Markets globally had their worst quarter since 2011, with investors questioning the durability of the bull market. Whereas the second quarter was flat to slightly down and characterized by low volatility and a narrow trading range, the third quarter experienced heightened volatility and a much wider trading range.
Weakness was led by commodities. The Goldman Sachs Commodity Index was down 18.4%, and the commodities-heavy Canadian equity markets suffered significant losses, particularly the metals and mining sector, which fell 26%, paper and forest, down 36%, and exploration and production in energy, which was down 29%. Softening the fall was the heavyweight banking index, declining a modest 2.4%. Telecommunications and utilities rose modestly. The S&P/TSX Composite Index, a broad overall measure of the Canadian equity market, lost 7.9%.
Market concerns over the quarter grew around a number of themes that continued to dominate markets, including the economic slowdown in China and the impact of the slowdown on commodities and commodity-producing countries, namely emerging market nations but also Canada and Australia. In addition, the economic slowdown in many of these countries is undermining the market’s confidence in the ability of corporations to pay back U.S. dollar debt, which grew dramatically in the past few years. The increase in high-yield spreads is evidence of these growing concerns.
Oil continued to be the victim of the weakening global economy but also the changing dynamics of that market, with Saudi Arabia increasing production materially to lower prices and increase market share. Russia and Iraq also increased production. It is a matter of time before U.S. shale oil and gas production declines in the face of lower prices. We believe oil prices will remain volatile, but that they will eventually stabilize between US$50 and US$60 a barrel.
Signature Select Canadian Fund (Trades, Portfolio) outperformed the S&P/TSX Composite Index for the quarter. While the fund’s holdings in consumer discretionary and financials underperformed, we added value in the weakest sectors, including energy and materials, thanks largely to material underweight allocations to these sectors.
In financials, Bank of Nova Scotia (BNS, Financial) detracted from performance given concerns about its exposure to emerging markets. We find the bank offers excellent value at current levels as it has not been this inexpensive in years.
Amaya Inc. (AYA, Financial), in the consumer discretionary sector, detracted from performance. We are maintaining our holding because the company is positioned for accelerated growth thanks to gaming licences it recently received from New Jersey.
In energy and materials, we added value with our substantial underweight allocation to these sectors – and also through our stock selection in Suncor Energy (SU, Financial) and BHP Billiton (BHP, Financial).
This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. This report may contain forward-looking statements about the fund, its future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®CI Investments and the CI Investments design and logo are registered trademarks of CI Investments Inc. ™ Signature Global Asset Management and ™ Signature Funds are trademarks of CI Investments Inc. Published October 2015.
