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Frank Mueller

Weekly Update – July 27, 2018

“About the time we can make the ends meet, somebody moves the ends” – Herbert Hoover

Anthony’s Financial Brief – 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.

Read On

Weekly Update – By The Numbers

North America

  • The TSX closed at 16394, down -42 points or -0.26% over the past week. YTD the TSX is up 1.14%.
  • The DOW closed at 25451, up 393 points or 1.57% over the past week. YTD the DOW is up 2.96%.
  • The S&P closed at 2819, up 17 points or 0.61% over the past week. YTD the S&P is up 5.42%.
  • The Nasdaq closed at 7737, down -83 points or -1.06% over the past week. YTD the Nasdaq is up 12.08%.
  • Gold closed at 1223, down -9.00 points or -0.89% over the past week. YTD gold is down -6.64%.
  • Oil closed at 68.92, up 0.83 points or 1.22% over the past week. YTD oil is up 14.07%.
  • The USD/CAD closed at 0.7655, up 0.0045 points or 0.59% over the past week. YTD the USD/CAD is down -3.75%.
  • The MSCI closed at 2162, up 27 points or 1.26% over the past week. YTD the MSCI is up 2.81%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3527, up 63 points or 1.82% over the past week. YTD the Euro Stoxx 50 is up 0.66%.
  • The FTSE closed at 7701, up 22 points or 0.29% over the past week. YTD the FTSE is up 0.17%.
  • The CAC closed at 5512, up 114 points or 2.11% over the past week. YTD the CAC is up 3.75%.
  • DAX closed at 12860, up 299.00 points or 2.38% over the past week. YTD DAX is down -0.45%.
  • Nikkei closed at 22713, up 15.00 points or 0.07% over the past week. YTD Nikkei is down -0.23%.
  • The Shanghai closed at 2874, up 45.0000 points or 1.59% over the past week. YTD the Shanghai is down -13.09%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.96, up 0.0600 points or 2.07% over the past week. YTD the 10-Yr Bond is up 23.33%.

Sources: Dynamic, Advisor.ca

 

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.

Frank Mueller

Weekly Update – July 20, 2018

“A strong economy begins with a strong, well-educated workforce” – Bill Owens

WEEKLY MARKET WRAP-UP – BY THE NUMBERS

North America

  • The TSX closed at 16436, down -125 points or -0.75% over the past week. YTD the TSX is up 1.40%.
  • The DOW closed at 25058, up 39 points or 0.16% over the past week.YTD the DOW is up 1.37%.
  • The S&P closed at 2802, up 1 points or 0.04% over the past week.YTD the S&P is up 4.79%.
  • The Nasdaq closed at 7820, down -6 points or -0.08% over the past week.YTD the Nasdaq is up 13.28%.
  • Gold closed at 1234, down -14.00 points or -0.72% over the past week.YTD gold is down -5.80%.
  • Oil closed at 68.09, down -2.92 points or -4.11% over the past week.YTD oil is up 12.69%.
  • The USD/CAD closed at 0.761, up 0.0017 points or 0.22% over the past week.YTD the USD/CAD is down -4.31%.
  • The MSCI closed at 2135, changed 0 points or 0.00% over the past week. YTD the MSCI is up 1.52%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3464, up 9 points or 0.26% over the past week.YTD the Euro Stoxx 50 is down -1.14%.
  • The FTSE closed at 7679, up 17 points or 0.22% over the past week.YTD the FTSE is down -0.12%.
  • The CAC closed at 5398, down -31 points or -0.57% over the past week.YTD the CAC is up 1.60%.
  • DAX closed at 12561, up 20.00 points or 0.16% over the past week.YTD DAX is down -2.76%.
  • Nikkei closed at 22698, up 101.00 points or 0.45% over the past week.YTD Nikkei is down -0.29%.
  • The Shanghai closed at 2829, down -2.0000 points or -0.07% over the past week.YTD the Shanghai is down -14.45%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.9, up 0.0700 points or 2.47% over the past week.YTD the 10-Yr Bond is up 20.83%.

 

Source: Dynamic 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.

Frank Mueller

Weekly Update – July 13, 2018

“Someone’s sitting in the shade today because someone planted a tree a long time ago” – Warren Buffett

Bank of Canada Raises Overnight Rate to 1.50 Per Cent

 The Bank of Canada, as widely expected, hiked its benchmark interest rate on Wednesday. The rate now sits at 1.50 per cent. Two key growth engines – business investment and increased exports – pushed the BoC to raise their key rate.

In its policy statement, the BoC said “The composition of growth is shifting. Exports are being buoyed by strong global demand and higher commodity prices. Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors.”

Record-high household debt levels will be pressured with the rate increase as servicing costs will be driven upward. However, households have reacted to previous rate hikes in the last year, as the numbers show a deceleration in debt accumulation and by extension, household spending. The unexpected growth of business investment and exports picked up the slack, and helped solidify the BoC’s rate hike decision. Future rate hikes were not ruled out.

On the street, Canadians can expect to see further increases to mortgage rates as well as variable lines of credit such as HELOCs. Before taking on increasing debt, you should strongly consider the potential impact on servicing costs, especially considering the possibility of future increases.

 

Sources: Advisor.ca, Financial Post

The information provided on this blog is intended for informational purposes only and is not intended to constitute financial, accounting, and legal or tax advice. For information specific to your situation you should consult a professional.

 

Frank Mueller

Weekly Update – June 22, 2018

“When you invest, you are buying a day that you don’t have to work” – Aya Laraya

CSA Publishes New Mutual Fund Industry Proposals

 Canadian Securities Administrators (CSA) published a consultation paper of interest to investors of mutual funds. The paper contained three main proposals, all aimed at enhanced client protection.

You can read our detailed breakdown here.

Weekly Market Wrap-Up

North America

  • The TSX closed at 16450, up 136 points or 0.83% over the past week. YTD the TSX is up 1.49%.
  • The DOW closed at 24581, down -510 points or -2.03% over the past week. YTD the DOW is down -0.56%.
  • The S&P closed at 2755, down -24 points or -0.86% over the past week. YTD the S&P is up 3.03%.
  • The NASDAQ closed at 7693, down -53 points or -0.68% over the past week. YTD the Nasdaq is up 11.44%.
  • Gold closed at 1271, down -21.00 points or -0.94% over the past week. YTD gold is down -2.98%.
  • Oil closed at 69.28, up 4.85 points or 7.53% over the past week. YTD oil is up 14.66%.
  • The USD/CAD closed at 0.75, down -0.0079 points or -1.04% over the past week. YTD the USD/CAD is down -5.70%.
  • The MSCI closed at 2106, down -36 points or -1.68% over the past week. YTD the MSCI is up 0.14%.

Europe/Asia

  • The Euro Stoxx 50 closed at 3442, down -63 points or -1.80% over the past week. YTD the Euro Stoxx 50 is down -1.77%.
  • The FTSE closed at 7682, up 48 points or 0.63% over the past week. YTD the FTSE is down -0.08%.
  • The CAC closed at 5387, down -115 points or -2.09% over the past week. YTD the CAC is up 1.39%.
  • DAX closed at 12580, down -431.00 points or -3.31% over the past week. YTD DAX is down -2.62%.
  • Nikkei closed at 22517, down -335.00 points or -1.47% over the past week. YTD Nikkei is down -1.09%.
  • The Shanghai closed at 2890, down -132.0000 points or -4.37% over the past week. YTD the Shanghai is down -12.61%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.9, down -0.0200 points or -0.68% over the past week. YTD the 10-Yr Bond Yield is up 20.83%.

 

Sources: Mackenzie, Advisor.ca, Dynamic

Frank Mueller

CSA Publishes New Mutual Fund Industry Proposals

This week, the Canadian Securities Administrators (CSA) published a consultation paper of interest to investors of mutual funds. The paper contained three main proposals:

Prohibiting Deferred Sales Charge and Low Service Charge Loads

Once a staple of the mutual fund industry, many advisors have begun to move away from DSC and LSC, as investment flexibility can be affected. You First has been in the process of transitioning away from DSC and LSC fund loads for the last three years. Note that existing positions held in DSC or LSC funds cannot be moved to Front-End Load (FEL) until the funds have matured.

Related to this proposal, the CSA has signalled that embedded    compensation is here to stay, provided the fund’s embedded load structure is the unlocked FEL with no upfront commission.

Prohibiting Trailing Commissions Sold Via Discount Brokerages

Discount brokerages’ business model is a do-it-yourself investment style, so CSA has proposed that advisor compensation should not be paid for any such investment setups.

Firms and advisors will be able to continue to offer clients mutual funds with trailing commissions, provided certain targeted reforms (point 3 below) are met.

Enhanced Conflict of Interest Scrutiny

As advisors, it is our job to put the client first. The CSA proposes heightened scrutiny as part of targeted reforms to demonstrate that both the fund selection and client recommendation are based on the quality of the mutual fund, without influence from the embedded commission.

The targeted reforms also propose changes to the know-your-client (KYC), know-your-product (KYP) and suitability obligations.

If you have any questions about these proposals and how they might affect your investments, don’t hesitate to contact us.

 

Sources: Mackenzie Investments, Advisor.ca

Frank Mueller

Weekly Update – June 15, 2018

“Never let facts get in the way of a good story” – Mark Twain

Weekly Market Wrap-Up

On Friday, US President Trump announced a 25 per cent tariff on strategically important Chinese imports, worth around $50 Billion, along with the threat of further tariffs should Beijing impose their own tariffs in kind. Chinese President Xi responded with retaliatory threats.

Thus, a potential trade war between the world’s two largest economies is one step closer. Global stock prices dropped on the news and increased tension.

Earlier in the week, the US Federal Reserve raised its key overnight rate by 0.25 per cent and signalled up to two further rate hikes for 2018.

It is highly anticipated that the Bank of Canada will follow suit with a rate hike of its own at the next policy meeting on July 11th.

As usual, interest rate increases will generally weigh on bond pricing; as a result, investors may see a further pullback on their fixed income holdings. On the other hand, rising rates are an effective measure against inflationary pressures.

In other news, oil dropped on fears of a supply increase.

Yield Versus Return of Capital

One benefit of holding a balanced mutual fund, an income fund, or some equity funds, is that you are issued distributions. However, there is a common misunderstanding when considering how a fund distributes “yield” on a monthly or annual distribution.

A distribution is comprised of dividends, investment income such as interest, capital gains, and return of capital (ROC). Whereas dividends, interest and capital gains income are the result of the investment choices made by fund managers, ROC essentially amounts to refunded contributions.

There is nothing inherently wrong with return of capital within a distribution, especially when you opt to re-invest your distributions (the default option when investing in mutual funds). In fact, including ROC within distributions can be used to withdraw money in a tax-efficient manner in Non-Registered Accounts.

However, it is important to consider that return of capital, when included in a distribution, should not be confused with real yield.

Should you have any questions about yield versus return of capital, don’t hesitate to ask us.

 

Sources: Fidelity, Advisor.ca