Quarterly Market Commentary

as of December 31, 2023


What's happened since the last report?

The following commentary represents the opinions and analysis of Doug Nelson, Portfolio Manager and Founder, Nelson Portfolio Management Corp. as of January 5th, 2023.  Market and indices returns noted below are based on the price changes for each quoted item for the period ending December 31st, 2022 and, in other instances, January 5th, 2023, where indicated. Market Statistics:  Source: https://ycharts.com

Market returns from October 1st, 2022 through to December 31st, 2022:

  • Over the past three months, the Toronto Stock Exchange Composite Price Index (TSX) increased by +5.10%. The sectors in Canada that contributed positively to these gains were the Real Estate sector (XRE; +6.92%), Energy (XEG; 13.16%) and Materials (XMA; +7.95%).  The sectors that contributed less to the overall performance over the past three months were Financials (XFN; +2.27%) and Utilities (XUT; -8.39%).
  • In the U.S., the broad-based New York Stock Exchange Composite Index (NYA) increased by +12.71%, the S&P 500 Index (SPX) increased by +7.08% while the Nasdaq 100 Index (NDX) declined by -0.29%. These are very interesting differences, due in part to just a handful of companies.  For example, 46% of the weighting in the Nasdaq 100 Index comes from just 7 companies:  Microsoft (: MSFT; +2.97%), Apple (AAPL; -5.98%), Google (GOOGL; -7.76%), Tesla (TSLA; -53.56%), Nvidia (NVDA; +20.39%), Amazon (AMZN; -25.66%) and Meta (previously known as Facebook; META; -11.31%).  These same companies represent only 18% of the S&P 500 index and a much smaller component of the 2,400 listed companies in the New York Stock Exchange Composite Index.
  • Thus, much of the story over the past three months has been related to the under-performance of the large technology companies, whereas much of the overall market has gained in value.
  • Internationally, the Europe / Asia index (EFA) gained +9.01% and the Emerging Markets (XEM) gained +7.05%.
  • Defensive investments, such as the broad Canadian Bond Index (XBB), generated a price return of -0.26% for the past three months whereas other defensive investments, such as U.S. corporate bonds (XIG; +2.76%) and U.S. high yield bonds (XHY; +4.18%) saw some reasonable gains.

To summarize, looking back over the past year we see the following returns:

  • Toronto Stock Exchange Composite Price Index: -8.66%.
  • Canadian Financial Index: -12.82%.
  • Canadian Bonds (the defensive side of the portfolio): -14.12%.
  • Nasdaq 100 Index (U.S. and global growth-oriented stocks): -32.97%.
  • MSCI World Index (global stock index, XWD): -12.8%.

Some of the most notable declines over the past year include:

  • Shopify (SHOP): -73.0%.
  • Microsoft (MSFT): -28.69%.
  • Apple (AAPL): -26.83%.
  • Amazon (AMZN): -49.62%.
  • Tesla (TSLA): -65.0%.
  • Google (GOOGL): -39.0%.
  • Facebook / Meta Platforms (META): -64%.

In Table #1 below, you can see that the top performing sector over the past year was Energy, with a gain of +47.0% as per the Canadian Energy Index (XEG) in Canada.  Some of the most notable gainers over the past year include Canadian Natural Resources (CNQ; +40.67%), Suncor (SU; +35.0%) and Tourmaline (TOU;  +67.0%) whereas renewable energy companies such as Boralex (BLX; +15.4%), Northland Power (NPI; -2.16%); Innergex Renewable Energy (INE; -12.9%) and Brookfield Renewable Energy Partners (BEP.UN; -24.34%) did not do as well.

Below is our typical table that shows returns for different types of investments and market sectors by quarter and over the past 12 months.

Table #1:  Asset Class, Region and Sector Price Returns Over Past 4 Quarters and Last 12 Months.

Data Source: https://ycharts.com.  Data compiled by Nelson Portfolio Management Corp.

In Summary:  To put this past year into perspective:

  • In Canada, the bulk of the decline took place during the April to June time period. By July 14th, 2022 the Toronto Stock Exchange Composite Price Index (TSX) had declined by -12.0% but since then it has gained in value by close to +6.0%.  This is good!
  • The broad Canadian Bond Index (XBB) declined by -11.89% in the first half of the year, but since July 14th, 2022 has been flat.
  • The broad-based New York Stock Exchange Composite Index (NYA) -16.0% and the Nasdaq 100 Index (NDX) declined by -27.57% from January 1st, 2022 through to July 14th, 2022. Since then, the New York Stock Exchange Composite Index has gained by +7.12% (also good!) while the Nasdaq 100 has declined by an additional -6.0% (thanks to Apple, Microsoft, Google, Amazon, Meta (Facebook) and Tesla, to name a few, which is not so good).

As a result, we can feel reasonably positive that the last 6 months, while choppy, has generated some positive gains to end the year. 

How Has the NFC Tactical Asset Allocation Pool Performed During This Time?


  • Over the past 3 months the NFC Tactical Asset Allocation Pool (the “Pool”) gained by +1.95%.
  • Over the past 12 months the Pool has declined by -7.83%.

To put these numbers into perspective, we are going to measure against two comparative balanced portfolios:

  • Balanced Income Portfolio (60% Canadian Bonds, XBB; 20% TSX Composite Index, 20% MSCI World Index, XWD).
  • Balanced Growth Portfolio (40% Canadian Bonds, XBB; 30% TSX Composite Index, 30% MSCI World Index, XWD).

In Table #2 we see the comparative returns of the Pool vs. these two comparative portfolios:

Table #2:  Comparative Performance Over the Past 3, 6, 9 and 12 Months:  NFC Tactical Asset Allocation Pool vs. the comparative Balanced Income Portfolio and a comparative Balanced Growth Portfolio. Source: : https://ycharts.com.  Data compiled by Nelson Portfolio Management Corp. with Croesus Software.

  • The Pool slightly under-performed over the past 3 and 6 months vs. the two balanced model portfolios: +1.96% gain over the past 6 months vs. the Balanced Income Model at +3.0% and the Balanced Growth Model at +4.07%.
  • Why did we slightly underperform over the past 6 months? We underperformed for two reasons: The equity component of the Pool had some exposure to core technology securities (Apple, Amazon, Google, and Microsoft) and our cash component remained higher than average in the 8.0% to 10.0% range. Both of these attributed to bringing down overall returns relative to these benchmarks.  Looking more deeply into this, our equity returns in the Pool were approximately +3.498% over the past 6 months (vs. the TSX at +4.47%, NYA at +6.09% and the Nasdaq 100 index (NDX) at -4.46%).  This is reasonably good relative performance when you consider the declines in the core technology stocks.  Our defensive returns were +2.8% vs. the broad Canadian Bond Index (XBB) at +0.83%, which is really good by comparison.  Thus, it was the higher cash component that also contributed to some of this under-performance.
  • Yet, over the past 9 and 12 months, we see that the Pool out-performed these model portfolios considerably. Over the past 12 months, the Pool declined by -7.83% while the Balanced Growth model portfolio declined by -9.7%.  Other balanced exchange traded funds also declined a similar amount in 2022:  iShares Core Balanced ETF (XBAL: -11.17%), Horizon’s Balanced ETF (HBAL;

-17.7%; due to the higher concentration in the Nasdaq 100 index) and the Vanguard Balanced ETF (VBAL; -11.39%).  This means to us that we significantly out-performed these comparatives with 23% to 45% better returns over this 12 month period of time.

The current asset mix of the Pool remains 54% defensive and 46% growth, similar to where we were on June 30th, 2022.  This is a “Balanced – Income” risk profile.  You can see how the Pool is more defensive today than in the recent quarters.  On December 31st, 2021, the cash component was 2.0% whereas today it is 8.06%.  On December 31st, 2021 the defensive component was 33.6% vs. 46.27% today.  This means that we reduced the growth component from being 64.39% on December 31st, 2021 to 45.67% today (December 31st, 2022).

Table #3:  Historical Asset Mix of the NFC Tactical Asset Allocation Pool:  Source:  Croesus

We use the Pool returns because this will either represent 100% of your portfolio or 60% of your portfolio and it is a good proxy for your overall portfolio returns depending on your fees and risk profile.

What Have We Been Doing Over the Past Few Months?

As markets, and our individual holdings, fluctuate, we continuously assess the trend.  Is the investment trending higher?  Is it trending sideways?  Is it trending lower?  Based on these trends, we will then make the decision as to whether we should add to the position, leave our current allocation as is, trim the position so as to take our profit and set it aside or if we should exit the position in its entirety.  Since the last 6 months have been quite volatile, and we have seen a lot of trend changes begin to unfold, we have been very active:

  • Over the past three months, as markets have continued to add some positive momentum, we have been buying far more than we have been selling: During this time, we executed 30 buy orders and only 8 sell orders.
  • We allocated approximately $1.3 million to our bond holdings, in order to take advantage of yield to maturities in the 6.5% to 7.5% range.
  • We allocated approximately $2 million to private lending holdings, with expected annual returns in the 7.0% to 8.0% range. See more below:  Increasing exposure to the Private Markets.
  • We have been topping up current positions that we wish to continue to hold for the longer term, so as to take advantage of today’s lower stock prices while adding new positions such as Johnson Controls International (JCI).
  • JCI is a U.S. listed company that manufactures HVAC systems (building heating and cooling systems), fire and security systems as well as refrigeration systems. JCI contributes positively to a cleaner air environment, which we believe contributes positively to the move towards an overall cleaner environment.
  • Tax Management: As we close out 2022, there is no taxable distribution related to our realized capital gains in 2022.  Lynda and I managed our way through these gains by triggering related losses throughout the year, so that the taxable distribution from the Pool was minimized.  This means that the only distribution in December will be related to the typical interest and dividend income received during the quarter.

As I mention above and have mentioned in previous quarterly commentaries, we have increased our exposure to the private markets. The private markets are also known widely as Alternative Assets or Alternative Securities.   The stock and bond markets are referred to as the public markets.  Due to many factors, including the increasing level of automated trading and leverage in the public markets, the level of volatility in these markets seems to have increased considerably over the past decade.  At the same time, the “private markets” are now considered to exceed $18 Trillion in market capital, consisting of exposure to lending, credit, real estate, infrastructure, and private equity.

The Canada Pension Plan is an excellent example of exposure to what we are referring to as the private markets.  From the March 2022 year-end report, the asset mix of the Canada Pension Plan is as follows:

  • 32% exposure to “private equity” vs. a 27% exposure to the public equity markets.
  • 7% exposure to traditional fixed income, which includes bonds.
  • 9% exposure to “infrastructure” and 9% exposure to “real estate”
  • The remaining 16% is allocated to different lending and credit risk management strategies.

We are continuing to follow the same approach with the Pool, increasing our exposure to private equity, infrastructure, real estate, and private lending.  Over the past 6 months, and in the continuing months, the allocation to these investment areas has grown from 18.0% (December 2021), to 33% today (December 2022).  Our target is 35.0%.  The purpose of this exposure is to continue with the goal to generate annual target returns in the 6.0% to 9.0% range (in these asset classes), but with less volatility than what we see in the public markets.  It is important to note that we began to move in this direction almost 6 years ago and, as we have felt confident in what we were investing in, continue to expand our exposure in what we believe are  important asset classes.

With this added exposure to the private markets, we see that our correlation to the traditional markets continues to decline, which has been our goal.  Over the past six months, we have been approximately 30% to 40% correlated to the public markets.  This is good and we believe is also an important contributor to achieving your medium to longer term overall return goals.

Where Do We Go From Here?

Looking ahead markets expect to see two smaller interest rate increases of 0.25% each over the next three months (0.50% in total).  During this period of time, we believe that inflation and overall economic growth will continue to decline.  This will be both a positive and a negative.  As a positive, this means that interest rate increases may be on hold for the next several months after tax filing is complete (from April through to July or September) but as a negative, if inflation is cooling and the economy is slowing, then stocks may also decline further in value:

  • In the short term, we view the downside risk as approximately -5.0%, which is nothing to be too concerned about.
  • If the selling momentum picks up beyond that, we could see further downside of an additional -10.0%.
  • However, if interest rates peak in the next few months and the economy slows, then at some point we may also see some interest rate cuts. Some believe that this could happen as soon as September 2023 while others believe this may not happen until the first half of 2024.  If the market anticipates this happening, then we may also see stocks rally.  We believe this rally could be considerable, given the declines that we have seen in some areas.
  • This is why we wish to maintain our core equity positions: when markets do begin to rally, we believe the stock prices could gain considerably.

From my perspective, we need to just take this a few months at a time, as always:

  • Have a well-balanced, income-oriented portfolio: The yield within the Pool today is approximately 5.0%!  This is good!
  • Take advantage of the higher interest rates today available in individual bonds.
  • Diversify the portfolio into the private markets so as to gain a comparable return while reducing volatility.
  • Own a diversified basket of well researched, well managed companies with typically below average valuations (relative to the market).
  • Maintain a reasonable cash position so as to take advantage of dips in prices when they occur.

Thank you for the continued opportunity to be of service to you.  Our approach has created a positive risk and return outcome, that has also contributed to the positive growth of our firm:  We now manage over $150 million of client assets.  We have a huge responsibility to you that we take very seriously, as you can see by the detail provided to you in our quarterly reports.

Should you have any questions, please reach out to myself (dnelson@nelsonfinancial.ca) or Lynda Harris, Portfolio Manager (lharris@nelsonfinancial.ca).  If you wish to book an appointment for a portfolio review, please connect with Linzy Dumontier (ldumontier@nelsonfinancial.ca) and should you have any administrative questions or needs, please contact Jennifer Johnson (jjohnston@nelsonfinancial.ca).

All the best for 2023!  I hope you and your family have a truly wonderful year!



  • Book Value vs. Market Value on Your National Bank Independent Network (NBIN) statements: The book value information on your NBIN statement is not your net invested value.   Rather, the book value is the total of your invested value minus withdrawals and plus any dividend income received.  Thus, part of your investment return over time will show up as part of your book value.  Therefore, please do not compare the book value and market value on your NBIN statements and believe that the difference is your investment return.
  • Discrepancies between the Nelson portfolio reports and the NBIN monthly statements: We see that in some cases there are some small discrepancies between the total portfolio value seen on the Nelson statements and the NBIN monthly statements. In most situations these discrepancies are caused by the timing of when the NBIN statements are produced and when the data concerning the quarterly distribution for the Pool is provided to NBIN. This is a timing issue and not an error. Should you have any questions or concerns, or if you identify other discrepancies, please let us know immediately.
  • Paper vs. Secure E-Mail Link: It is NPMC’s preference to provide to you this quarterly portfolio package by e-mail. However, if you would like to receive this package in paper format, please let us know and we will accommodate your preference accordingly.

"IMPORTANT DISCLOSURES: The comments above are for information purposes only and do not constitute specific financial advice regarding your specific situation. Please consult a professional financial advisor who is familiar with your personal situation before acting on any information presented above. Every effort has been made to ensure this information is presented responsibly and accurately. However, important details may have been missed or these details may have changed since the publication of this note. All facts and opinions noted above must be reviewed to ensure their accuracy is still relevant based on today’s specific situation, whatever that may be. Nelson Financial Planning Corp is not responsible for any action you take regarding this information."