Cidel - Q2 | Quarterly Report


Looking Back
In our opinion, these were the most important stories in Q2…
Equity markets overall made little progress for the quarter, with the MSCI World Index rising a modest one percent. Despite still solid economic data, European Industrial Production, for example, rose 2.4% year over year in May. Investors focused on a future that suddenly seemed less certain than a few months before hand. The US yield curve (the spread between 2 and 10 year interest rates) a level that historically has been a harbinger of a marked economic slowdown. Energy was the best performing sector globally as oil prices rose, followed by Information Technology, and Financials were the worst performing area.
A major contributing factor to investor uncertainly has been the moves by the US Administration to impose trade sanctions on countries they feel have been trading with the US on an unfair basis. Suddenly the long term trend of globalisation, and the perceived tailwind to economic fundamentals, looks like it is in jeopardy. The lack of any signs of an endgame prevented investors from quantifying the economic damage, a precursor for moving forward. A survey of institutional investors by Bank of America Merrill Lynch identified trade wars as the biggest risk on respondents’ minds, with a unanimity of concern not seen since the European debt crisis was at the forefront of concerns back in 2011/12.
Unsurprisingly, Emerging Market equities had a tough quarter, with the MSCI index falling 8.7%. At a macro level, the factors at work were the risks of economic divergence with the US, particularly if the worst fears of a trade war come to pass; the impact of a stronger US dollar on company balance sheets; and the risk of emerging inflationary pressures forcing central banks to tighten policy.


Looking Forward
As we enter Q3, the points below have our Investment Team's attention...
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Impact of Tariffs are Unknown – Though we have yet to see the true impact, in the end US consumers will have less discretionary income and that should translate to lower growth, with only a select few manufacturers benefitting.
Yield Curve Continues to Flatten – Two-year yields have risen as the Fed has increased short-term rates, portending an inverted yield curve, which has historically been a reliable indicator of a recession. Longer term rates are more influenced by inflation expectations and have been anchored around 2%, indicating that the market is predicting muted economic growth.
Forward Earnings Estimates Continue to Increase – We suspect next year will be a more difficult year for earnings growth owing to higher commodity prices, higher interest rates, a weaker consumer and continued trade issues. However until earnings revisions show persistent weakness, we expect equity markets to continue to trend upwards.

The Trouble with Forecasting

We take an in-depth look at the ill-effects forecasting and market timing can have on portfolios.

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Global Equity Update

Cidel’s Global Equity Fund continues to deliver solid performance. Portfolio Manager Charles Lannon takes a look at the past quarter.

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Away From the Desk

Cidel in the News

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This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information contained in this document has been compiled by Cidel Asset Management Inc. from sources believed to be reliable, but no representations or warranty, express or implied, are made by Cidel Asset Management Inc. as to its accuracy, completeness or correctness. The opinions expressed are as of the date of this publication and may change without notice and are provided in good faith, but without legal responsibility. Cidel Asset Management Inc., carrying on business as Cidel, Cidel Financial Group, Toron Asset Management International, (“Cidel”) is registered as a portfolio manager, investment fund manager and exempt market dealer in Ontario. Cidel is also registered as a portfolio manager and exempt market dealer in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan. This document may not be reproduced, distributed or published by any recipient hereof for any purpose.