Ken W. Wilk’s Quarterly Investment Review: July 1st 2010 – September 30th 2010

Oct 7, 2010 | Corporate Member News

By Ken W. Wilk, Portfolio Manager and Investment Advisor, TD Waterhouse Private Investment Advice

Our view remains that we are in a low return, low interest rate environment for the near to intermediate term.  The U.S. Federal Reserve Board has made it very clear that rates will stay low for quite some time. 

Rate of Return 1 Month 6 Month 1 Year
S&P/TSX Composite Index 3.82% 2.75% 8.54%
S&P 500  Index 8.76% -2.41% 7.96%
5 year Canada bonds – yield as of September 30, 2010 is 2.01%

 Market Commentary – Q3 2010

In what is usually the worst period for equity market performance, Q3/10 defied seasonal trends and saw most world equity indices advance.  While the outlook for North American economic growth remains muted, generally speaking the data is pointing to stabilization and suggests further downside to economic growth is limited.  Expectations for global economic growth remain constructive in large part due to rapidly expanding emerging market economies, such as China, which should remain the engines of global growth. 

Overall 2010 to date has been challenging for equity investors, characterized by swings in sentiment and share prices.  The net result has been modest but positive returns for North American stock markets.  We believe investors should expect more of the same going forward. 

Fears of a double-dip recession in the U.S. appear to be easing as economic data points to slow but positive economic growth.  We are of the view that interest rates are likely to remain lower for longer and should therefore remain supportive of equity markets.  Corporate balance sheets remain exceptionally strong, with high cash balances that can be used to return cash to shareholders in the form of dividend increases or share buybacks, or mergers and acquisitions; all of which are supportive of stocks.  Finally valuations are reasonable.  However, uncertainty and risks remain which suggests there is the potential for continued swings in sentiment and stock markets. 

Fixed Income Q3 2010 Outlook 

Desperately Seeking Yield 

Savers, faced with near-zero short term interest rates and record low long term yields, are turning more and more towards higher-risk investments to boost returns.  While this is one of the desired responses from current central bank and government policies, this stark observation should remind investors that all is still not well with the global economic recovery, particularly in developed economies. These economies depend on consumer spending for much of their growth, with central banks currently doing their best to revive individual spending by discouraging saving.  Governments are also doing their part for the economy, taxing and spending on behalf of its citizens who aren’t spending enough by themselves. 

There are risks to any investment, but bonds have the least of the major asset classes.  In the current interest rate environment, it is impossible to safely generate yields of more than 2% without taking more risk.

Conclusion

In conclusion the market environment remains unstable and vulnerable to shocks.  At some point in time, those stock market investors who are currently finding refuge in the bond market will tire of the low returns and venture back. 

Should you have any questions, please do not hesitate to call. 

Ken W. Wilk
Portfolio Manager and Investment Advisor
T (204) 988-5221 F (204) 988-5236 Toll free 1-866-988-5221
[email protected]  

* Comments summarized from 1) TD Waterhouse Equity Market Review October 1, 2010 and 2) TD Waterhouse Monthly Perspectives October. 

TD Waterhouse Private Investment Advice is a division of TD Waterhouse Canada Inc, a subsidiary of the The Toronto-Dominion Bank and a licensed user of The Toronto-Dominion Bank trade-marks.  TD Waterhouse Canada Inc – Member CIPF.

Trade-mark of The Toronto-Dominion Bank.  TD Waterhouse Canada Inc. is a licensed user. 

The information contained in this report was obtained from sources which we believe to be reliable.  However, this information is not guaranteed by TD Waterhouse, and may be incomplete.  This report was prepared to make it easier to manage your portfolio.  We must underline the fact that TD Waterhouse’s liability shall only be attached to the accuracy of the information contained in your statement of account.  Therefore, information in your statement of account will always take precedence over the information contained in the above-mentioned report.

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