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 July 5th, 2023.  Market and index returns noted below are based on the price changes for each quoted item for the period ending June 30th, 2023.  Throughout this report, whenever I reference a specific market or sector, I use the data from a specific Exchange Traded Fund (ETF) that is meant to mirror the returns of the index.  When I do this, I am sharing with you the Symbol of that ETF so that you can do your own research and can mirror some of the analysis that I have done.  Market Statistics:  Source: https://ycharts.com

Market returns from April 1st, 2023 through to June 30th, 2023:

  • Over the past three months, the Toronto Stock Exchange Composite Price Index (TSX) increased by only +0.28%. The sectors in Canada that contributed most positively to these gains were the Financials sector (XFN; +0.99%) and Technology (XIT; +13.47%).  Most of the industry sectors in Canada declined in value over the past three months:  Utilities (XUT; -2.4%%), Energy (XEG; -2.03%), Materials (XMA; -7.36%) and Real Estate (XRE; -4.69%).
  • In the U.S., the broad-based New York Stock Exchange Composite Index (NYA) increased by +3.54%, the S&P 500 Index (SPX) increased by +8.30% while the Nasdaq 100 Index (NDX) increased by +15.16%. The trend from the first quarter continued into the second quarter in that most of the gains came from just a handful of companies in the Technology sector.  Looking at some of the industry sectors, we see positive gains in Technology (IGM; +15.7%); Consumer Discretionary (XLK; +15.07%); and Financials (XLF; +5.25%) while we saw declines in US banks (ZUB; -2.46%), Telecommunications (XTL; -3.46%) and Utilities (XLU; -1.93%).
  • Internationally, the Europe / Asia index (EFA) gained by +1.27% and the Emerging Markets (XEM) declined by -1.73%.
  • Defensive investments, such as the broad Canadian Bond Index (XBB; -1.47%), also generated negative returns these past three months. We see a similar decline for U.S. corporate bonds (XIG; -1.56%) and U.S. high yield bonds (XHY; -1.19%) as well as North American preferred shares (XPF; -2.84%).

With these numbers in mind, other than the Technology sector, most investment categories saw declines over the past three months. 

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

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

 To put the last 12 months into perspective (ending June 30th, 2023):

  • In Canada, the S&P / TSX Composite price index gained by +6.86% driven mostly by gains in the Materials sector (XMA; +9.68%). The Energy sector generated a negative 12-month return (XEG; -2.13%) while Canadian Financials (XFN) gained by only 1.77%.  It was the Canadian Technology sector that created the most market gains (XIT; +49.85%).   In the Canadian Technology sector, we own two companies:  Constellation Software (CSU; +49.85%) and Open Text Software (OTEX; +16.5%).
  • The broad Canadian Bond Index ETF (XBB) generated a flat return over the past 12 months while other defensive areas, such as U.S. corporate bonds and preferred shares, declined by -3.08% and -10.46% respectively.
  • The broad-based New York Stock Exchange Composite Index (NYA) gained by +8.76% over the past year while the Nasdaq 100 Index (NDX) gained by +33.0%. This shows the difference between overall market gains (NYA) vs. the more technology-oriented bias of the Nasdaq 100 index (NDX).

Despite the significant increases in interest rates over the past 12 months, the overall stock market indexes have gained in value.  Ironically, it has been some of the higher growth stocks that have performed the best in 2023, when in 2022, these same companies were some of the worst performers.

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

  • Over the past three months the NFC Tactical Asset Allocation Pool (the ‘Pool’) gained by +1.06%.
  • Over the past 12 months the Pool gained by +5.81%. By comparison, the TSX Composite Index gained by +6.86% over the past 12 months.  As a Balanced investment pool, our goal has been to generate a return greater than 70% of the return of the TSX index:  70% X 5.81% = +4.067%.
  • This means to us that the Pool return (+5.81%) exceeded 70% of the upside return of the S&P TSX Composite Price Index (+4.067%).

Over the past three years (ending March 31, 2023), the Pool achieved the 17th highest return compared to 135 other similar neutral balanced funds in Canada, with the 7th lowest level of volatility (Source:  Quarterly Performance Analysis Report, Fundata Canada Inc.).  No other fund in this analysis generated a higher return with the same level of volatility for this time period.  This is excellent!

Table #2:  3 Year Historical Risk & Return Ranking: NFC Tactical Asset Allocation Pool (Class A)

Source:  Fundata Canada Inc.

Digging a little deeper into our year to date and 12 month returns:

  • Since January 1st, 2023, the growth component of the Pool gained in value by +5.40% (vs. the S&P TSX Composite price index at +3.97% and vs. the New York Composite Index at +4.55%).
  • Over the past 12 months, the growth component of the Pool gained in value by +9.09% vs. the S&P TSX Composite price index (+6.86%) and the New York Composite Index (+8.76%). The pure equity component of the Pool outperformed other equity indexes year to date and over the past 12 months.  This is good!
  • The defensive component of the Pool gained in value by +2.68% so far this year (vs. the broad Canadian bond index (XBB) at +0.08%).
  • Over the past 12 months, the defensive component of the Pool gained in value by +5.75% out-pacing the broad Canadian bond index (XBB, +0.25%).

The current asset mix of the Pool remains approximately 50% defensive and 50% growth, similar to where we were three months ago.  On December 31st, 2022, the cash component was 8.06% whereas today it is 5.50%.  On December 31st, 2022, the defensive component was 46.27% while today it is slightly less at 44.21%.  This means that we reduced the cash and have added slightly to the growth component.

We do not wish to reduce the defensive component at this time because of the high amount of return we expect to see from this component over the coming years.  As I mentioned in March 2023:

  • Individual corporate bonds: If we hold these bonds from today until they mature, we expect to see an average annual return of approximately 6.6% to 8.34% per year.
  • Alternative strategy investments (private lending, private real estate, private credit strategies): This is also currently yielding approximately 6.0% to 9.0% on average.
  • This means that we are expecting the defensive component of the Pool to consistently generate an average annual return of 6.5% to 7.5% per year over the next three to five years or more.

As a result, we have continued to add to these holdings, which is why the defensive component has increased from 30.50% (June 2021) to 44.1% (June 2023).

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 approximately 60% of your portfolio and it is a good proxy for your overall portfolio returns depending on your fees and risk profile.

In summary, the core of your portfolio, the Pool, has performed well over the past three and 12 months, is generating a total distribution of approximately 5.0% annually and yet is invested today in a very neutral balanced manner.

What Have We Been Doing Over the Past Few Months?

So, what have we been doing over the past three months?  We have continued to add to our current positions while prices are lower than we expect them to be in the future.  In other words, looking ahead, we are of the view that these are very good buying opportunities that will serve us well in the months and years to come:

  • Equity Sells: We took $320,000 in profit on two of our semi-conductor holdings that had very strong investment returns this past quarter (Nvidia and AMD) while also trimming our positions in Energy and Materials.
  • Equity Buys: We have made 19 new buys over the past three months, across 15 different companies.  These buys are adding to our current positions, as the share prices begin to turn the corner and we believe are gathering some upside growth momentum.
  • Index Buys: We added to our broad-based trading positions within the Pool:  adding a position in the S&P 500 index (ZSP; now +8.2% since we initially bought it) and the Nasdaq 100 Index (ZNQ; now +12.32% since we initially bought it).
  • Bond Buys: We have also added to our bond holdings, adding a new bond (Northland Power) that pays an annual interest rate coupon of 9.34% and First Capital Power with a yield to maturity of approximately 6.50% per year.
  • Preferred Share Buys: We have also been adding to our preferred share holdings, adding shares of Enbridge and Pembina Pipeline, which pay an annual dividend today of 6.50% and 5.50% respectively.

Since January 1st, 2023, the Pool’s assets under management has increased, due to both returns and new deposits, from $82 million to $94 million.  With these increased deposits, we have added to both defensive and growth-oriented investments, keeping the asset mix similar throughout this period.

Where Do We Go from Here?

In the March 31st, 2023, commentary, I wrote the following:

Looking ahead markets expect to see two smaller interest rate increases of 0.25% each over the next three months (0.50% in total).

  • This has now happened in the U.S., where in Canada there was only one increase of 0.25%.

“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 but as a negative, if inflation is cooling and the economy is slowing, then stocks may also decline further in value.

  • We are now in a waiting period. Will the economic data and inflation continue to gradually slow down (which is what we want to see) OR will growth and inflation re-emerge in the coming months, thus requiring additional interest rate increases?  This is the question, and we really will not know the answer until we see the data over the next several months.  This is the reason why we have positioned the Pool to be in a “neutral position” of 50% defensive and 50% growth.

In other words, we continue to follow the same approach as we have all year:  To best position your portfolio during this uncertain period of time, we have taken a neutral stance:

  • We have increased the overall yield in the portfolio today, generating a 5.0% return on just the interest and dividends.
  • We continue to add to investments that we believe will do well over the next two to four years. With higher interest rates, the values of many stocks have declined.  Thus, over the past three months we have made 19 additional buys, at lower share prices, which we believe will set us up well for the next 12 to 48 months.

In March 2023 I wrote: “If we see inflation decline and interest rates stabilize, technology stocks could continue to rally.”

  • Indeed, this has happened and to some degree it looks like this could continue. At this time the Technology weight we have in the Pool is at 11%.  This is our highest sector weight, similar to Financials, also at 11%.

In March 2023 I also wrote: “Alternatively, if we see the economy slow at a faster pace, then we could see economic sensitive areas continue to decline.”

  • This has not happened.

The really good news is the fact that we have seen the markets continue to broaden.  This means that more sectors and companies seem to be ready to participate in and continue the upward trend in the markets.  So far this year, small U.S. listed companies have outperformed the broad market overall (XSU; +6.74% year to date vs. the New York Composite Index at +4.55%) where most of this outperformance began on the first of June.  We are hopeful that we will continue to see the market breadth continue to expand in this way over the coming months, but the proof will be in the corporate earnings reports over the next few months.  The 5.5% cash weight in the Pool today will continue to be allocated into equities as opportunities arise in the coming weeks and months.

Thank you for the continued opportunity to be of service to you.  Lynda and I are two Portfolio Managers that are now part of an overall team of 17 registered Portfolio Managers within the greater BCV Asset Management Inc. group.  We participate in the overall BCV Investment Committee and as such, are able to see the research and investments made by other Portfolio Managers.  This helps us have greater focus and confidence in everything that we own within our portfolios.  The BCV Asset Management Inc. group now has over $4.5 billion in Assets Under Management (AUM).

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 Riley Chard (rchard@nelsonfinancial.ca) and should you have any administrative questions or needs, please contact Jennifer Johnston (jjohnston@nelsonfinancial.ca).

All the best!



  • 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 you with 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."