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 October 4, 2020.  Market and index returns noted below are based on the price changes for each quoted item for the period ending September 30th, 2020.  Market Statistics:  Source: https://ycharts.com.

  • Over the past 3 months (July 1st, 2020 to September 30th, 2020) the Toronto Stock Exchange Composite Index (S&P / TSX Composite Index, TSX) increased in value by approximately +3.91%. Since January 1st, 2020 the index is still down -5.52% and since February 20th, 2020 (the market highs) the TSX is down by -9.72%.
  • Over the past 12 months the Financial Services Index (XFN, the Canadian Banks) has declined by -15.68%, the Energy index (XEG) has declined by -51.96% and the Real Estate index (XRE) has declined by -25.45%. The positive gains in the Canadian market have come from Technology (XIT) +51.48%, Utilities (XUT) +6.53% and the Materials sector (driven by Gold, XMA) at +34.4%.
  • In the U.S. the broad based New York Stock Exchange Composite Index (I am choosing this index because it is a better representation of the overall market) gained +6.79% over the past 3 months but year to date it is -8.71% and since the February 20th, 2020 highs, it is -10.44%. This is not much different than the overall Canadian market.
  • Europe & Asia (Symbol XIN, currency hedged EAFE index) is +0.70% for the past 3 months, -11.18% year to date and -13.82% since February 20th, 2020. The Emerging Markets index (XEM) was the best performing index at +8.27% over the past 3 months, +0.59% year to date and -3.15% since February 20th, 2020.
  • By comparison the NFC Tactical Asset Allocation Pool had an excellent quarter with a gain of +5.08% (vs. the TSX at +3.91%). Year to date the Pool is -1.44% (vs. -5.52% for the TSX) and is

-5.7% off of the February 20th, 2020 highs (vs. the TSX at -9.72%).  Over the past 12 months the Pool has gained +0.73% vs. the TSX at -3.22%, the Financial Services index at -15.68% and the Energy index at -51.96%.

  • Your returns will be similar to the returns of the NFC Tactical Asset Allocation Pool, depending on your risk profile, fee structure and deposits / withdrawals over time.

Now let’s take a look at the returns of the TSX Composite Index over the past 5 years on the following page. 

Chart 1:  The S&P TSX Composite Index (the Toronto Stock Exchange) for the 7 Years Ending September 30th, 2020.    The 1-year return is -3.22%, 3-year return:  +1.18% per year and the 5-year return is +4.0% per year. Source: YCharts.

Here is an 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:  YCharts.


  • Over the past 12 months, the areas of the largest gains have been Canadian Bonds (+4.1%) and U.S. Bonds (+4.69%), Gold (+27.46%, which has contributed to the gains in the Canadian Materials sector of +34.29%), U.S. Health Care (+26.34%) and Technology (U.S., +42.27%). Gold has gained due to declines in interest rates and the value of the U.S. dollar.  S Health Care has gained in value due to hopes around finding a vaccine for the Covid-19 Pandemic while Technology has gained due to the increased reliance on internet-based technology.
  • Offsetting those gains are the declines we have seen in the Financial Services and Banking sectors in Canada (-15.68%) and in the U.S. (-27.38%). Due to the uncertainty over the economy, higher loan loss provisions and much lower interest rates, this sector has seen significant declines.
  • Energy has declined (-51.96%) due to the slowing economy and the negative sentiment towards fossil fuels.
  • Real Estate has declined (-27.4%) due to the slowing economy and the belief that there will be less demand for commercial and industrial real estate.
  • It is interesting to see just how the returns between these different sectors have been so significant. This shows us just how concentrated the markets have been over this past year.  The dominant themes have been Technology and Health Care where anything, but these areas have seen considerable declines.  However, it is always prudent to be wary of this type of concentration.  Once it seems that one area will always go up, the opposite can happen. Therefore, some diversification, is always prudent.

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

Over the past 12 months the Tactical Pool has generated a positive return of +0.73% in an environment where the Toronto Stock Exchange has a 1-year negative return of -3.22%, the New York Stock Exchange Composite Index is -2.32%, and the Europe / Asia index (EAFE) is -7.86%.

Chart 2:  The S&P TSX Composite Index (the Toronto Stock Exchange) 1-Year Return Ending September 30th, 2020.  The Green Line shown on this chart is for illustration purposes only to show the performance of the NFC Tactical Asset Allocation Pool on a quarterly basis.  Refer to the table for actual performance returns of the NFC Tactical Asset Allocation Pool.  The Green Line was added by Doug Nelson as a visual representation. Source: YCharts.

Over the past three months the NFC Tactical Asset Allocation Pool has increased in value by 5.08% (vs. the TSX composite index at +3.91%).  We had a particularly strong September 2020 where the Pool declined by only -0.54% while the TSX declined by -2.38%.  We protected against 78% of the declines that took place during the month of September.

Today the Pool is slightly more conservative than it was at the end of June 2020: 


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

Today the Pool is comprised of three primary strategies:

  • Defensive Income Strategy: The defensive component is made up of individual bonds, the private lending pool and fixed rate perpetual preferred shares.  These holdings are paying interest and dividends in the 5.0% to 6.0% range each year.  These are investments that we expect to hold over the long term up to the date that they mature.
  • Core Equity & Income Strategy: This is our group of core long-term holdings and is comprised of longer term buy and hold stocks such as the Canadian Banks, Utilities and larger U.S. companies such as Microsoft and Amazon.  This also includes our Core 6 Global ETF strategy, which over the past 12 months has also generated a positive return of +1.93% (vs. the TSX at -3.22%).  These are holdings that we expect to hold for the long term.  The equities are currently paying a dividend of 2.0% to 4.0% annually.
  • Global Growth Strategy: This is our group of growth-oriented securities that focus on the major growth sectors of today:  Online Retail, Global Payment systems, Cybersecurity, Cloud Technology, Medical, Cloud-based Health Care software solutions and Self-driving Technology.  Most recently we have added the U.S. Regional Banks to this mix and have gained 7.0% on this investment in just the past few weeks.  The engine that powers this growth is the semi-conductor space, of which we have a reasonable exposure.  These are typically companies in the Nasdaq Top 100 Index. Across most client accounts we have added a direct exposure to this index, on a currency hedged basis. Other growth areas today include Gold (we have a 2.0% exposure at this time) and Materials (which contributes to the creation of batteries for electric vehicles).

As these investments gain in value, from time to time we will trim these positions, take our profit and set it aside.  This is why we have more cash available in the Pool today than we did on June 30th, 2020.  Throughout the summer months we reduced our exposure to the Energy sector while taking profit in a number of our growth-oriented investments.  One example of this is Apple: From July 1st , 2020 to August 30th, 2020 Apple increased in value by a ridiculous 47.0%, a level that clearly seemed unsustainable.  We took profit in Apple twice during the month of August 2020, which proved to be quite timely as Apple declined by close to -16.0% over this past month.

As we moved through September 2020, we began to search out companies that appeared to be the most undervalued.  One area of interest is the Banking sector.  As mentioned previously, the Canadian Financial index has declined by -15.68% over the past year.  The U.S. banks have declined by approximately -27.0%.  As a result, we have taken an initial position in a basket of the U.S. Regional Banks, where the dividend is 3.92% and so far, we have seen a gain of +7.0% (since September 29th, 2020).  Another area of interest is the Real Estate Investment Trust sector.  Lynda is currently looking more closely at this sector and is striving to uncover some new and interesting possibilities.  Lynda also spent time over this past month looking at all of the newly issued stocks of the past year.  There are several that we like, but our preference would be to add some of these securities at lower price levels (IE:  we would like to see some of them decline further before we consider investing at this time).

On September 3rd, 2020 we celebrated the 7th year anniversary of the NFC Tactical Asset Allocation Pool.  It’s hard to believe that it has been 7 years already.  As of September 30th, 2020, the risk and return metrics of the pool can be seen in the table below.

Over the past 7 years the Tactical Pool, after all fees and expenses, has generated a return of +5.25% per year vs. the Toronto Stock Exchange Composite Index of approximately 3.68% per year.  This is a return that is approximately 43.0% higher, but with a level of risk (standard deviation) that was 50% lower (6.26% for the Pool vs. 12.32% for the TSX).  Our goal back in 2013 was to create a Balanced investment that generated a return of 5.0% to 7.0% per year with as little risk as possible.  It is great to see that over this 7-year period of time that we have achieved this goal.

Chart 3:  Risk and Return Analysis Report:  NFC Tactical Asset Allocation Pool:  September 3rd, 2013 to September 30th, 2020:  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). Source:  Croesus software.=

At this time, we continue to work on additional strategies with the goal to enhance returns while still managing the risk.  We hope to make some announcements in the coming months in this regard. 

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 had horrible returns.  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 helping to provide 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.

As the global pandemic continues to evolve over the winter months, we do expect to see a softening economy.  However, as we enter the new year, markets may begin to feel a renewed sense of optimism, with the hope that we are getting closer to the end of this challenging period.  To anticipate some of this momentum we continue to look at securities that are significantly under-valued, which may then lead the economy going forward at that time (Renewable energy, Banking, Real Estate and the Industrials sectors).  At the same time, however, we also continue to have a high-level of exposure to the emerging Technology growth sectors of today.  We don’t expect this leadership to change, but we do feel it is prudent to keep a close eye on the value of these securities.  Many of these companies have extremely high valuations today, which would suggest that there is always a chance of seeing a decline.  Our preference is to always take profit in these names along the way.

There are certainly plenty of issues on the horizon that we need to pay attention to:  The U.S. election, the health of world leaders, rising government debt levels, the risks of inflation and the extent to which Covid-19 has a more significant second wave.  These are all areas that may impact the volatility of your portfolio in the short run.  However, given our returns over the past month of September 2020, where we protected against 78% of the decline of the Toronto Stock Exchange and against 88% of the decline in the Nasdaq 100 index (which declined by -4.82% over the month of September 2020), and given that we also out-performed the TSX index during the past 3 months, year to date and over the past 12 months, I do feel that we continue to be well positioned for the months ahead.

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

All the best!


Important Information:

  • Book Value vs. Market Value On Your NBIN (National Bank Independent Network) 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 (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 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."