All About Estates

Investment Review 2013

This is my 4th annual year end investment review for Trusts.
Last year at this time, I went out on a limb and quoted a Globe & Mail reporter who predicted that the equity investment returns for 2013 would be 6% plus or minus 29%. You will be happy to know that the equity returns were within the parameters that were predicted at the beginning of the year, although just barely.
The S&P/TSX composite was up 12.99% for the 1-year period ended December 31, 2013. The S&P 500 (large cap composite) posted an even more impressive return of + 32.39 % expressed in $U.S. for the same period.
Of course, reporting 1-year returns is not the only relevant benchmark especially for trusts that run for longer periods of time. The 5-year return for the S&P/TSX for the period ended December 31,2013 was + 11.92% and for the S&P 500 it was + 17.94% expressed in $U.S., for the same period.
The MSCI world index posted a 1-year return of + 27.37% (in $U.S.) for the period ended December 31,2013 and the MSCI emerging markets index posted -2.27% for the same period.
The bond market, represented by the DEX Universe Total Return Bond Index posted a -1.19% return. However, I should note that the Corporate AAA/AA sub-index did manage to post a +1.90% return.
These total return numbers don’t tell the whole story for Trustees who may very well be maintaining an even hand (balancing the needs of the income beneficiaries and the capital beneficiaries) in their investment policy. Despite good capital gains, the income only returns have been low as evidenced by the 2-year Bond yields which were 1.1%. The 10-year Bond yields weren’t much higher at 2.7%.
The discrepancy between bond yields and equity returns this year makes one wonder why the ‘total return’ trust concept has not been more widely promoted in all jurisdictions. In fact this lays the groundwork for a future Blog about eliminating the Law of Accumulation and codifying the ability to offer Total Return Trusts as a viable option for moderate sized trusts. The related issues are less prominent in larger accounts where investment holdcos are commonly used.

About Paul Fensom
Scotiatrust offers a full range of estate, trust and philanthropic advisory services designed to meet a client’s personal objectives and designed to evolve across a variety of life stages and financial events. Email: