Equities continued to experience volatility in November as global markets position for the upcoming US Federal Reserve rate hike that we expect will occur on December 16, 2015. We expect volatility will continue for the next couple of months as capital markets adjust to higher rates in the US and a stronger US dollar.
2015 was a year of consolidation, with US corporate earnings being negatively impacted by a stronger US dollar. In contrast, Canadian corporate earnings were negatively impacted by falling oil prices and its adverse impact on Canadian economic activity.
We expect 2016 to be a solid year overall for US equities, despite volatility early in the year. Valuations are currently fair and by no means cheap, however, we expect the US equity market to be pushed higher by rising earnings. The negative year-over-year currency impact should largely subside by Q2/2016. Furthermore, strengthening economic activity in the US and Western Europe will underpin improving consumer spending and demand. For example, real wages are rising solidly in the US that should drive consumer spending in 2016.
We expect Canadian equities to also perform reasonably well, with very attractive valuations and overly negative sentiment in the Canadian financial services sector. While commodities may stabilize somewhat in 2016, we do not think we will see the bottom for this commodity bear cycle for at least another 2-3 years.
AFINA’s results were as follows:
- The AFINA Affinity Fund was up 0.2% in November (-1.0% YTD). At the end of November, financials represented the largest sector weighting at 35.6%, followed by consumer/health care (27.4%) and technology (19.0%).
- The AFINA Optima10 was up +2.0% in November (+2.5% YTD).
As of November 30, 2015. All figures are net of fees and other expenses. Past performance is not indicative of future results. The “S&P 500/TSX (50/50 Blend)” is comprised of a 50% weighting of the S&P 500 Total Return Index in Canadian dollars and a 50% weighting of the S&P/TSX Composite Total Return Index. Refer to afinacapital.com for full details and disclosures. * 2014 results are since inception October 1, 2014.