Category Archives: Anthony’s Update

Anthony Sabti

2018 Mid-Year Review

Following a particularly volatile start to the year in the first quarter, many global equity markets delivered somewhat steadier returns in the second quarter. The MSCI World Index finished the period with a gain of 1.9% in U.S. dollar terms, while the S&P 500 Index, a broad measure of U.S. stocks, rose about 3.4%. Overseas results varied, with gains for equity indexes in England, France and Japan offset by losses in Germany and several Asian markets.

In Canada, the S&P/TSX Composite Index performed well, registering a broad-based advance of 6.8% for the quarter. Stronger oil prices buoyed energy shares, and the health care, information technology and financial sectors all added to performance. The Canadian benchmark has gained nearly 2% year-to-date.

The Canadian dollar, meanwhile, declined in value relative to the U.S. dollar over the quarter, enhancing returns for Canadian investors with assets priced in U.S. currency. The MSCI World Index, for example, returned 4.1% for the quarter when expressed in Canadian dollars, the S&P 500’s gain was 5.6% and the loss for the MSCI Emerging Markets Index was reduced to 5.9%.

Steady growth and firming inflation will likely lead central banks to continue rising interest rates to dial back monetary accommodation. The U.S. is the furthest along, with the U.S. Federal Reserve having raised rates seven times this cycle and is actively shrinking its balance sheet at a measured pace.

The macro environment has been dominated by the three “Ts”: Trump, Tariffs, and Trade. The U.S.-led trade war has counteracted healthy earnings and economic fundamentals, resulting in Price/Earnings multiple compression.  The trade war poses mounting risks for Canada, as a breakdown in NAFTA negotiations would weigh more heavily here versus the U.S. The worst-case scenario for Canada should not be ignored as the consequences of a breakdown in trade terms is material, especially to a few key industries such as automotive.

Should protectionist behaviour intensify, we would expect the market to turn defensive. Defensive and interest sensitive equity sectors and Treasuries would likely outperform in this scenario, while cyclicals such as industrials, financials, and resource sectors would underperform. The alternate scenario where trade tensions ease would support the cyclicals sectors, and defensive sectors would likely underperform.  Diversification has never been more important.

Despite early signs of a peaking cycle (remember the two 1000-point drops in the DOW in February?), the broad economic environment, base macro view and market fundamentals (earnings growth and valuation) remains moderately positive.  However, we encourage patience and discipline to take advantage of opportunities and accept that longer-term return expectations are likely to be less robust.

Your portfolio is invested in high quality funds and your assets have been allocated according to a plan that takes your financial goals and risk tolerance into consideration. If you have any concerns about your account or if there have been any changes to your personal circumstances, I would be very happy to discuss them with you – please do not hesitate to contact my office.

I wish you and your family a safe and pleasant summer.


Charts of Interest


Market Returns as of June 29, 2018.  Note the continued outperformance of the U.S. index (S&P 500), the underperformance of fixed-income indexes, rising bond yields, rising oil prices, and rising USD relative to CAD.


TSX rises. After being down 6% at the end of the 1st quarter, the rise in energy prices helped the TSX rally to an all-time high on June 20.  The up-and-coming cannabis sector provided some strong support as the federal government passed legislation legalizing it by Fall 2018. The end of the second quarter was the strongest the TSX has experienced since the last quarter of 2013.


U.S. market flat. After a strong month in May, the U.S. stock market closed the month flat, climbing from beginning to mid-month, but then declining by month’s end as fears of possible global trade wars haunted the market


Dominance of the IT Sector.  Market returns over the last few years have been primarily driven by high growth technology stocks. Returns within the Information Technology sector have been very strong compared to the other 10 sectors and the overall S&P 500 index. Over the last 3 years, the IT sector has contributed to over 41% of the S&P 500 returns in local currency and is up 135% year-to date.


Rising Bond Yields.  The ascent in global bond yields that began in mid-2016 paused late in the quarter. The yield on U.S. 10-year bonds rose briefly above 3.0% for the first time in nearly five years.  The forecast is still for yields over 3% in the next year.  Of course, rising yields means declining bond prices.  For example, let’s look at someone who bought a U.S. 10-year government bonds almost two years ago yielding 1.50%. Originally purchased at $100, that bond is now worth just over $90.


Entry Point Matters.  The chart below shows the S&P 500 Index’s subsequent 10-year compound annual return resulting from different price-to-earnings (P/E) valuations. The point is to show that future returns are inversely correlated to valuations and that investing today is not as ideal compared to the bottom of the Financial Crisis in 2009.


Asset Allocation.  Courtesy of RBC Global Asset Management. There continues to be a bias towards equities over fixed-income.  From RBC: “Solid global growth should support higher interest rates and corporate profits. The former will act as a headwind to bond returns and the latter should support equity prices”



Sources: CI Investments, Dynamic Funds, RBC GAM, Edgepoint Funds

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

Anthony Sabti

Trade Tensions: A Historical Perspective

Miles Zyblock, Chief Invesment Strategist with Dynamic Funds, released an interesting article this week.

The summary is that the U.S. and Japan were entrenched in their own trade war during the 80s, which took 12 years to settle.    Despite the trade tensions, it was a pretty good decade for markets.

In other words, capital markets are complex.  No single-issue drives performance, there are a variety of data points to consider.

The article is below.

Remembering the 1980s

Last time there were trade wars to any significant extent was throughout the 1980s, largely between the U.S. and Japan.

Speaker of the House Tip O’Neill threatened to “fix the Japanese like they’ve never been fixed before”

President Reagan asserted that he was trying ”to enforce the principles of free and fair trade,” by imposing a 100 percent tariff on some Japanese-made computers, television sets and power tools.

William R. Cline, senior fellow at the Institute for International Economists in Washington, said trade barriers ”run the risk of escalation, with the resulting closure of trade on both sides.” He said, ”This happened in the 1930’s and deepened the Depression.”

Concerns about industrial espionage were widespread: six Hitachi executives were arrested by a FBI sting operation relating to IBM technology. Fujitsu was blocked from acquiring Fairchild Computer on national security grounds.

Autos, steel, technology and consumer electronics were just a few industries targeted.

The two countries ultimately reached an accommodation, largely through Japanese concessions. It took a dozen years to settle.

Trade frictions were defused by a combination of “voluntary” export quotas, penalties under “Super 301” legislation (a unilateral process for targeting nations supposedly guilty of unfair trade), a large-scale shift of Japanese auto manufacturing from Japan to the U.S., and liberalization of Japanese imports in previously protected areas. There was also a huge managed revaluation of the yen which blunted Japanese competitiveness.

Through all of this, the 1980s was a pretty good decade for stocks in the US, Japan and across the globe outside of a rough start due to double-dip U.S. recession (shading for U.S. recessions) and the 1987 crash.


On behalf of the entire You First team, Happy Canada Day!

Source: Dynamic Funds

Anthony Sabti

2018 Federal Budget Recap

Following last week’s provincial budget release, yesterday Finance Minister Bill Morneau delivered his 2018 Federal Budget.

The key item was additional clarity on the taxation of passive income in a corporation. This is in addition to previously-announced measures for corporations such as the elimination (in some cases) of income sprinkling.

The budget did not deliver any significant economic stimulus or drastically change the course of Canada’s competitiveness. The announced measures do not have large investment implications. The budget was centered around social change including a focus on science, increased gender equality, and preparing for the future.

Budget 2018 addressed the economic challenges associated with U.S. tax reform and NAFTA negotiations, though it did not respond with specific measures to address concerns.

A total of about $20 billion was introduced for the support of new programs and initiatives – less than half of that introduced last year, and a marked slowdown from the government’s spending mode a couple of years ago.

The government expects to continue running a fiscal deficit through 2022-23 and Canada’s debt-to-GDP is forecasted to decline to 28.4 per cent.

Below is a summary of the changes:


  • Parental Leave: Budget 2018 introduced a new “use-it-or-lose-it” EI benefit of an additional five weeks in support of two-parent families, should they decide to share parental leave responsibilities. This will not add any more financial aid from the EI program, simply more time off. This would allow a parent to take five weeks off from his/her employer without having to dip into his/her vacation time.
    Under the current rules for the standard, year-long parental leave, parents can share 35 weeks (preceded by 17 weeks of maternity leave, which only the mother can take) of paid leave whichever way they want. The new rules would enable families to take up to 40 weeks of leave as long as the second parent claims at least five weeks of it.
  • Low and Middle-Income Workers: The Working Income Tax Benefit, a refundable tax credit that supplements the earnings of low-income Canadian workers, will be renamed the Canada Workers Benefit. Support to recipients will be expanded under this program.
  • CPP Enhancement: This previously announced measure (covered in our January Newsletter) will be phased in January 2019. An increase in CPP premiums will lead to higher CPP benefits at retirement.
  • Registered Education Savings Plan (RESP): Increased access to the Canada Learning Bond available for low-income families. This is not to be confused with the 20 per cent Canada Education Savings Grant, which remains unchanged.
  • Registered Disability Savings Plan (RDSP): When an RDSP is set up for a beneficiary who is over the age of majority, the plan holder must be either the beneficiary or, if the beneficiary lacks the capacity to enter into a contract, the beneficiary’s legal representative.  Where the adult individual does not have a legal representative in place, rules will be introduced to allow a qualifying family member to be the plan holder.


  • Passive Investment in a Corporation: Budget 2018 proposes to reduce the small business limit for corporations when investment income ranges between $50,000 and $150,000. The small business deduction will be eliminated for use on active income when passive investment income reaches $150,000 (reduced by $5 for every $1 of investment income above the $50,000 threshold). Earning a rate of return of 5 per cent, passive investments of $1,000,000 can be held without a reduction in the small business limit.
  • Income tax measures released on December 13, 2017 to address income sprinkling.
  • The income tax measure announced on October 16, 2017, to lower the small business tax rate from 10.5 per cent to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019 (with related amendments to dividend tax credits for taxable dividends).


  • Pay Equity Legislation: The Liberal Government will draft legislation that it says will help bridge the 12-cent hourly wage gap that currently exists between men and women who work full-time. There will also be increased funding to encourage women to join the skill trades, a source of well-paying jobs that remains largely male-dominated.
  • Reporting Requirement for Trusts: In an aim to combat tax avoidance and evasion, Budget 2018 proposes to require that trusts provide additional information annually and will impose an obligation to file a T3 return where one does not currently exist. The proposed measures are meant to improve collection of beneficial ownership information, which appears to be a concern for the Government as is consistent with what’s happening globally.
  • Improving Client Service at the Canada Revenue Agency (CRA): Anyone who’s ever had to call CRA can relate to this. CRA fields 20 million call a year, and callers are often met with busy signals, dropped calls or long wait times. A November 2017 report found that call centre agents gave wrong information 30 per cent of the time. The government is proposing to spend $206 million over five years to review and improve CRA’s service model.

Overall, Canada’s global competitiveness remains in question, but we believe that markets will be broadly unchanged given how little was announced. This year’s budget is likely to be perceived as a ‘placeholder’ until next year, given that budgets are generally larger in scope when immediately before or after an election year.

Anthony Sabti

2018 BC Provincial Budget Recap


Finance Minister Carole James announced the BC NDP Government’s budget yesterday and delivered on a wide variety of promises from its election platform. The key initiatives were centered around housing speculation.

The provincial government released a 30-point plan addressing housing affordability in the province.

Highlights from the plan include:

• The introduction of a two per cent speculation tax (0.5 per cent for 2018, two per cent in 2019 onwards). The tax will be charged annually on the property’s assessed value. Despite the name, this appears to be an absentee / vacant home tax. Details are not yet final, but it appears the tax would be levied to foreign and domestic investors who do not pay tax in B.C. Principal residences and long-term rentals would be exempted.

• Increase to the Foreign Buyer’s Tax (FBT) from 15 per cent to 20 per cent. Until now, the FBT only applied to home sales in Metro Vancouver; however, the NDP will extend this to other parts of the province including the Fraser Valley, Central Okanagan, Capital Regional District and Nanaimo.

• The Property Transfer Tax on sales of homes worth more than three million dollars will increase from three per cent to five per cent.

• Increase the School Tax on homes worth more than three million dollars.

• Elimination of the BC Homeowner & Equity Partnership.  Applications will be accepted until March 31, 2018.

• Moving to stop tax evasion on pre-sale condo reassignments. The government will require developers to collect and report information about the assignment of the pre-sale condo purchase.

• Taking action to end hidden ownership (homes owned through trusts and numbered companies).

• Expanding benefits to low-income families and seniors living independently. The 2018 budget will increase benefits under the Renter Assistance Program (RAP) and Shelter Aid for Elderly Renters (SAFER) programs.

• Empowering home owners in Stratas to deal with short-term rentals. The budget will allow strata corporations to increase fines for homeowners who ignore short-term rental rules.

• Various measures to ensure proper enforcement and coordination with tax authorities on the above changes.

The full 30-point plan can be read here.

The past few months has seen an increase in mortgage lending rates, the introduction of a stress-test in mortgage lending criteria, and now measures to curb housing speculation in BC. These are all headwinds for housing prices in Vancouver, and, in theory, should have a cooling effect on future price movements. However, the local market has been resilient to changes made in the past few years and only time will tell if these new rules will have an impact.

Of course, housing was not the only issue addressed in the budget. Below is a summary of other key announcements:

• Affordable childcare. The NDP did not deliver on its $10 a day childcare election promise. However, they did introduce a new child care program that makes care effectively free for families with income below $45,000 and offers subsidies for families with income of between $45,000 – $111,000.

• The elimination of Medical Services Plan premiums by 2020 to be replaced by a payroll health tax for businesses. The payroll tax will apply to businesses with payroll in excess of $500,000. The rate will be tiered from $500,000 to $1,500,000 and top out at 1.95 per cent for businesses with payroll over $1.5 million.

• Increase in the BC Carbon Tax to $5 per tonne per year, adding $212 million a year.

• An increase in tobacco tax from 24.7 cents per cigarette to 27.5 cents.

• The luxury surtax on vehicles worth more than $150,000 will increase from 10 per cent to 20 per cent.

• Free disability transit passes, a freeze on B.C Ferries fares for major routes (with reduced fares 15 per cent for minor routes), health care improvements, more teacher hires and boosts to skilled trades training.

For 2018, the government is projecting a $151 million surplus. Interestingly, there’s a new line that wasn’t in previous budgets. It’s called “surplus before ICBC impacts”, and it shows a projected $903 million surplus for next year — but also a projected $1.076 billion loss from ICBC.

The fiscal state of ICBC has been well documented in recent weeks. Attorney General David Eby announced a variety of reforms earlier this month, such as caps on pain and suffering for minor injuries. The government estimates these reforms will save ICBC $392 million this year, but concedes that there’s no way of knowing to what extent the reforms will influence drivers and trial lawyers.

The full 157-page budget can be viewed here

Anthony Sabti

14 Charts to Kick Off 2018

As we enter 2018, we would like to provide you with an overview of financial market results from the past 12 months, and to offer insights into some of the investment themes that may influence your investment portfolio over the coming year.

Several inquiries have come in concerning the current valuations of markets, where we are in the market cycle, and how to tackle current issues like NAFTA, interest rates, and tax reform. For this year’s outlook, we decided on a more visual approach and we hope that the graphics below will provide some guidance on these issues.

You will quickly notice that there are both optimistic and pessimistic charts. This was done purposely to provide a balanced view of the present investment landscape. Capital markets are complex and there are many data points to consider. Unfortunately, the situation cannot be simply summed up as “good” or “bad.”

Please feel free to contact us for elaboration on anything discussed in our newsletter.


#1: 2017 Market Recap. All major asset classes rose in 2017. Equities outperformed fixed-income by a wide margin. Global markets (U.S., Europe) outperformed our domestic one (TSX).


#2: Every major bank and investment firm releases an annual market forecast. Below is the forecast from the TD Wealth Asset Allocation Committee (WAAC). Given current valuations and growth prospects, TD suggests maintaining U.S. equity content, decreasing Canadian equity, and increasing International equity. Although not included here, RBC Global Asset Management’s (RBC GAM) forecast has a very similar outlook.

#3: Also from TD Wealth, below is a summary of the opportunities and risks weighing on markets.


#4: NAFTA Renegotiation Scenarios. Courtesy of RBC GAM, this table plots four possible outcomes to the NAFTA talks and the potential impact on the North American economy.

#5: Also from RBC GAM, a table summarizing the impact of Trump’s proposed tax reform plan. The key takeaway is that markets have already “priced in” the positive impact of the tax plan.


#6: How does the current bull market compare to previous ones? Since 1929, the S&P 500 has had 10 market corrections (defined as a 20 per cent drop or more). The last correction was the global financial crisis in 2008. Markets bottomed out in March 2009 and we have been in a bull market since. From both a duration and return standpoint, this is the second longest bull market on record.

Also note that the average length of a bear market is only 24 months compared to 54 months for a bull market.


#7: How expensive is the U.S. market? If the previous slide provided you with cause for concern, this one is reason for optimism. Despite a 295% run-up since March 2009, the S&P 500 is not as expensive as you might believe. Price/Earnings (P/E = current stock price over the predicted next annual earnings period) is a very basic market valuation metric. The 25-year average P/E for the S&P 500 has been 16x and the current P/E is 18.2x.


#8: Consumer Confidence and the Stock Market. This is the investor psychology chart. Notice how peak consumer confidence tends to precede a recession? The time to invest is when we’re anxious about markets. The time to stay put is when we’re euphoric about them.

#9: S&P 500 intra-year declines and calendar year returns. The “short-term noise” chart. Despite average annual intra-year declines of 13.8%, the S&P 500 has had positive returns in 29 out of 38 years.

#10: Canadian and U.S. debt ratios and the labour market. Canadian households are more indebted than the U.S., but our labour market is healthier.


#11: Cryptomania. The meteoric rise of cryptocurrencies. The Crix cryptocurrency index grew by 38x in less than a year. Most analysts have defined this growth as a classic bubble, eclipsing all previous historical bubbles like the Nasdaq in the 90s, Gold Spot in the 70s and 80s, the Nikkei in the 70s and 80s, and even the Tulip bubble of the 1630s!

We were going to warn against trying to purchase into such a speculative asset class, but it seems the market has done this for us. As of the time of writing, the index has fallen 35% from its high on January 7.

#12: Impact of a 1% Rise in interest rates: On January 17, the Bank of Canada increased its key interest rate by 0.25% for the third time in six months. When rates rise, bond prices fall. The chart below plots the impact of a 1% rise in rates. It assumes a parallel shift (every part of the yield curve moves by 1%). UST stands for U.S. Treasuries (U.S. Government Bonds).

#13: Global Purchasing Manufacturing Index (PMI) for Manufacturing. The PMI is one of many gauges of economic strength. A PMI score of over 50 represents expansion of the manufacturing sector when compared to the previous month. A PMI reading under 50 represents a contraction. Every major developed nation had positive manufacturing data in the last half of 2017.

#14: Finally, the “what do I make of all this?” chart. Diversification and asset allocation are terms used endlessly in our industry, but that’s because they work. The preceding 13 charts have shown that there is both positive and negative data and it is near impossible to make (successful) big bets or major tactical changes on a year to year basis.

This final chart ranks the best to worst performing asset classes (from top to bottom) since 2003. As you can see, there is no discernible pattern. The grey box is asset allocation and shows you that a diversified portfolio will never be the best, never be the worst, but generally be “good enough” in the long-term.

Overall, we believe there are more positive takeaways than negative ones. Improving global growth and the continuation of accommodating monetary policy are two key drivers that should create an upward bias in equity markets. That doesn’t mean we will never experience a correction, particularly in the U.S., but it does suggest it could be shorter-term in nature.

I would like to close by wishing you a very happy, healthy New Year and to thank you for the continued opportunity to work with you as your financial planner. If you have any questions about your portfolio, or would like to discuss any changes, my team and I are more than happy to help.

Sources: IA Clarington, TD Wealth, J.P. Morgan AM, RBC GAM, Crix

Anthony Sabti

2017 Financial Planning Checklist

Until the end of the year, we’ll be deviating from the usual “weekly brief” format. We believe it is a good time to take a final stock – pardon the pun – of your overall financial planning situation. Below is a checklist of some of the items we try to cover with you at your meeting. If you want to confirm an item on this list has been addressed, please do not hesitate to contact us. Our office will remain open during the holidays.


  • Portfolio mix. Different investments are taxed at different tax rates. If you invest in both registered and non-registered accounts, ensure you optimize your portfolio mix to ensure maximum tax-efficiency
  • The amount added to the TFSA room on January 1st, 2018 will be $5,500. This will bring the lifetime amount to $57,500. Consider putting funds into your TFSA to the extent you can make contributions (or via a transfer from your non-registered account). Ensure you don’t exceed your contribution room due to the significant penalty on over-contributions. If you have authorized us for CRA access, we can confirm your TFSA limit.
  • If you were planning on withdrawing from your TFSA, do so by the end of the year. The amount you withdraw will be added to your TFSA room at the start of 2018. If you withdraw in January 2018, you won’t get the room back until January 2019.
  • If you have investments in a non-registered account in a capital loss position, consider triggering the capital loss to offset capital gains realized during the year.
  • For non-registered accounts, delay purchases until January 2018 to minimize your allocation of taxable income for 2017 (after year-end distributions). For similar reasons, consider selling your mutual fund in a non-registered account before year-end as well (prior to year end-distributions).


  • Any donations you want to claim on your 2017 tax return must be made by December 31, 2017.  Donations must be made to a registered charity. Contributions above $200 result in a 29% federal tax credit. Keep the donation receipts! The CRA was more aggressive in requesting documentation to prove the donations were actually made.
  • If you are a first-time donor, you can claim an additional 25% credit on up to $1,000 of donations made after March 20, 2013.  2017 is the final year in which this credit can be claimed.
  • Public transit tax credit. This credit will be eliminated following the 2017 tax year. You can claim on your 2017 income tax return, only the cost pertaining of monthly passes for transit services for the period January 1 to June 30, 2017.
  • If you are over 65 with no private pension, consider withdrawing $2,000 from a RRIF account to trigger the $2,000 pension credit.
  • Home accessibility tax credits. If you incur eligible expenses of up to $10,000 to increase the mobility or safety of a senior, you will be able to claim the federal home accessibility home credit and BC senior’s home renovation tax credit.


  • The deadline to make an RRSP contribution for the 2017 tax year is March 1, 2018. If you have authorized us for CRA access, we can confirm your RRSP limit, factoring in any contributions you’ve made with us. An RRSP contribution has a tax savings potential of anywhere between 20%-47.7% for BC residents.
  • If you turned 71 this year, this is the final year you can contribute to an RRSP. Consider making an RRSP contribution in December of the year you turned 71 if your income in 2017 is higher than what you expect in later years.
    • If you turned 71 this year, you must wind up your RRSP by the end of the year. For most people, this means a conversion to a RRIF account with minimum annual withdrawals starting the following year.
  • Consider withdrawing funds from your RRSP if you have low income for the year.

Self-Employment / Business / Corporations

  • Consider 2017 income splitting opportunities (spouse, children, parents, etc.) as the rule changes that are likely to come for corporations in 2018 may eliminate this strategy moving forward.
  • The new rules will grandfather any existing passive investment income currently held in a corporation.  They will also allow passive income of up to $50,000 not subject to higher taxation. This means that under the new regime, you could add $1,000,000 (in addition to any grandfathered assets) generating income of 5% a year and be exempt.
  • If you are self-employed, consider purchasing capital assets before year-end. If the asset is available for use before the end of the year, you can claim one-half of the usual tax amortization for the year.
  • Consider paying a salary or bonus from your corporation to yourself in December. Usually, the payroll tax for this is due by January 15th (may be sooner depending on your remitter type).


  • If you have an RESP and your child has turned 17 in 2017, this is the final year of his/her grant eligibility.  If you have grant room remaining, you can contribute up to $5,000 in the final year, generating a $1,000 grant.
  • Pay child-care expenses for 2017 by December 31st, 2017 and get a receipt. Remember that boarding school and camp fees qualify for the child care deduction.
  • If your child qualifies for the disability tax credit, and if RDSP assets or income will not disqualify him/her from receiving provincial income support, consider setting up an RDSP to qualify for the Canada Disability Savings Bond (CDSB – lifetime maximum of $20,000 per child). Contributions to an RDSP qualify for the Canada Disability Savings Grant (CDSG – lifetime maximum of $70,000 per child)
  • Children’s fitness and art credit. Sadly, these tax credits have been completely phased out, and you won’t receive a credit for these costs on your 2017 return.


  • Note that MSP premiums will be cut in half for all taxpayers in 2018. The provincial government intends to eliminate all MSP premiums within four years.