A Brutal Year for Canadian Equities

January 19, 2016

The S&P/TSX Composite Total Return Index posted a -8.3% return, the 9th worst on record since 1957. The S&P 500 Total Return Index fared better in the United States, up 1.4% in local currency; however, when adjusted to Canadian dollars, the US market was up more than 20% for the third year in a row. After a record 19% decline in 2015, the Canadian dollar has decreased nearly 40% in the last 3 years. The Canadian market was the 3rd worst performing developed equity market in the world in 2015, ahead of only Greece and Singapore. Only 3 of the 10 market sectors registered positive returns last year, (Telecom, Consumer Staples and Technology) and just over 25% of stocks advanced, the second worst level in 20 years, with 2008 being the worst.


On a longer-term basis, things aren’t quite as bleak. The Canadian market has handily outperformed the US market since 2000, both before and after currency adjustment. It continues to represent a strong group of businesses poised to support both the Canadian and global economies for decades to come, while rewarding investors with total return in the form of dividends and capital appreciation.


Leon Frazer portfolios underperformed the benchmark for the second year in a row. This was not a surprise, as the Leon Frazer Equity Composite typically underperforms when growth sectors like Technology and Consumer lead. What was surprising, however, was that we underperformed in a down market, something that has happened only 3 times in our history. So we really have two issues to evaluate when looking at 2015. Why did Canadian equities underperform their American counterparts and why did Leon Frazer underperform the TSX Composite?

The short answer for the first question is oil. Oil prices declined precipitously in late 2014, staged a brief rally in mid-2015, then tumbled again, ending the year near the 2008 financial crisis lows. As sentiment towards oil prices got more pessimistic, so too did the global view on Canadian equities. With mobile capital and ever shortening time horizons, shares of fundamentally strong Canadian companies were sold so returns could be chased elsewhere. Canadian investors followed the herd and divested a record $10 billion+ of domestic equity mutual funds last year, exacerbating the performance differential. Finally, the Canadian dollar depreciated by the largest margin on record for a 1-year timeframe, adding return to unhedged foreign investments.

Read full Q4-2015 Quarterly Review

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