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Quarterly Investment Review Letter 2014 Q2

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It’s not news that the Canadian labour market hasn't lived up to recent expectations. Job gains have trailed the pace that economic growth would have suggested. Indeed, since the beginning of 2013 the pace of monthly employment growth has been on a declining trend, with sizable drops within the past few months. - CIBC World Markets - June 2014


When referring to the impact of the aging population on labour market activity we should start using a present tense—it is already happening. The post 55 employee is still working in greater numbers.


The latest intentions survey by TD showed that business leaders are planning for almost no growth in capital expenditures.


Put the two together, Employment participation rates for those over 55 are not falling and new plant job opportunities are not expected. Not encouraging for entry, lower level sector, job opportunities. Hard to expect growth without job growth. Hard to expect growth without investment growth.


By the second half of 2015, the Bank of Canada will start to nudge up short-term rates. By 2018, Marple Bartlett & Preston - three TD economists, forecast an overnight rate of around 3.5%, which is still lower than historical averages. “Lower equilibrium interest rates can be attributed to a new normal where trend economic growth runs at a slower pace than in recent decades.” A new normal… a NEW normal – this slow to low growth life has been a reality since 2007. This is more normal than NEW by now. The economists are suggesting that by 2018 we will still be experiencing interest rates lower than historical averages.


Growth style investing may be then more about the risk than the return. Value style however consistently continues to perform as dividends and fixed income allocations. Like Manulife Monthly High Income and Cardinal value portfolios, Value style consistently delivers sustainable income and a commitment to the preservation of capital.