

Whatever the reason for the month-to-month volatility last quarter and whatever drives performance next quarter, it is a good reminder that observing and reacting to shorter term market returns doesn’t always reflect what we expect over the long run as investors and certainly can increase anxiety levels.  Actual stock market returns can be messy over one, three, five and even ten year periods relative to what we expect, but month-to-month, it seems anything can happen!  Volatility is a necessary part of investing and the key to success over the long run is not trying to avoid market volatility and adversity but managing our behaviour through it.  Behaviour management is easier said than done but is helped considerably by having an asset allocation that is suitable for your risk tolerance and financial goals. 

Q2 Market Review

The Canadian economy seemed to jump back to growth mode in Q2 however the Bank of Canada has again decided not to further increase its benchmark interest rate, keeping it steady at 1.75% where it’s been since the Bank last raised rates in October of 2018.  Nonetheless, the Canadian dollar continued to strengthen against the US dollar over the quarter which again was negative for Canadian investors’ US stock investments.  Government bond yields fell globally as prices rose.  US economic growth and unemployment remained relatively stable over the quarter and the Federal Reserve decided to hold steady on interest rates there too.   International developed markets performed positively while emerging markets performance was mixed with the Chinese market underperforming both developed and other emerging markets.   Small stocks with low relative prices (value stocks) continued to underperform large growth stocks.  The evidence shows that over time small value stocks outperform large growth stocks but the reverse situation can occur over shorter time periods and, as we’ve seen recently, can persist. 

  • The total return on the Canadian stock market was 2.6% for Q2 2019; again, it was the strongest performing region (in Canadian dollar terms) among the three geographic regions we track.
  • In the US, the total net return of the S&P500 in Canadian dollar terms was 2.0% for Q2.
  • The total net return for the S&P Global ex-US BMI Index of stocks outside of the US (in Canadian dollar terms) was 0.6% for Q2.
  • The Canadian dollar gained another 2.1% against the US dollar over the quarter for a gain of 4.2% for the year to date.
  • Total return for Canadian bonds was 2.2% over the quarter, behind the performance of US and International developed bond returns (unlike last quarter) and continuing to trail US dollar denominated Emerging Market bond returns which continued to perform strongly over the quarter.   

Financial Planning topics of interest

As mentioned above, the Bank of Canada recently decided to hold its benchmark rate steady at 1.75%.  Its press release stated, “Recent data show the Canadian economy is returning to potential growth. However, the outlook is clouded by persistent trade tensions.”  It also noted that the housing market was stabilizing nationally “although there are still significant adjustments underway in some regions,” and that a “material decline” in longer term mortgage rates is supporting activity in the housing market.  A quick review of reveals that 5-year fixed rate mortgage rates have declined precipitously this year and have even dropped below 5-year variable rate mortgage rates!  Perhaps a good time to lock in a fixed rate if you are able.  (Source:


In closing we remind investors that old adages like “Sell in May and go away” don’t stand up to the scrutiny of evidence.   While we have been delivered a good year’s worth of returns in just 6 months:

  • we continue to expect to be rewarded for putting capital at risk,
  • we continue to expect small value stocks to outperform large growth stocks, and
  • with those expectations, we remain ready to ride out near term volatility and adverse market conditions knowing that our long time horizon will ensure we have a great overall investment experience.