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, President, Portfolio Manager, Nelson Portfolio Management Corp. as of April 4th, 2021.  Market and index returns noted below are based on the price changes for each quoted item for the period ending March 31st, 2021.  Market Statistics:  Source: https://ycharts.com.

  • Over the past 3 months (January 1, 2021 to March 31st, 2021) the Toronto Stock Exchange Composite Index (S&P / TSX Composite Price Index, TSX) increased in value by approximately +7.27%, driven primarily with gains in Financials and Energy.
  • As the economy improves, as continued stimulus is added by governments around the world and as interest rates rise, the loan loss provisions at the banks have begun to decline. This has boosted the returns in the Financial sector, with gains of +12.87% over the past 3 months.
  • As the economy improves, as travel begins to pick up and demand for oil rises, the price of oil (WTI) has risen by 25.0% over the past 3 months. This has pushed the Energy stocks higher, where the Energy index in Canada (XEG) has gained by +28.0%.  The Energy index peaked on March 12th, 2021 and has since declined by approximately -8%.
  • 12 months ago, we were just beginning to recover from the -37.0% decline that took place between February 20th, 2020 and March 23rd, 2020. From April 1, 2020 through to October 31 st, 2020, the two sectors that contributed to most of the gain were the Materials Sector (XMA) and the Technology Sector (XIT), both with gains exceeding +45.0%.  Yet, during that same period of time the two weakest sectors were Financials (XFN) and Energy (XEG) at +11.0% and +8.0% respectively.  Since November 1 st, 2020, the two strongest sectors, during this last 5-month stretch, have been Financials (+33.0%) and Energy (+82.0%) while the Materials sector has declined by -9.0% and Technology under-performed the market overall.
  • In the U.S., the broad-based New York Stock Exchange Composite Index (NYA) gained +7.41% over the past 3 months while Europe & Asia (Symbol XIN, currency hedged EAFE index) is +8.14% and the Emerging markets index (XEM) gained by +2.38%.
  • While stocks have gained, bonds have fallen in price. The broad bond index in Canada (XBB) has declined by -5.84% and U.S. investment grade bonds (XIG) have declined by -6.05%.
  • To put this into perspective, if a balanced portfolio held 60% in stocks and 40% in bonds, then the return over the past 3 months would have been approximately +2.02% ((60% X +7.27%) + (40% X -5.84%) = 4.362% – 2.34% = +2.02%). By comparison, the NFC Tactical Pool gained in value, net of fees a return of +3.87%.

The above points are very interesting as they show i) the significant rotation of money into different sectors throughout the year and ii) the significant price changes in many areas of the market over just weeks and months.  I don’t recall a time when writing a market commentary, that the gains and losses were so large in such short periods of time.

To put this into context, below are a few examples of some of the fluctuations we have seen:

  • Royal Bank (RY.TO): From April 1 st, 2020 to October 28th, 2020, the stock price of the Royal Bank increased by only 9.8%.  Yet, over the past 5 months it has increased in price by +27.0%.  Since mid to late October 2020, we have seen longer term interest rates rise considerably (more on this below), which in turn has driven up the value of the financial sector in just a few months.  The Royal Bank, as with most financial stocks we own, are long term core holdings.
  • Shopify (SHOP.TO): From April 1st, 2021 to August 5th, 2020, Shopify grew in value by 166%…in just 4 months! Yet, over the last 8 months Shopify shows a return of -4.0%.  The stock price peaked on February 11th, 2021 and has since declined by -20.0%, in just the past 6 weeks.  Shopify is now Canada’s largest company ($176 billion market capital), exceeding that of the Royal Bank ($167 billion market cap.).  Yet Shopify has less than 10% of the total revenue of the Royal Bank and in 2020 had profits of $334 Million vs. $28 Billion.  We don’t own Shopify directly.
  • Zoom Video (ZM): From April 1st, 2020 to October 19th, 2020, this stock increased in price by +308%…in just 5.5 months.  Since October 19th, 2021, the stock price has declined by -43.0%.  Zoom has a current market valuation of $95 Billion yet had profits last year of roughly $660 Million.  So, Zoom is valued at half of the market value of Shopify, yet had double the profits?  We do own Zoom in the Tactical Pool, and in only a handful of client accounts, but it is a small, underweight position.
  • Tesla (TSLA): From April 1st, 2020 through to January 8th, 2021, the price of Tesla stock gained in value by +813%.  Since January 8th, 2021, the price has declined by -24.0% in just the past 11 weeks.  Tesla is valued at a staggering $665 billion, based on profits of $1.9 billion.  Tesla has 7% of the amount of profit of the Royal Bank yet is valued 4 times larger.  We have exposure in the Electric Vehicle sector, but we don’t own Tesla directly.
  • Renewable Energy Companies: Energy utilities have also seen significant volatility.  Companies like Innergex Renewable (INE) and Boralex (BLX) saw their share prices increase by 80% to 125% from April 1 st, 2020 through to January 8th, 2021.  Since that date we have seen equally significant declines of -28.0% to -32.0%.
  • The 10-year interest rate on U.S. Government Bonds: From April 1st, 2020 through to October 1st, 2020, rates remained quite stable.  On April 1, 2020, the 10-year rate was at 0.62% and on October 1 st, 2020 the rate was at 0.69%.  Yet, since October 1st, 2021 the rate has risen to 1.72%.  Over the past 6 months this is an increase of 155%!  When interest rates increase like this, bank earnings are typically better, which is why we have seen the bank stocks gain in value during this time.  However, in other areas such as technology, when interest rates (and borrowing rates) rise, the valuation of stocks can decline.

By using these examples, I wish to emphasize several main points about the current market environment:

  • This has been a very volatile period of time that has been driven, for the most part, by low interest rates. When interest rates were cut by Central Banks a year ago, to stimulate the economy, we have seen significant increases in leverage in the equity markets.  Some recent data from the U.S. (source: https://www.finra.org) suggest that the amount of leverage in household brokerage accounts has increased over 62.0% since last April (2020) and is now at its highest level in history.  When this much leverage has occurred in the past, markets typically correct.  What is leverage?  This means that people have borrowed money to invest in the stock market.
  • In my view, it is this leverage that has pushed areas of the market to some of these extremes, increasing valuations to levels that in the future will seem completely ridiculous. Today a 1000 Price to Earnings multiple for Tesla or a 400 Price to Earnings multiple for Shopify always seems justified when the price of the stock is going up, but not so much when the price of the stock declines.  In late 1999, when the “technology bubble” started to unwind, the Price to Earnings ratio of many stocks were only in the 100 range, yet the market declined by 50% over the next two years due to these higher valuations.  The long-term Price to Earnings multiple for the overall market is 18 to 20, where today the current ratio is close to double this level.  My view is that much of these valuations have been driven by borrowed money and that if or when this borrowed money begins to exit the market, we could then begin to see valuations decline.  We have seen this same phenomenon in the housing market.
  • Another very recent example of excess leverage is a hedge fund called Archegos Capital, which leveraged their $20 Billion portfolio to as much as $100 Billion in total value (based on various news reports). When they couldn’t meet their loan obligations just over a week ago, their positions were sold by the banks that funded these loans.  The fund now appears to have been completely shut down resulting in several billion dollars in losses at the banks who lent this money.  While markets have not reacted too much to this news, this always raises the concern of what else might be getting into trouble as markets fluctuate.

So today there are three primary concerns:  i) the amount of leverage in the market and how this additional leverage continues to drive stock prices in some areas higher, ii) rising interest rates and how this may be a catalyst to drive stock prices in other areas lower and then iii) how to build a diversified portfolio to take advantage of these gains when they occur, but not be too concentrated to be significantly hurt by any declines that take place quickly over short periods of time.  These are the things we think about when we build our portfolios.

With these thoughts in mind, let’s take a look at the returns of the TSX Composite Index over the past 7 years.  Chart 1 is for the period ending March 31st, 2021. 

Chart 1:  The S&P TSX Composite Price Index (the Toronto Stock Exchange) for the 7 Years Ending March 31st, 2021.  Source: https://ycharts.com.  The 1-year return is +39.78%, 3-year return is +6.74% per year, 5-year return is +6.74% per year, and the 7-year return is +3.82% per year.

You can see that the historical rates of return are greatly influenced by the time period being measured.

Do you remember what the same chart looked like 12 months ago?

Chart 2:  The S&P TSX Composite Price Index (the Toronto Stock Exchange) from September 2nd, 2013 to March 31st, 2020.  Source: https://ycharts.com.  The 1-year return was -17.6%, 3-year return was -4.88% per year, 5-year return was -2.91% per year.

Yes, this past year has been quite the year of extremes.

Below is my updated table of the quarter-by-quarter performance of countries, regions, and sectors:

Table 1:  Asset Class, Region and Sector Returns Over Past 4 Quarters and Year-To-Date. Source: https://ycharts.com.


  • Over the past 12 months we have seen considerable volatility: From the -37.0% declines during the 4-week period of February 20th, 2020 through to March 23rd, 2020, to the significant gains we have seen in Technology and Materials (from April 2020 to October 2020) and then in Energy and Financials (October 2020 to March 2021).
  • This has been a period where concerns existed about Covid-19 and the impact on a mostly closed economy and higher unemployment, to one where lower interest rates have led to a greater degree of leverage and higher stock and bond prices in a very short period of time.
  • In short, it has been a period of considerable extremes.

In this environment, how has the NFC Tactical Asset Allocation Pool performed?

Over the past 12 months the NFC Tactical Pool has generated a positive return of +23.16%, net of all fees and expenses.  By comparison, the price return on the broad bond index (XBB) was +0.54% and the Toronto Stock Exchange (XIC) price return was +39.78%.  If 60% of a comparative portfolio was invested in the Toronto Stock Exchange and 40% was invested in Bonds, then the 1-year return is approximately +24.1%, which is similar to what we see with the Tactical Pool return as mentioned above. (Source:  Croesus Software)

Over the past 12 months the Defensive Component of the Tactical Pool generated weighted returns of +5.3% while the Growth Component generated weighted returns of +18% (5.3% + 18% = Total Return of +23.0% noted above).  Overall, the Growth component generated returns of +40.0%, but on a weighted basis it is +18.0%, which is similar to what we see in the overall market indices.  Of this amount, the U.S. Equity component generated returns exceeding 40.0%.

Some of our largest gains over the past 12 months include:

  • Brookfield Renewables (BEP.UN): +96.0%.
  • National Bank of Canada (NA): +72.0%.
  • TFI International (TFII): +220.0%.
  • Pender Small Cap. Opportunities Fund: +153.0%.
  • Nvidia Corp. (NVDA): +92.0%.
  • Wedbush Video Gaming ETF (GAMR): +86.0%.
  • iShares Small Cap. Index (XSU): +70.4%.
  • Taiwan Semi-Conductor (TSM): +133.0%.

Today the pool is still tilted towards Growth, similar to the December 31st, 2020 asset mix:

Here is an update of the relative performance of the Tactical Pool.  The goal of the pool, as the core of your portfolio, is to capture 70% or more of the upside growth of the TSX Composite Price Index while protecting against 70% or more of the downside when markets decline.  The table below illustrates the 70% portion and the amount of out-performance over each period of time.  It is important to remember that the Tactical Pool is a balanced investment whereas the Toronto Stock Exchange Index is 100% allocated to individual stocks (equities).  Since inception the Tactical Pool has outperformed this measurement by 3.0% per year over the past 7.5 years, net of all fees and expenses.

Also, for most client accounts, we also invest into a basket of what we call the Core 6 Exchange Traded Funds (Symbols:  HAL, ZLB, HAC, HAZ, XMW, ZGQ).  Similar to the TSX Composite Index, the Core 6 is also 100% exposed to equities.

Table 2:  Historical Returns of the NFC Tactical Asset Allocation Pool and the Core 6 ETF’s vs. the TSX Composite Price Index for the Period Ending March 31st, 2021.  Source:  Croesus, Ycharts.

What Have We Been Up to Over the Past Several Months?

Nelson Portfolio Management Corp. has created a new strategic relationship with BCV Asset Management Inc.  Both firms are based in Winnipeg, and the principals of each firm know each other well.  Several years ago, BCV was selected to be the back-up Portfolio Manager to the clients of Nelson Portfolio Management Corp. in the event that I (Doug Nelson) was unable to fulfill my duties as Portfolio Manager.  Today we have expanded this relationship to one where Lynda Perrick and I are now part of the BCV Asset Management Investment Committee, a group of 12 registered Portfolio Managers and Associate Portfolio Managers.  BCV Asset Management currently manages over $3.5 Billion in assets.

What does this mean to you and the Nelson Portfolio Management process?  The BCV approach is one that focuses on owning a core basket of 40 well researched securities.  When you know the companies you own very well, the day-to-day price fluctuation of the value of these companies become less important.  Instead, the focus evolves to tracking the evolution of that company as it reaches its various goals over time.  The goal of this approach is to own a great collection of 40 businesses over a longer period of time.  This additional research, perspective and insight will be of great value to the clients of Nelson Portfolio Management Corp.  Some or all of the 40 preferred BCV companies will be held within the NFC Tactical Asset Allocation Pool, while what we view as the best of this group will be held within individual client accounts, in much the same way we do today.

With the BCV relationship now firmly established, our new Portfolio Management routine is as follows:

  • Doug (Portfolio Manager) and Lynda (Associate Portfolio Manager) meet daily from 9:00 – 10:00 am to review the status of current client accounts, the holdings of the NFC Tactical Asset Allocation pool, the current market environment, and any new research.
  • At the Tuesday meeting, Doug and Lynda meet for an hour with Mr. Todd Johnson, CFA, who is the Chief Investment Officer for BCV Asset Management. This gives us time to have open discussions with Todd about our current research and rebalancing activities.
  • On Thursdays, from 10:00 am to 11:30 am, the entire BCV Investment Committee meets to review current earnings reports, rebalancing considerations, bond trading opportunities and new investment themes. This gives us an opportunity to hear what other Portfolio Managers are evaluating.
  • On Thursday afternoons, from 3:30 to 4:30 pm, members of the Investment Committee attend an open forum to discuss other emerging investment trends and themes, but in a less structured manner. This helps to flush out new ideas in a timely manner.
  • Throughout the week, additional meetings will arise where members of the Investment Committee are able to participate in conference calls with research firms and with the management team of specific companies. We may already own the common stock of these firms or we may be interviewing the management team to decide if this is a step we wish to consider at this time.
  • Lynda and I now have access to a much wider range of detailed research. This gives us the opportunity to have more in depth discussions with the other BCV Portfolio Managers, who each have deeper knowledge of specific companies and industries.

This process has helped Lynda and I develop an expanded set of criteria for the securities that we wish to own in our portfolios:

  • Step 1: We begin by looking at historical returns, profitability, and revenue growth over multiple periods of time so as to identify those firms that stand out from their peers.
  • Step 2: Next, we look at the current and future projections of these same firms, so as to ideally ensure that these firms are remaining on track to replicate their historical performance.
  • Step 3: We then do a deeper dive into each of these companies to confirm that they are leaders in their niche, the management team is executing well, and the company has current and future pricing power.
  • Step 4: Then we use various technical indicators, as we have in the past, to help determine ideal entry and exit points, so as to manage risks in our portfolios over time.

Using this approach, Lynda and I have been reviewing our holdings sector by sector.  The goal is to identify a leading group of 3 to 4 companies in each sector and then, from a risk management perspective, compliment this group of companies with a core Exchange Traded Fund (ETF). The individual companies provide the overall growth, while the ETF helps to reduce company specific risks and smooth out returns.  In our view, this is a very important and pragmatic approach to evaluating the areas in which we would like to invest, so that we aren’t over exposed to the areas of the market that may provide the greatest downside risk.

Here is an example of the historical performance of some of our sector baskets:

Chart 3:  3-Year Historical Returns:  March 31st, 2018 to March 31st, 2021:  Nelson Sector Baskets:  Source: https://ycharts.com. Note:  These are historical calculations and not future guarantees.

  • With the three sector baskets that are shown, we see that the historical returns are in the +16.0% to 24.0% range per year over the past three years vs. the market averages of approximately 7.0% to 8.0% per year.
  • This is not meant to suggest that the future returns will be as strong, but instead it is meant to illustrate the relative historical outperformance of these groups of companies vs. the market indexes.
  • Each of these baskets are generating these higher returns at levels of risk that are equal to or less than the overall market risk.

Lynda Perrick and I continue to be responsible for making all of the final decisions regarding the NFC Tactical Asset Allocation Pool and your individual account.  However, by tapping into the knowledge and expertise of the BCV Investment Committee, we are able to discuss more thoroughly, with our peers, the pros, and cons of different investment considerations.

Chart 4:  Risk and Return Analysis Report:  NFC Tactical Asset Allocation Pool:  September 3rd, 2013 to March 31st, 2021:  Source:  Croesus software.

The Blue triangle is the risk and return metrics of the NFC Tactical Asset Allocation Pool.  The Green dot represents the defensive side of a portfolio (Canadian Bonds), the Yellow dot is the S&P TSX Composite Index (Canadian stocks) while the Orange dot represents Global stocks (MSCI World Equity Index).  The Green Arrow is meant to illustrate our goal: To increase returns without taking on much more risk.

Our goal is to always learn and improve what we do, each and every day.  Our new relationship with BCV Asset Management will give us access to a team of successful and capable Portfolio Managers that will provide greater access to market research and security selection.  Our goal is to continue to increase returns while managing risk.

Some additional changes that have taken place over the past few months:

  • With today’s lower interest rates, companies are redeeming individual bonds at higher interest rates, and replacing them with new bonds issued at lower interest rates. This is a very practical move for these companies, but this also removes a perfectly good investment from your portfolio.  If you see changes to your individual bond holdings, this is likely the case.  This is not our preference, but it is a reality in today’s lower interest rate .  The replacement bond holdings are driven by the research conducted by BCV Asset Management. Based on this research, we are then selecting the new options available for the client portfolio.
  • Nelson Portfolio Management Corp. is now benefiting from BCV’s lower trading cost structure as well. For example, when we conduct a buy or sell, the trading fee has been reduced from $15.00 to $10.00.

Where Do We Go from Here?

Looking back at Table 1 you can clearly see the difference between those sectors that have done very well vs. those that have not.  Our plan today is to continue to stay with our three-pronged approach:

  • Defensive Income Securities: Over the past 18 months we have allocated close to 20% of the total Pool holdings to the Private Lending Pool category.  This will help to continue to provide considerable income (5.0% to 6.0% annually) while also providing stability to the portfolio.  Other defensive holdings include our Corporate Bond ladder, some Convertible bonds, and the Preferred shares.  We don’t expect to increase the weight of the Private Lending Pool category any further at this time.
  • Core Equity & Income Strategy: The Banks, REIT’s (Real Estate Investment Trusts) and the Renewable Energy sectors are providing some interesting investment opportunities today:  less expensive valuations that also pay a higher-than-average dividend.  We are continuing to review and monitor these core holdings and continue to look out for new opportunities.
  • Growth Strategy: We do feel that for the next 3 to 6 months we may continue to see continued emphasis on Technology innovation and Technology reliance.  Therefore, we do wish to remain exposed to these Growth sectors, but we also wish to be pragmatic and take profit on these investments when valuations appear to be a tad rich.

Returning back to some of my comments at the beginning of this commentary:

  • Markets have been very volatile, as we have seen large gains and large declines take place over short periods of time. To manage through this volatility, we continue to measure downside risk, and we use this information to help determine i) the weighting of each security in our portfolios and ii) when best to add to or trim profit from each of our positions.
  • Overall, markets are at higher than historical valuations, which is something we definitely need to pay attention to. However, with interest rates at current levels, with the end of Covid-19 hopefully in sight and with the added stimulus from Governments and Central Banks, there are many reasons as to why markets can continue to move higher.
  • One of the primary concerns has been the impact of rising inflation. We have seen this movie before in recent years.  As the costs of every day goods rise, we all definitely experience price inflation.  However, the greater concern to the economy, and the markets, is wage inflation.  With unemployment still quite high and with new technology enhancing productivity, wage inflation does not appear to be on the horizon.  As a result, the Central Banks may choose to allow interest rates to remain lower for a longer period of time, which is ultimately good for the markets.
  • The unfortunate outcome is increased leverage and risk taking. Instead of simply enjoying this upward trend, greed takes over and significantly more leverage enters the system, as we have seen.  This is the outlier that we also need to be mindful of.

It is with these thoughts in mind that we review and monitor our portfolios each day.

Thank you for your continued trust and confidence.  Should you have any questions or concerns at any time, or if you would like to see a more individual analysis of your personal portfolio, please don’t hesitate to let us know.

All the best!



  • Book Value vs. Market Value On Your National Bank statements: The book value information on your National Bank 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 National Bank statements and believe that the difference is your investment return.
  • Discrepancies between the Nelson portfolio reports and the NBIN (National Bank Independent Network) 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 NFC Tactical Asset Allocation Pool is provided to NBCN. 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."