2018 Summary

2018 Summary and The Impact On The Returns

Canada:

• The S&P/TSX Composite Index ended down (-8.9%) for the year. Canadian equities declined as earnings expectations eased, while the fall inoil prices and prospects of slowing global growth dampened investor confidence.

• Energy (-18.3%) was the worst performing sector on the year, followed by another cyclical sector, Consumer Discretionary (-16.0%).

• Information Technology was a standout sector on the TSX in 2018. Some of the prominent gainers include e-commerce platform Shopify and IT services provider Constellation Software.

• The Canadian economy had a strong year despite initial uncertainty revolving around the expiring NAFTA agreement. Employment growth, strong household income and spending increases helped support GDP in 2018. That being said, structural problems remain as debt levels and housing prices hit all-time highs.

• The response by the Bank of Canada to strong economic figures, and a hawkish tone by the Fed, was three overnight rate hikes in 2018. Rates increased from 1% to 1.75% over thepast year.

U.S.

• After a strong start to the year, all major U.S. indexes ended negative in $US terms in 2018: The S&P500 (-4.2%), the Dow Jones (-5.2%) and the NASDAQ (-5.9%). 2018 was the worst year for U.S. equities since 2008.

• Markets rallied until September as the corporate tax cut by the Trump administration led to better-than-expected corporate earnings (16% for Q3). Another tailwind for markets was the increased fiscal spending that fueled growth in the U.S. economy.

• Sentiment turned as the U.S-China trade-war escalated. The fear of the effect of further U.S. Fedrate hikes on the balance sheets of households and corporations also hampered markets.

• The U.S. economy remained strong in 2018, as GDP reached up to 4.2% in Q2. Unemployment hit a 49-year low of 3.7% in November.

• The Fed raised rates four times in 2018. The Fed funds rate increased from 1.5% to 2.5% as a result. This was largely in response to inflation being above the Fed’s 2% target for the entirety of 2018.

Rest of the World

• European markets had a very difficult 2018. The Dow Jones Euro Stoxx 50 and the MSCI Europe Index were down (-8.7%) and (-7.2%) respectively. Global economic growth concerns stemming from U.S.-China trade tensions were the main causes of the slowdown.

• The election of a Eurosceptic government in Italy raised fears of the stability of the eurozone, which was already shaken by Brexit. Italian bond yields spiraled higher as investors grew concerned about the new governments spending plans.

• Asian markets had avery volatile year, headlined by ongoing trade tensions. The Nikkei 225 (-1.6%), the Hong Kong Hang Seng Index (-2.6%) both finished the year in the red.

• Volatility arose when the office of the U.S. Trade Representative imposed $200 billion of tariffs on Chinese imports in September. Tensions cooled as China and the U.S. agreed to a 90-day truce to negotiate a potential resolution.

• Largely as a result of the sharp sell-off, Asia Pacific equities are trading at a steep discount to other developed market valuations (on a P/E basis).

Serge & Denis