Written on January 14, 2013 – 8:56 am | by Paul Fensom
At this time of year I have traditionally provided an overview of capital market investment returns for the previous year.
A Trustee investing Trust funds has a responsibility to a) select an appropriate investment objective, b) determine the appropriate strategy to achieve the objective and c) monitor the results against an appropriate benchmark and adjust the strategy if necessary.
Where appropriate, Trustees can incorporate the following investment return benchmark information into a review of short term investment performance.
If you think back of the past year, the headlines were dominated by seemingly negative market news; Eurozone sovereign debt crisis; slowing demand in China; U.S. pre-election uncertainty and the fiscal cliff. Under these storylines one can only imagine negative results from the capital markets. That however, is not, in fact the case. Largely due to strong corporate balance sheets and in some cases record earnings, almost all of the equity market benchmarks ended on a positive note. The TSX composite posted a return of 7.19% for the 1-year period ended December 31, 2012. The S & P 500 posted a return of 16.0% in $U.S. (13.74% expressed in $Cdn) for the same period and the bond market, represented by the DEX universe posted a 3.6% return.
To review the past performance is one thing, but you may ask what do Trustees need to be aware of for the coming year? One isssue is the persistently, low interest rate environment. The yield of Government of Canada 1 year bonds is less than 1% and for 10 year bonds is only 1.8%. On the equity side of the capital markets I think that Norman Rothery sums it well in his article posted in the Globe & Mail on January 2nd in which he notes the consensus view is a 6% return on equities for the coming year, plus or minus 29%.
For Trustees that have a responsibility to manage Trust funds I strongly suggest you obtain professional assistance.