Quarterly Insights- Wrapping Up a Decade


Wrapping Up a Decade


Strong 2019 brings decade to a close

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Global financial markets closed out the decade in style, with both bond and equity markets globally exhibiting strong performance in 2019. This came in the face of a potential impeachment of a United States President, slowing global economic growth, and the continual noise emanating around the trade dispute between the two largest economies on the planet; no small feat.


Overall, it was a positive decade for most financial markets globally. However, the US equity market was the clear winner, vastly outperforming over the last 10 years on a total return basis, as seen on the chart below. Despite numerous calls for market leadership to change hands over the course of the decade, the US remains the leader during this current market cycle.


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What potential risk factors are we watching at the start of 2020?

At the time of writing, geopolitics continue to have the potential to inject increased uncertainty into the financial markets. While President Trump has signaled that he will sign off on the phase 1 trade deal with China in January, there are plenty of issues still at hand between the two countries that remain unresolved. As we highlighted previously, the continued rise of China economically and geopolitically remains the largest event facing the countries around the globe, and this trend should persist throughout the 20s.


More recently, the assassination of a high-ranking Iranian military general by the US military has turned up the dial on Middle East tensions. Bear in mind that Middle East troubles are never really gone, they just get pushed out of mind periodically. This latest event draws into question the continued reduction of US military presence in the Middle East, as well as President’s Trump more isolationist rhetoric. Heading into an election later this year, it will be worth monitoring how events progress. In the immediate term, oil and gold prices moved higher as they do whenever tensions in the Middle East flare up.


Looking to the US, 2020 brings us to an election year. With articles of impeachment expected to be delivered to the US Senate, as well as the expected escalation of rhetoric from both parties as the election cycle swings into full gear, the risks to market volatility are in place politically. Economically, the Fed is expected the remain in a holding pattern as the economy digests the 2020 rate cuts, but the direction of short-term interest rates is always being monitored.


At home here in Canada, the Bank of Canada is in an interesting spot. The BOC was really the only central bank to not introduce monetary stimulus through lowering interest rates in 2019. This resulted in the Canadian dollar appreciating by about 5% versus the USD in 2019, which results in a loss of competitiveness for our exporters, including energy. All the while, the housing prices in Toronto and Vancouver continued to climb on a year over year basis as interest rates fell globally, which in our view is one of the major risks the BOC is trying to contain by not being quick to reduce interest rates. It will bear monitoring how this rise in the dollar will move into the economy moving forward, and how the BOC responds.


Within financial markets, an area we continue to monitor is credit spreads, both investment grade and high yield. Corporate borrowing in this era of low interest rates has continued to rise. As such, monitoring credit spreads (the difference between a corporate bond and a government bond of the same maturity) is a key risk indicator within our macro-economic data collection. Spreads have remained low since spiking in Q4 of 2018, and defaults have stayed at levels far from recessionary.


Concluding Thoughts

While the risks we mention above are very present and worth monitoring, our base case calls for a slight uptick in global growth rates globally as the phase 1 trade deal is signed. We continue to see no sign of imminent global recession. President Trump knows that maintaining the strong economy is likely critical to his re-election prospects, and continued escalation with China would be a hindrance to that outcome. The US consumer remains healthy, unemployment is low, inflation overall is manageable, and wages are growing. Central banks have pulled back from rate increases, and rates remain low, supporting higher valuations.


Within portfolios, the below table represents a simple snapshot of our optimal current portfolio asset allocation matrix, showing a general view on our positions across our mandates. Within equities we continue to favour the US, particularly global platform companies. Across equities, we continue to focus capital within sectors, industries, and themes that have a strong growth profile. Within those areas, we seek to deploy capital in high quality companies that exhibit growing free cash flows, low debt, and management teams that are executing at a high level. Examples of a few specific themes and ideas we are deploying capital in include global infrastructure, cybersecurity, global real estate, mobile payments, and gold.


Content Plan Moving Forward

We at McCulloch & Partners Investment Counsel continue to strive to improve the scale and quality of our communications with our clients. We will continue to publish these Quarterly Insights, where we will briefly summarize the prior quarter as well as touch on what we are watching moving forward and how our asset allocation matrix has evolved.

We are also exploring more regular releases of more focused content. Our Fireside Conversations have been well received and we are looking to expand those pieces to include canvassing our client’s questions and answering them within the newsletter. Also, we plan to release summaries of major investment themes that we are researching or are actively invested in. Finally, we are hoping to introduce periodic pieces geared towards introducing and informing on concepts within the broader wealth management sphere.

McCulloch & Partners Investment Counsel

Garry McCulloch, CIM

Director Wealth Management,
Portfolio Manager, Investment Advisor

Tel.: 403.355.6070



Brenden Soley, CFA

Portfolio Manager,
Associate Investment Advisor

Tel.: 403.260.8486



Rosa Golanowski


Tel.: 403.776.6225



Richardson GMP Limited

525 8th Ave SW, Suite 4700

Calgary, AB T2P 1G1








All data and/or charts are sourced to Thompson Reuters Eikon unless otherwise noted.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson and GMP are registered trademarks of their respective owners used under license by Richardson GMP Limited.