| A Look Back at 2011 |
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2011 proved to be a challenging year that saw a number of major global events affecting the markets worldwide; from the tsunami in Japan, and the political turmoil in the Middle East, to the debt woes in both the U.S. and Europe. Major equity benchmarks around the globe ended the year deep in the red, although losses vary widely from region to region. On a relative basis, the U.S. was an outperformer as the Dow Jones Industrial Average generated a total return of 8.4% (10.8% in Canadian dollar terms). The broader benchmark S&P500 Index advanced a more modest 2.1% (4.4% in Canadian dollar terms). The TSX finished the year with a loss of 8.7%. The Canadian Bond Market outperformed with the Dex Universe Total Return Index up 9.7%.
With 2011 behind us, we look ahead to 2012 with slightly more optimistic lenses. Company valuations look cheap, corporate balance sheets are strong, and dividend yields are attractive given this low-interest rate environment. Among the risks in the current environment, we caution that volatility is here to stay as concerns over sovereign debt remain an overhang. In both Europe and the U.S., bringing outsized fiscal deficits under control and restoring balance sheets in the public sector is a difficult and lengthy process. We are encouraged by the recent leadership changes in Europe and believe that a credible solution with be put forth to deal with their debt situation. Also carrying possible negative implications for the market are this year’s elections in the U.S., France and Germany, and the risk that political aspirations impede decisive action. Recent data in China suggests economic growth has been decelerating, and as such, this could be a signal that China will now adopt a more dovish stance and gradually prioritize economic growth over inflationary concerns. This change in policy would be positive for commodities. Equity markets are likely to remain range bound with the occasional cyclical rally within what appears to be a secular bear market for stocks. We believe there will be number of attractive investment opportunities to come and advocate a balanced portfolio, a focus on enhancing returns via dividends, and a need to be more tactical in this volatile market.
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