2018 Outlook; December 2017 Investment Performance

2018 Outlook; December 2017 Investment Performance

Stocks in December ended 2017 on a relatively modest note. The year was strong for equity markets in general as economic growth and tax cuts drove US equities to new highs, while sentiment for Canadian stocks was largely driven by the continued “bounce” in oil. As we mentioned in our September 2016 Investment Update,

While we are bearish on commodities and oil prices in the long-term, we remain bullish on oil prices heading into 2017 as Saudi Aramco, the world’s most valuable company, plans a $2 trillion IPO in 2018. Not surprisingly, the Organization of the Petroleum Exporting Countries (OPEC) on September 28, 2016 managed to agree to its first production output cut in eight years as Saudi Arabia’s interest in higher oil prices to support its Saudi Aramco IPO valuation is apparent.

Canada plateauing in 2018, bearish for late-2018

While our bullish forecast for oil in 2017 materialized and boosted Canadian sentiment, there are a few major factors that lead us to believe that 2018 may begin to see some weakness for Canada:

Value stocks are beginning to outperform growth stocks

Barron’s wrote on June 28, 2017 that:

Among large-cap stocks, the spread between value and growth is now larger than at any point over the past six decades, with one exception – the top of the dot-com bubble.

Thus far in January, we are seeing value stocks outperform growth and signs of this trend continuing are apparent as the current bull market reaches its exuberance phase. Noting in the chart below from Barron’s, value stocks outperform significantly late in bull markets and continue to outperform as corrections and bear markets occur. For example, coming out of the tech bubble in 2000, value stocks outperformed growth stocks by over 20% annually thru 2005.

Investment Performance Update

An overview of the performance of our actively-managed products is as follows:

  • The AFINA Optima10 was up +0.9% in December, up +3.3% in 2017, and was up +23.9% in 2016. Our current cash and equivalent weighting is 33.5% in this portfolio.
  • The AFINA Affinity was up 0.3% in December, +up 2.1% in 2017, and was up +20.6% in 2016. Our current cash and equivalent weighting is 62% in this portfolio.

 

As of December 31, 2017. All figures are net of fees and other expenses. Past performance is not indicative of future results. Refer to https://www.afinacapital.com/legal/ for full details and disclosures.
(1) The benchmark represents 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 in Canadian dollars.