Quarterly Market Commentary

as of September 30, 2023


What's happened since the last report?

Happy 10th Anniversary!  On August 3, 2023 Nelson Portfolio Management Corp. turned 10 years old and 30 days later, on September 3rd, 2023 the NFC Tactical Asset Allocation Pool also turned 10.  It has been an amazing decade of growth, where our overall business has evolved significantly, both in terms of the depth of our portfolio management skills, but also as financial planners.  We have a truly amazing team that love what they do each and every day, and I am so grateful for their passion.  As always, we have some new projects that we are working on that we can’t wait to share with you.  Thank you for your long-term trust and confidence.  It is our great pleasure to be of service to you.

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 October 2nd, 2023.  The market and index returns noted below are based on the price changes for each quoted item for the period ending September 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 July 1st, 2023 through to September 30th, 2023:

  • Over the past three months, the Toronto Stock Exchange Composite Price Index (TSX) declined by -3.05%. The only sector in Canada that contributed positively to this gain was the Energy sector (XEG; +18.62% in 3 months).  Most of the industry sectors in Canada declined in value over the past three months:  Utilities (XUT; -12.8%), Technology (XIT; -6.34%), Materials (XMA; -4.47%), Financials (XFN; -3.72%) and Real Estate (XRE; -7.81%).
  • In the U.S., the broad-based New York Stock Exchange Composite Index (NYA; -3.01%) also declined over the past three months, as did the S&P 500 Index (SPX; -3.65%) and the Nasdaq 100 Index (NDX; -3.06%). Over the past three months, only two sectors gained in value:  Energy (XLE; +12.17%) and Communication Services (which is the sector where you will find Google and Meta (Facebook); XLC; +1%).  Most other sectors declined in value over the past three months:  Technology (IGM; -2.62%); Consumer Discretionary (XLK; -5.03%); Financials (XLF; -1.16%); Real Estate (XLRE; -8.88%) and Utilities (XLU; -9.22%).
  • Internationally, the Europe / Asia index (EFA) declined by -4.94% and the Emerging Markets (XEM) declined by -1.76%.
  • Defensive investments, such as the broad Canadian Bond Index (XBB; -4.61%), also generated negative returns these past three months. We see a similar decline for U.S. corporate bonds (XIG; -5.76%) and U.S. high yield bonds (XHY; -0.82%) as well as North American preferred shares (XPF; -2.41%).

With these numbers in mind, other than the Energy sector, most investment categories saw declines over the past three months.  By comparison, the NFC Tactical Asset Allocation Pool declined by only -0.23%.

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.

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

  • In Canada, the S&P / TSX Composite price index gained by +5.95% driven mostly by gains in the Energy sector (XEG; +24.37%) and the Technology sector (XIT; +45%). These gains were reduced significantly by the declines in Canadian financials (XFN; -1.76%), Real Estate (XRE; -5.04%) and Utilities (XUT; -20.76%).  In the Canadian Technology sector, we own two companies:  Constellation Software (CSU; +46%) and Open Text Software (OTEX; +23%).  In the Energy Sector we own Canadian Natural Resources (CNQ; +42.0%), Suncor (SU; +26.0%) and Parkland Corp. (PKI; +52.0%).
  • The broad Canadian Bond Index ETF (XBB; -4.02%) generated a negative return over the past 12 months while other defensive areas, such as U.S. corporate bonds and preferred shares, declined by -1.25% and -7.79% respectively.
  • The broad-based New York Stock Exchange Composite Index (NYA) gained by +14.3% over the past year while the Nasdaq 100 Index (NDX) gained by +35.0%. This shows the difference between overall market gains (NYA) vs. the more technology-oriented bias of the Nasdaq 100 index (NDX).  Some our largest U.S. equity gains over the past 12 months include:  Advanced Micro Devices (AMD; +61.0%), Alphabet (GOOGL; +35.0%), Applied Materials (AMAT; +67.0%) and Nvidia (NVDA; +257.0%).

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’) remained mostly level with a return of -0.230% (vs. the TSX Composite Price Index at -3.05%).
  • Year to date, the Pool is +3.532% (vs. the TSX Composite Price Index at -1.07%).
  • Over the past 12 months the Pool gained by +5.64% (vs. the TSX Composite Price Index at +5.95%). As a Balanced investment pool, our goal has been to generate a return greater than 70% of the return of the TSX Composite price index:  70% X 5.95% = +4.165%.
  • This means to us that the Pool return (+5.64%) captured 95% of the upside return of the S&P TSX Composite Price Index (+5.95%).

Over the past three years (ending June 30, 2023), the Pool achieved the 9th highest return compared to 133 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 +4.2% (vs. the S&P TSX Composite Total Return Index at +3.38% and vs. the New York Composite Total Return Index at +3.34%).
  • Over the past 12 months, the growth component of the Pool gained in value by +7.653% vs. the S&P TSX Composite Total Return Index (+9.54%) and the New York Composite price index (+17.15%). The pure equity component of the Pool outperformed other equity indexes year to date but underperformed over the past 12 months.  The under-performance took place in the last three months of 2022.
  • The defensive component of the Pool gained in value by +4.0% so far this year (vs. the broad Canadian bond index (XBB) at -1.53%).
  • Over the past 12 months, the defensive component of the Pool gained in value by +5.996% outpacing the broad Canadian bond index (XBB, -1.05%).

The current asset mix of the Pool remains approximately 48% defensive and 52% growth, similar to where we have been positioned throughout 2023.  On September 30th, 2022, the cash component was 10.83% whereas today it is 2.0%.  A year ago, the defensive component was 44% while today it is slightly higher at 46%.

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, 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, as the value of the Pool has continued to grow.

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% annually and yet is invested today in a 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.  We have also trimmed or sold some positions where we see further downside and have added some new positions to the portfolio. 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:  Over the past three months, in the Pool, we executed 8 sell orders, so as to i) take profit on positions that looked like further declines were due to occur in the near future and ii) exited positions where we wanted to realize a capital loss for tax purposes or utilize the funds for opportunities where we wished to top up or add new positions. (Exited positions: BLX, GEI, EMA, T)
  • Equity Buys:  During this time, we also added to other positions that we wish to hold for the long term, where the price had seen some declines and therefore the opportunity to buy at lower prices.  We executed 39 buy orders in the last three months, not only to add to some of our existing positions but also to add a few new securities to the Pool such as Visa (V) and Home Depot (HD). In total we added 11 new positions in the Pool to gain exposure to companies that we wish to hold for the long term.  These companies are i) leaders in their industry, ii) have a history of rising revenue, profit, and dividends and iii) have strong balance sheets with low levels of debt.
  • Increasing Exposure to the Private Markets:  As mentioned in other quarterly market commentaries, we have exposure to the private markets which now exceed $18 trillion in market cap consisting of exposure to private lending, private real estate, private infrastructure, and private equity. Source: https://caia.org
  • This past quarter as our Pool continues to grow in size, we added a new Global Agriculture Strategy fund. This fund provides diversified exposure to different agricultural commodities such as traditional grain farmland, dairy, fruit, nuts & oil seeds across the world. The Fiera Comox Global Agriculture Strategy (Agriculture – Fiera Comox)  provides  a targeted net return in the 7.5% – 9.5% range.
  • Preferred Share Buys:  We have also continued to add to our preferred share holdings, adding more preferred shares of Enbridge (ENB.PR.H, ENB.PR.J, and ENB.PR.Y), which pay annual dividends today in the 6.50% to 6.70% range.
  • Our largest declining holding in our portfolio this year is Dollar General (DG), with a decline of -55%, where most of this decline took place over the last 3 months.  While during this same period of time (last 12 months) we have seen strong gains in other similar investment holdings (Costco; COST, +19.0%; Walmart, WMT, +23.4%; Pepsico, PEP, +6.0%; Alimentation Couche-Tarde, ATD, +25.0%), Dollar General has been a great disappointment.  A few years ago, they entered the grocery business, which seemed to be a good strategy at that time but has failed to materialize.  Thus, we have seen this decline take place.  Today we are assessing our best next step going forward.

Since June 30th, 2023 we have used some of the cash in the Pool to add to both growth and defensive oriented investments. We have tilted the Pool slightly more towards growth and today have an asset allocation that is 52% growth oriented and 48% defensive. Comparatively, at the end of June 2023, we were 50% growth oriented and 50% defensive.

Since January 1, 2023, the Pool’s assets under management have increased, due to both returns and new deposits, from $82 million to $96 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?

The most recent market peak was approximately July 25th, 2023.  At that time, the year-to-date return was +6.02% for the TSX Composite Price Index (vs. the year-to-date return for the Pool was +5.4%.  This is an excellent comparative return).  Since that date, the TSX has declined by -6.7% and the Pool has declined by -2.0%.  From a year-to-date perspective, it is nice to see how we captured most of the upside move in the Canadian market while protecting against 70% of the decline.

What has triggered most of this decline is the concern over “higher interest rates for a longer period of time.”  Several months ago, “the market” was expecting central banks to begin to cut interest rates by this fall.  However, with unemployment remaining low and job availability remaining high, wages have remained high, which has also kept inflation up higher than expected today.  Thus, while future interest rate hikes may be minimal, interest rate cuts are not expected until mid-2024 or later.  This could change along the way, but that is the “market” view today.

As a result of this changing perspective, we have seen longer term interest rates increase considerably over the past two months.  From July 19th, 2023 through to today, the 10-year U.S. government treasury interest rate has risen from 3.75% to 4.59%.  This is an increase of 22% in just 2 months, bringing us to a rate last seen in November 2007.  In Canada, the increase was from 3.35% to 4.09%, also an increase of 22%.

Higher interest rates have an impact on stock valuations, especially interest sensitive sectors, or those sectors that have higher valuation multiples, such as Technology:

The Really Big Question:  With this in mind, will these higher, longer-term interest rates negatively impact the consumer and the economy, resulting in lower stock prices over the coming months?  Yes, this could happen, and this would be the normal ebb and flow of the markets:

  • Some stocks could see a considerable correction (the price could drop 10% to 30%).
  • Some stocks could drop in value over a number of weeks, or it could decline in price gradually over time.
  • Interest rates could remain at these levels for another 12 to 24 months, which would negatively impact the consumer, resulting in a slower economy.
  • Other companies could gain market share from weaker competitors and thus continue to achieve positive returns and price performance.

So, what should we do today?  Here are five strategies that we continue to employ today:

  • Strategy #1: Have cash available to make timely purchases:  If a company does drop in value, this creates an opportunity to make a well-timed investment at a discounted price.  Therefore, we do not want to lock up money into a GIC where we can’t get access to it when we may need it most.
  • Strategy #2: Continue to use the technical charts as our trend guide and use stop loss orders to protect capital from larger, unexpected declines.
  • Strategy #3: Invest in companies that are i) leaders in their industry, ii) have a history of rising revenues, profit, and dividend growth, iii) have low levels of debt and iv) a large amount of free cash flow (cash available for the company to weather a downturn).  These features will often help to protect a company from declining significantly in value.
  • Strategy #4: Continue to invest in individual bonds for the medium to longer term at above average interest rates.  If we can invest in longer-term bonds that pay annual rates of return of 6.0% to 8.0%, then we should take full advantage of this.
  • Strategy #5: Continue to invest into the private markets, in established pools of capital (private lending, private real estate, private equity).  This creates considerable additional diversity and helps to minimize volatility.

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 $4.7 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."