Canada Playing Catch-Up
DKAM’s previous newsletter,
Canada Cool
, focused on how this country is a
world leader according to important metrics like quality of life and was
personified by Justin Trudeau landing on the cover of
Rolling Stone
in August.
However, our economic strength hasn’t translated into stock market
gains…yet.
As the title of the newsletter suggests, we will discuss why Canadian stocks are
at the beginning of a catch-up phase. The main driver being that this is the first
time since 2007 that all 46 economies (tracked by the OECD) will grow
simultaneously. This is being referred to as “global synchronized reflation.” As
a result, most stocks worldwide have been on a tear in 2017 (Fig. 1), but not in
Canada. Using historical and projected growth and profitability metrics, we
show that Canada hasn’t been fairly rewarded. Most importantly, this
underperformance should reverse with a higher proportion of the benefits
going to the type of stocks we want to own.
For the first three quarters of 2017, the Capital Ideas Fund rose 2.96%
1
, versus
the TSX Composite Total Return Index, which is up 4.45%
2
. Since inception,
the Capital Ideas Fund has delivered an annual return of 19.30%
1
net of fees
and expenses versus the TSX Composite Total Return Index, which has
delivered an annual return of 6.35%
2
.
Fig.1
Country
Index
Return YTD
Hong Kong
Hang Seng
25.2%
Italy
FTSE MIB
18.0%
United States
S&P 500
12.5%
Germany
DAX
11.7%
France
CAC
9.6%
China
Shanghai Comp
7.9%
Japan
Nikkei 225
6.5%
United Kingdom FTSE 100
3.2%
Canada
S&P/TSX Comp
2.3%
2017 Stock Market Returns
Source: Bloomberg as of Sept, 29, 2017
VOLUME XXXXI OCTOBER 2017
INVESTMENT ISSUES • STRATEGIES • INSIGHTS FROM DONVILLE KENT