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2019 Genus Quarterly Review Q4

The anticipated slowdown in 2019 was better than expected with a lot of positives coming out geopolitically such as the US-China phase one deal and a way forward with Brexit. The Fed also cut rates after raising rates in 2018 and continue to take an accommodative stance in terms of monetary policy for the upcoming year. There is still uncertainty looming over the US with the elections coming up later in the year, but the markets are unlikely to place too much focus until closer to the elections. Given the new risks in Canada, we have also introduced a new global macro bond fund in order to mitigate risk and diversify.



Leslie Cliff: [00:00:07] Welcome to the Genus Queerly video, this is January 2020 and we’re going to talk about the quarter ending December, but also the year, just because it’s a year. and Wayne, I just want to say, tell me about 2019.

Wayne Wachell: [00:00:23] Well 2019 was when everything was all good. Everything, all the good news came out effectively. In 2018, there’s a lot of bad news, in 2019 all of the good news came through: the Fed change or direction from or they were in 2018; the trade thing got kind of put to put, to bed so a lot of good news came out in 2019 which drove the market higher.

Leslie Cliff: [00:00:45] So Wayne, we entered 2019, actually summer 2018. We got defensive in the portfolios, we entered January 2019, relatively defensive in the portfolios, and I guess we were looking more at economic numbers and the market was anticipating good things, that really weren’t in the numbers yet.

Wayne Wachell: [00:01:05] Yeah. Well you know, we look, we have different models and look at inflation, look at the money supply and interest rates, and they were pointing to a slowdown in Q4, which happened. It’s happening a global slowdown, and we’re still kind of into it, into this current quarter here. And the slowdown, frankly, wasn’t as bad as expected. You know, based on the signals we had, we thought to be worse. And we’re concerned that there could be some accidents in the in Q4. And actually, it was a positive surprise. The U.S. economy was stronger than anticipated. It’s got a lot of MO, obviously, and that got us through this this this period where there be a slowdown. That being said, looking forward, we think we’re coming out of that valley and things are looking better in 2020.

Leslie Cliff: [00:01:46] Yeah. And one of the big things was the Fed talking about quantitative tightening. And then it turned around, actually. They didn’t announce it, but we know they were doing quantitative easing in the fall.

Wayne Wachell: [00:01:57] They’re doing Q4, which is probably faster than Q3 right now. So they actually turn turn tail.

Leslie Cliff: [00:02:02] Right. And they didn’t really advertise that at all. So you got to watch the Fed pretty carefully.

Wayne Wachell: [00:02:07] Yep. And the monetary base and watch what they do,not too much of what they, what they say in this case.

Leslie Cliff: [00:02:12] I guess it’s a you know, markets always look at what they want to look at it. And right now it’s they’re looking at all the good stuff. But it always, I probably will always raise this for the rest of my career But the the the deficit, the debt, the global debt of the global governments and just the day of reckoning, one day, given what that debt looks like relative to global GDP, is really where it normally is at a time of crisis. And we’re in a time of a 10 year expansion, not really the time when that ratio should be so problematic.

Wayne Wachell: [00:02:46] You know, it’s it is problematic. And but it’s a longer term issue and the market just can’t focus on it.

Leslie Cliff: [00:02:52] Right.

Wayne Wachell: [00:02:52] And so right now it’s looking at all the looking at the Fed being on pause. We have QE4 effectively.

Leslie Cliff: [00:02:59] And Brexit having been done.

Wayne Wachell: [00:03:00] And Brexit haven’t been done.

Leslie Cliff: [00:03:01] Whatever that means.

Wayne Wachell: [00:03:02] And we’re into, into an election year, which usually good for the market. Well, then I could put the brakes on into a presidential election.

Leslie Cliff: [00:03:09] Well, that’s interesting because of this polarized world we live in. And right now, Bernie looks like he’s the Democrat, of course that can change dramatically between now and the time. But if it is a very progressive, they call it progressive, i.e. very left wing, Democratic candidate versus Trump, surely the markets will be volatile in 2020.

Wayne Wachell: [00:03:31] Well, I think certain sectors will get hit. You probably see the health care sector get hit at least, there’ll be some probably more volatility because of that. But right now, I’d still would say that Joe Biden is the odds-on favorite. Looks like Bernie’s got some MO. But there’s going to be a battle in that party, and I think Joe is going to probably win or maybe, Buttigieg could be in, is the dark horse on that. So I think the day, the market’s not concerned about, look, the betting odds, it’s still Trump is favored to win, given that, given the momentum the economy’s got. So there’s a lot of good things. The markets are going to worry about that too much right now.

Leslie Cliff: [00:04:02] One thing I just want to talk about, too, in 2019, just this sector difference. Globally, stock markets around the world are up about 20 percent, plus. Not a huge difference in the different parts of the world, but, very different in different sectors within the stock market. So with the tech sector being up over forty five percent. So what do you think that doing that can continue into 2020?

Wayne Wachell: [00:04:28] No, I think the leadership there was very narrow. They’re the bigger players, the fang type stocks, were caring all the mail and carry the market forward. That can continue. The good news is, there’s a lot of stocks that still aren’t that bad, that have legs or smaller cap or value stocks, or economic sensors that can do well the next of year. So I think we can get more rotation here. I think maybe we’re, right now the market’s a bit overbought. Terms of sentiment from where it’s gone is this kind of low is good news. And we’re due for a bit of a correction. We still think through the course of the year, this year, the market will be higher. But you could see a sideways market for a while ism as the market rotates into more economic sensitive names. As we get more visibility on the economy and we’re looking at money supply, we’re looking at purchasing managers index. It is turning look stronger than next year. And the Fed is leaning into this. And so I think it’s good to have a stronger growth next year.And…

Leslie Cliff: [00:05:18] And the Fed’s on hold.

Wayne Wachell: [00:05:19] And the Fed’s on hold at the last election.

Leslie Cliff: [00:05:22] Which means, not good news or bad news, but probably good news because they’ve lowered rates. So tell me about our Genus new U.S. Fixed Income Fund. We’re going to put that into the clients portfolios in about a month, but 10 percent hold. And it’s going to come out of the other fixed income products. Why is Genus doing that, and what can that do for our clients?

Wayne Wachell: [00:05:45] Well, it’s just a way for our clients to get more exposure to U.S. dollar and more global plays. Better, better spread, spread the investments, for example, in the high yield market in the U.S., corporate markets in the US. Now, if you get a higher premium, they’re for holding these corporate names there, and as well as getting involved in emerging market debt. So gives our clients more diversification, more spectrum and more places to play given the fact that rates are so low in Canada. We have our ten years about 1.6.

Leslie Cliff: [00:06:10] Right.

Wayne Wachell: [00:06:11] You can go abroad, now if there’s any issues around Alberta, this is insurance the way we see it. So we were pleased to play and protect our clients money. We did it really for defensive purposes, but I think longer term clients, a lot of our clients go to the US for holidays, they want to have U.S. dollar exposure. So I think it’s a it’s a good idea.

Leslie Cliff: [00:06:26] I was just gonna say some clients will love having their Hawaii or their Palm Springs or their floor or the liabilities in U.S. dollars. So don’t have to worry about that exchange rate. So, you know, if you want to learn about what that means for you, please call your portfolio manager. Just on another couple of things for clients, you probably noticed that we’ve gone online for your quarterly reports. But if you’d like to get them still mailed to you ,no problem. Just give you portfolio manager call and we’ll mail them to you. And one more sort of housekeeping, that I got to take this advantage of talking to everybody. Just talk about January 22nd is our annual, what happened last year? What do we think will happen next year seminar? But this year it will be a webinar. So if you want to participate or listen from home, that’s an option. So, again, just talk to your portfolio manager. Hopefully this will be mailed or e-mail to you before January 22nd, so you can learn that. So, Wayne, I think the low interest rates and low inflation is a big support for the market. The valuations of most of the market, the value stocks are still very attractive. So despite the fact markets have been up over 20 percent last year, it feels like a good time to be in the market.

Wayne Wachell: [00:07:42] Yeah, well, last year the market was really driven by growth stocks.

Leslie Cliff: [00:07:42] Right, and technology.

Wayne Wachell: [00:07:44] And very a very narrow sector of growth stocks. And so value is cheap. Right now, it’s been beat up for the past two years. We have exposure that space, and our dividend strategy, for example. And as the economy starts getting stronger, you’ll see investors get more confidence in the E and price earnings ratio in earnings and start moving back into value stocks. And we think this could last for a couple of years.

Leslie Cliff: [00:08:06] So I just heard something this morning was I found so interesting, because I’ve, the world’s puzzled over how do we get this full employment and no wage growth. And that’s usually a sign of the economy coming to a close, you know.

Wayne Wachell: [00:08:21] Well, it’s it’s technology. Technology is having, personal, we have Asia, we have China, we’ve a global manufacturing supply chain, but it’s also technology. Amazon is dislocating retail, for example. And you have Uber, and you know, it’s got all these different things that are actually impacting cost, cost structure.

Leslie Cliff: [00:08:37] Yeah, well, when I heard something that makes sense to me, as the baby boomers are retiring, and their jobs are being replaced by younger workers who have not 30 years or 40 years experience, but much lower pay scale even for the same job. So there’s just not the pressure on the wages, which I think is a bit of a disconnect. If you normally that would be signal the end of the cycle.

Wayne Wachell: [00:08:57] It’s a different world from where it was 20, 30 years ago.

Leslie Cliff: [00:09:01] So we’ve had a great year in the markets. It’s a good year, had been a great quarter even. I don’t know Wayne, should we talk at all about global things? I mean, Iran is it. I mean, such a tragedy for Canadians and the world to have a passenger airline shot down. But is there any big influence on the global markets?

Wayne Wachell: [00:09:26] I think anything came out of that. I don’t think it’s good. It’s going on for years, has been a proxy war going in the Middle East now for the past 10 years. That’s going to keep going on, I believe. If there’s anything that could be, could be a shock to the oil supply, if they start impacting the flow of of of oil, the Strait of Hormuz or something like this. That would be the big impact there. I’d say right now.

Leslie Cliff: [00:09:48] Right. Well, Wayne, thank you for the update on the year and hope you can come or participate in our January 22nd webinar or seminar. We welcome you to your attendance, too. So we’ll talk to you again in April. And please call us if you have any questions.