Capital markets were sailing along smoothly in the second quarter until the Brexit tidal wave came crashing down. Equity markets around the world sold off sharply for two straight days after the people of the U.K. surprisingly voted in favour to leave the European Union. As we mentioned in our note to clients on the day of the Brexit news, we took proactive measures in our accounts to help minimize the downside in the case of such an event. In fact, one of our portfolios, the Justwealth Capital Preservation Portfolio, was actually up modestly on the day – precisely what it was designed to do!
Despite the two-day drop, markets overall performed quite well over the quarter. Canadian equities in particular performed very well driven higher by a sharp increase in the prices of oil and gold. The S&P/TSX Composite was up a healthy 4.99%, but the more volatile S&P/TSX Small Cap Index rose a whopping 17.86%. Canadian bonds also performed well rising 3.42% as fears of interest rates going up did not materialize. Outside of Canada, U.S. equities rose as did equities from emerging markets, but developed international markets (EAFE) finished in slightly negative territory.
Since the end of June, equity markets have continued their upward post-Brexit trend, in some cases hitting all-time highs. Equity markets, including Europe, are now measurably higher than pre-Brexit levels which has to make you wonder what all the fuss was about? Looking forward, we have the Summer Olympics happening in Brazil in August – the first time they have been held in South America. There has been a fair bit of negative publicity around Brazil’s preparedness, security concerns and the Zika virus which has caused some high-profile athletes to drop out. Brazil constitutes just under 7% of the MSCI Emerging Markets Index so the perception of the success (or lack of) may have a profound impact on emerging market equity returns for next quarter. (PS – GO CANADA!)
Here is a recap of market performance as of June 30, 2016*
|Asset Class||Market Index||Quarter||1 Year||3 Years||5 Years||10 Years|
|Fixed Income||FTSE TMX Canada Universe Bond||3.42||5.22||5.60||5.18||5.60|
|Canadian Equity||S&P/TSX Capped Composite||4.99||-0.20||8.27||4.21||4.94|
|U.S. Equity||S&P 500 ($Cdn)||2.62||8.18||19.66||18.95||9.10|
|Int’l Equity||MSCI EAFE ($Cdn)||-1.61||-6.55||9.39||7.90||3.16|
* Performance annualized for periods greater than 1 year
Written by James Gauthier, Chief Investment Officer at Justwealth