2019 Review & Outlook 2020 Seminar

2019 Review & Outlook 2020 Seminar – Transcript

Leslie Cliff: [00:00:01] So today we’re going to go through, it’s a normal format that we do each year. It’s the same template. It seems to work. We love your feedback, if you think we can do it differently and better. But, Justin Han is our in-house economist. He got his degree from UBC and he’s going to tell us why a year ago, due to the three interest rate increases by the Federal Reserve, we entered 2019 with little bit of trepidation and declining economic indicators. And what happened in 2019 and what we’re looking for 2020. Then Wayne Wachell is going to follow up given the surprise good news (not really surprising, but certainly the optimistic) that came out of 2019, where we are going in 2020. It’s good to spend a little bit of time talking about how the makeup of the market movement, even though we’re in record territory, was so narrow and really driven by the technology stocks. And there’s still lots of movement available in the stock market from more boring value based

Leslie Cliff: [00:01:07] He’s also going to finish with interest rates and why we think they’re low and going to stay low. Next will be Ian McKinnon, who comes from Addenda. Addenda managed the bonds at Genus since 2008. We have a wonderful relationship with them and with Ian. And thank you for coming. He’s going to talk about a little bit of security selection, how they pick the corporate bonds and the mortgages that we use in your portfolios. And finally, we have Mike Thiessen, who’s been a journalist for three years. He’s our director of Sustainable Investing. He comes from Abbotsford originally. But we hired him out of Cambridge, where he got his masters in sustainable investing. So he’s going to talk about not the way you think about sustainable investing in terms of eliminating the bad guys, but more how what we do a Genus when we’re focusing on owning the good guys. And finally, I’ll come back at the end to just tell you how we’re doing. Are those consistent returns still still in place? So, Justin, what happened in 19? What are we looking for?

Justin Han: [00:02:11] Thank you Leslie. OK.

Justin Han: [00:02:14] So, 2019 began with a lot of uncertainties and fears in the market and the economy and lots of indicators that were flashing. So we see that in 2019 the biggest worry we saw was heading into the late 2018. The Federal Reserve has raised rates four times in the year. We also saw money supply growth slow and the global monetary base shrink for the first time since the recession. We also saw some of the economic indicators begin to deteriorate, such as the always c._d.’s leading indicator index and the purchasing managers index. We also saw a midway through the year. The yield curve invert unexpectedly, as well as the U.S. China trade conflict escalate further and Brexit be pushed further down this line. In 2020, those fears kind of got resolved. And so the Federal Reserve reacted by cutting rates three consecutive times. We also see that a quantitative easing, number four, is underway and the Purchasing Managers Index is looking to bottom, which I’ll show you in later charts. We also see the yield curve story steep and quite significantly and quickly as recession fears begin to fade away. We also saw a Phase 1 deal signed by US and China last week and Boris Johnson win a majority and promises that Britain will leave the EU by the end of the month. So in twenty 2019, as I mentioned, we saw the Federal Reserve increase their rates four times during 2018, but in 2019, they took a turn around and cut rates. Three consecutive meetings. Usually higher interest rates are bad for corporations and we become more weary of the economic situation. That’s why we were more cautious stance, holding more dividends, being more defensive to start the year. But during that time, we also saw that unemployment rates in the US were at historical roles and also remained really low.

Justin Han: [00:04:12] Usually when unemployment rates are really low, we find that wage pressures begin to climb. We saw in 2018, while the Federal Reserve was increasing the rates, we saw wage pressures began to build. But after they cut rates and the unemployment rates began to stay there, the wage pressures disappeared. In addition, the Fed has also come out and said they’re symmetrically going to target the 2 percent inflation rate, which means that they’re not going to raise rates quite fast. They’re going to let the inflation hit maybe above 2 percent, before they react. Normally, they would react right away just to combat inflation because they don’t want the economy to overheat. But inflation has been persistently low across global economy, so they’re more fearful of that.

Justin Han: [00:05:00] More indicators of the Fed turning more accommodative and taking a more dovish stance as shown in their balance sheet. So this chart represents the monetary base of the US, China and European balance sheets and their growth rates at year over year basis. So from this chart we can see that at the beginning of the year are around 20, it declined significantly. But we’ve seen a rebound since then. Most of the movement in this chart here is due to the US Federal Reserve.

Justin Han: [00:05:31] Last year, you might have heard some news about the US Federal Reserve unwinding their balance sheet. And this was the result of that. We finally got negative balance sheet growth rates, but the Federal Reserve realized they made a little bit of a mistake. So they began to print money again and cut rates, as I previously mentioned. We view this more as a quantitative easing for regime just because it is much faster and much more extreme than it was in previous times. This steep downtrend is also another reason we are more cautious and defensive heading into 2019. We also saw other market indicators, flash signals, sending signals. So the yield curve I mentioned before, turned negative for the first time since the recession. And I was in the news quite a bit, but it only lasted for a short amount of time. This was because the Federal Reserve reacted quite swiftly and realized that they did make a mistake. So the yield curve just represents the longer end. In this case, this is the 30 year U.S. bond yields, which are generally determined by investors and how they perceive the ongoing economy and the short end. In this case, the three month yield, which is more determined by the U.S. Federal Reserve. So currently the U.S. 30 year yields are yielding at about 2.2 percent, while the three months are yielding 1.5 percent. So the spread difference between the two are about 0.7 percent, which is above the 0 percent. So an inverted yield curve just means that the shorter end is yielding higher than the longer. So that’s why we get negative yield curves.

Justin Han: [00:07:09] So why do we focus on monetary policy so much and why do we look at it and care? So this next chart here, we can see that the red line is the global money supply. Our year over year change and the blue line is the global PMI eyes. So from this chart, we can see that the global PMI money supply usually leads the real economy by about nine months. This is because it takes time for these effects to filter through to the economy. And that’s also a reason why we saw PMI start to shrink. But if you look at this chart, we can see that the two lines are closely following each other and the red line predicts the blue line. So the blue line, which is Global Purchasing Managers Index per PMI, which represent corporate sentiment, looks like it’s bottoming out and it’s due for a rebound in 2020. So we expect the economy to take us, the global economy to rebound slightly in the next year. And during this year as well. And with growth rates coming above the 50 mark here. So 50 usually means that if it’s below 50, the economy is contracting, while above 50 means it’s in growth. So to summarize, in 2019, we saw a lot of uncertainties and geopolitical issues coming into the year, but in 2020, those fears and uncertainties actually became fuel for the markets. We expect it to become fuel for the markets as well as the economy. So what does this all mean from an investment perspective? I’ll pass it over to Wayne to discuss that portion.

Wayne Wachell: [00:08:45] Well, Justin just talked about some of the good things that happened in 2019, and because of that the market obviously went up and it’s been a nice run. So I’m here to tell you the hard part. What happens next? Obviously, you know, it was a great year in terms of the Fed change course. They eased three times. And with the problems in the repo market where a lot of concerns, it got the Fed to expand their balance sheet dramatically, trying to tap that problem down. We don’t know buy that problems out there. People think it’s maybe a hedge fund in trouble. It could be a bank, European bank in trouble, but they’re definitely in there actively expanding money supply to help cover that one issue. And I think they are going to tamp that down. And that’s got the market excited, too. That’s when the market starts to really pick up. And, of course, you know, some pause, if you will, in the trade war. We still think that’s a long term issue. It’s not going to go away for years and years and years between China and US, but at least now it’s been put to bed, I think, at least until after the election. So it’s sort of a time out and we’ll see where that goes. So lots of good news in the market. And where do we go from here? Looking at the market from a valuation perspective.

Wayne Wachell: [00:09:55] Here we have three different valuation metrics going back to 2004 for the Europe, the green, Canada the red and the US the blue, and what we do is we look at number one, we think the markets are still fairly valued right now. The US obviously is a bit richer. If it’s low, it’s expensive, it’s high, it’s it’s cheap. US is a bit expensive right now. It’s probably the sentiment, too. It’s probably a bit overboard. There’s a lot of a lot of positive news built in there. We could get a short term correction, but longer term valuation doesn’t look that bad given where interest rates have come from. We now have T-bills back to one and a half percent. And we do here, for example, how we get the number for the U.S. of around 4 percent. We take the forward year earnings on the S&P 500, which are about 180, divided about by thirty three hundred, which is a number on the S&P. You get around five and a half less, one and half percent for the T-bill. You end up with a 4 percent spread between the earnings yield and the T-bill.

Wayne Wachell: [00:09:55] Here we have three different valuation metrics going back to 2004 for the Europe, the green, Canada the red and the US the blue, and what we do is we look at number one, we think the markets are still fairly valued right now. The US obviously is a bit richer. If it’s low, it’s expensive, it’s high, it’s it’s cheap. US is a bit expensive right now. It’s probably the sentiment, too. It’s probably a bit overboard. There’s a lot of a lot of positive news built in there. We could get a short term correction, but longer term valuation doesn’t look that bad given where interest rates have come from. We now have T-bills back to one and a half percent. And we do here, for example, how we get the number for the U.S. of around 4 percent. We take the forward year earnings on the S&P 500, which are about 180, divided about by thirty three hundred, which is a number on the S&P. You get around five and a half less, one and half percent for the T-bill. You end up with a 4 percent spread between the earnings yield and the T-bill. So you can see in 2007, 2008, the market was very, very expensive and became very cheap into 2009.

Wayne Wachell: [00:11:07] So the US is fairly valued, too, but it’s an expensive side and Europe is still cheap. But who cares? They still have issues to deal with. And Canada’s fairly valued. So US has been the best performer. And, you know, it’s because it does have the best growth rate. If you look at the earnings numbers and why it merits a higher P E as well, because it is a stronger growing market.You can see going back to 2010, and 2010 earnings for the S&P and for the rest of the world were over the same. Since then, U.S. S&P numbers have doubled, whereas Europe’s been flat. And what’s driven that? Well, there’s more multinationals that are taking advantage of globalization. We also have more technology. The U.S. market now is about 30 percent of technology. So they’re growing a lot faster. There is growing a lot faster than the rest of the world. And of course, we got the big bump. You can see in 2017, 2016, that was the Trump administration tax cut that really jacked up our earnings. We also put into consensus forecasts, which usually, always wrong, but they’re in here for 2020 and 2021, pretty flat in 2020 and some acceleration in 2021. So in general the US is growing faster and and and merits a higher P E. So based on where we are today, how do we see the rest of the rest of the region stacking up against the U.S?

Wayne Wachell: [00:12:44] This here is our our, these are our asset allocation models. We have around 20 different models to look at asset class, equity on a regional basis, our bond market and commodities. And one thing that jumps out right away is, is the equity space. If we look at different pairs, for example, world versus cash, it’s right now we’re neutral. Blue is neutral. In a case here of S&P 500 versus U.S. bonds on spring, that means that the left pair we’re over weighting the left pair versus the right pair. So we’re favoring S&P 500 versus U.S. bonds. So so right now we’re neutral on world equities versus cash. We favor stocks over bonds. And we prefer, in this case, we prefer cash over bonds. Now, looking at the regional weightings, as I mentioned, an original basis, we seen number neutral between the US and the rest of the world,for the first time probably in five years. And so we think we’re seeing a bit of a changing of the guard here. We still like the U.S. longer term, I would say. But over the next couple of years, we expect, as as Justin said, we see the money, global money supply turning around, improving, which we’ll bring the economies around as well. And in that environment, a stronger global growth, we think the next year or two it should help the emerging markets, should help Europe and, even, should help Canada as we have a global stronger growth. And so from that perspective, the rest of the world can catch up to, at least as well as the U.S., if not better, in the coming year or two, we think. We’re also seeing with the cyclical versus defensive neutrality and value versus momentum. I’ll talk more about value by moment to empty internal parts of the market going forward. On the bonds side.

Wayne Wachell: [00:14:29] We’re still favoring corporate spreads over government bonds and high yield. They’ve done very well, but they’re still going to do well, this current environment, we believe. And on the commodities, we’re seeing some of the commodities go green in terms of liking oil like gold and copper. That’s usually a good sign for the economy going forward. They call copper, Dr. Copper. As copper goes, so goes the economy. So our perspective right now is sort of neutral across the regions.

Wayne Wachell: [00:14:53] We’re neutral on global stocks versus cash, but we like stocks better than bonds and cash better than bonds at this point in time. So let me look at the sort of some of the internals and what actually happened in the course of 2019 and where we go in 2020. Last year’s performance on the stadium for five hundred, was really a large cap growth environment. And really it was a mega cap, a growth environment where some of the largest companies in the world, Apple, Microsoft, Alphabet, Facebook and Amazon, those those five stocks were account for twenty five percent of the returns of the S&P 500 over the course of the last year. And, of course, the flip side of this is, when these mega growth stocks outperform, what under performs is value driven stocks and smaller cap names. So it’s been a really concentrated market over the course of the past year. And these things don’t usually last. And we think with the economy improving next year, we’ll see value starting to perform a little better. In fact, if you look at value over the past three years, it has under performed: under performed in 2017, was flat, in 2018 and under performed in 2019. So we have a relative three years of under performance. We don’t think there’s going to continue going forward. And you know, one of the reasons is if you look at the spread and valuations between value stocks and the market, value stocks are dirt cheap right at this point in time.

Wayne Wachell: [00:16:37] What we do to get this metric is we look at the cheapest stocks, the top 20 percent of cheap stocks, and look at them on a book to price and price earnings basis and measure their disparity. This case here we’re looking at the forward P E, look at their disparity between the marketplace. And you can see back during the tech bubble, back in 2000, the spread between value stocks and the market was about almost six multiple points. And this point in time here, the multiple forward multiple in the S&P 500 was twenty five. And value stocks had a multiple of round would have been nineteen. And you can see it got very narrow in 2010 when value stocks really did well going into the recovery. And there was no valuation gap between the market and value stocks. And once again, we’re back in this range right now where there’s a big gap between value stocks in the rest of market. The gaps around 5 percent. The market has a forward multiple of around 18. It means that value stocks multiples around 13 at this point. So very similar 2001, except the market overall, we believe is in better condition than we were back over here. There’s the multiple points. Twenty five versus 18 for the market in value stocks, had a multiple 18 versus thirteen right now. So we think there’s there’s more value. This was it was crazy back in 2001. Also, another factor, is that interest rates are so much lower than they were back in the tech bubble.

Wayne Wachell: [00:18:19] Interest rates on the long bond, I think with about 5 percent at that point in time. And now they’re one and a half to two percent. So much lower rates, lower multiple. So from overall perspective, market’s in better shape and value stocks, we think are cheap right now. And also, going into 2020 and 2021, we think the as I mentioned, the global economy is going to improve. And typically in that kind of environment, value stocks do better. And the fact is that, if the economy, if investors can see some kind of visibility where the economy is going, they can then start trusting the E and price earnings and the P.E, they start trusting earnings going forward, they’ll invest in them. They typically value stocks do better in that kind of environment. So we think you’re going to be number one, there’s a big gap between the market and value stocks. That’s elastic band, it’s been stretched and usually that snaps at some point time it comes in plus. And that’ll be, we think, helped by the fact the economy is going to get stronger and better in the coming couple of years. And that’ll help value stocks as well. The same kind of story for dividend stocks. This is a similar valuation. Looking at dividend stocks versus the rest of the market and they remain cheap right now, they’re comparable to 2008 comparable to the the tech bubble.

Wayne Wachell: [00:19:46] And number one, dividend stocks are value. A dividend strategy is a value strategy. So it’ll move with a value strategy as well. And right now, in our in our conventional dividend strategy, we can get a yield of three seventy five. There’s lots of operatives out there, a lot of stocks out there, good dividend yields that have been left behind by this market. And also our fossil free dividend strategy is yielding three twenty five. And that compares to current, the 10 year yield in Canada right now is yielding one point five percent. So you want yield, you can get the dividend strategy and value stocks. I think we think represent good value. So in 2020, you know, we see value and dividends doing better. And this is reflected in our portfolios as well.

Wayne Wachell: [00:20:33] Here is a strategy footprint of our portfolios, and I want to focus on the value box initially from a value perspective. We have our dividend fund, are our CanGlobe strategy, and then are the analog to that in our fossil free space, our dividend strategy and our Fossil Free CanGlobe. So we have conventional. And so we have sort of regular coffee and some high test, if you call that here. And they can see the number of holdings compared to the benchmark.

Wayne Wachell: [00:21:04] You can see our dividend yields as advertise, dividend in the 3.7 in our conventional, and 3.2 in our fossil free. And here we have the enterprise value to EBITDA. That’s sort of what people use the international space as a proxy for PE. Look at the earnings per dividends and taxes versus enterprise value, which includes equity and debt versus versus EBITDA. And you can see that across our mandates were lower than the benchmark of thirteen point two. And our benchmark in this case here, is thirty five percent the TSX and sixty five percent MSCI World. So, you know, look at our footprint, more value, more dividend yield and our dividend strategies and also low, a little of lower forward earnings growth except for our fossil free CanGlobe, tends to have more technology because it doesn’t hold energy stocks.

Wayne Wachell: [00:22:01] And to make up for that looks that other stocks and correlation to economic movements, like tech stocks, banks, consumer discretionary and telecom. And also another feature of our strategy is lower debt to equity than the market. And also higher return on equity. So we think in the coming year, there will be more focus on value and that kind of environment, earnings visibility does matter. So this looks at our overall portfolios and how they’re positioned. I’m going to look at some of the strategies in terms of what we have in them. And I would start off with our dividend strategy. And what we’ve done here ,the next couple of charts, is we’ve put up our active weights, and what I mean by active weights is we take the weighting of stocks weight in a portfolio, less the benchmark weight. So, for example, Bristol-Myers Squibb has our biggest active weight or dividend strategy. It’s a little about three and a half percent. So it’s probably in the benchmark, it probably is 50 basis points, if that I would suggest, so we probably have around 4 percent at a nominal basis, less the benchmark of 50 gives you around three and a half percent. So our biggest active weights all surprisingly because we, number one, was we actually what do we do every month at Genus? We rank all our stocks in our 2000 stock universe across the world. We give them a ranking from A to F, A being high, F being low.

Wayne Wachell: [00:23:33] And then we use risk models to help us create these portfolios and create a portfolio, in this case here with the dividend yield of three point seventy five and with beta somewhere market sensitive, somewhere between point seven five and point eighty five. Right now you can see, these are our biggest active weights. Most of them all have high ranks. And the pink is denotes value stocks and the blue denotes growth stocks. And so, as you would expect that a dividend strategy, all our big active weights, our value stocks, and the stocks, we don’t we have negative active weights like Apple and the rest here. There’s a lot of, more growth in there. For example, Microsoft, Facebook, they’re not much yield these there’s some yield on Microsoft and there’s not much yield in Shopify and Amazon. They’re not much earnings there either. So that gives you a perspective on our active. Oh, yes. Within the strategy we do on Microsoft, but our active weight is minus 1 percent. So it’s way to index probably is around 2 percent. The benchmark is around 2 percent and we have 1 percent. So ergo we have a negative active weight of 1 percent. So looking at are CanGlobe strategy, you’re going to see right here are active weights.

Wayne Wachell: [00:25:08] We’ve got CGI software in Canada, Air Canada, Bristol-Myers, Kirkland Gold Grow Stock, Nvidia, Nike, Manulife, it’s a value play.

Wayne Wachell: [00:25:18] Nippon is somewhere in the Middle, HMD and MasterCard. So it’s a mixture of growth and value. And this is more of a growth strategy, beta close to one. And it’s definitely has a mix; Our models are a mix of value and growth. We tried diversified styles. And on the other side, you can see here our biggest negative weights. You can see from Apple, CNR, Bank of Montreal, Shopify. You may say “why don’t we own Apple at this point time?” Apple’s ranking, number one Apple, are the technology stocks always at a higher ranking than Apple over the course the past year and, Apple’s ranking recently started to come up, in fact came up higher in January of this year. We’re going to wait till next week till earnings come out in January 28, the stock’s done really well. It’s discounted a lot of the good news. And we’re going to wait and see, we’re gonna wait to see how the earnings fare next week before make a decision to maybe get in. But, you know, I’ll give you an example of why we’re a little concerned about Apple longer term. They have great, great phone, customer loyalty, everything.

Wayne Wachell: [00:26:28] But, you know, the 1990 were driven, it was sort of the year, the decade of PCs and the first decade of a century two thousand, 2010 was driven by the Internet. And this last decade was really the decade of smartphones, and we’ve got their phones or walk around with them. The next decade is going to be a decade of A.I.. And we don’t think that Apple is there yet. And they’re way behind Google, Google is going to connect the whole world together in terms of the Internet, everything. They have much better A.I., their A.I. is way advanced where everybody else. So they have a lot of brand loyalty and they’re trying to actually get people into the reco system and change them a lot of money to stay in that system. But, you know, we’ll see where it goes from here. We’re waiting to see the numbers on January 28. Looking at the fixed income side, just quickly (Ian is going to talk more about this) we’ve been in this new numeral for 10 years. We start talking about it in 2008, 2009, and what happened effectively is government.

Wayne Wachell: [00:27:33] Governments around the world, central banks around the world, started buying bonds, government bonds in order to print money, and just have bought the whole market. And if you look at all of Europe now, for example, all of Europe has negative interest rates across the whole yield curve. And, you know, prior to 2010, real bond rates, real bond rates are simply the nominal rate of bonds. Less inflation. You’ve got about 2 percent above inflation for holding bonds. Now over the past 10 years and getting around a half percent. And right now, it’s almost zero at this point time. So we’re still stuck in this new. We don’t know when we’re gonna get out of this new normal. There’s inflation, inflationary pressures, aren’t there. There’s a lot of debt in the economy. So the economy can’t sustain higher interest rates. It’ll it’ll shut the economy down. So we’re kind of we’re thinking this, we’re in this place for some time. And the European rates are definitely hanging on this. And so we think we’re in this range for some time, and a big challenge for investors and money managers like us, is trying to get some yield in the portfolio. It’s very difficult. And if you look at 10 year Canada right now, it’s 1.5 percent. That’s why we created our dividend strategy, is as a as a bond proxy to get more return, more carry. And it’s loved by a lot of our clients, especially our institutional clients.

Wayne Wachell: [00:28:50] In the foundation side. So people are always hunting for for new yield in the challenge for us. And because of that, we’re creating a new, we’re launching a new bond fund. We’re calling it our Global Macro Bond Fund. And it’s going to be driven, we’re going to utilize U.S. ETF. It’s gonna be a U.S. dollar denominated fund. It’s going to be and we’re gonna be able to go hunting everyone anywhere in the world. Effectively looking at US yield, the high-yield market, which is yielding probably around 5 percent right now. We’re also looking at emerging market debt at an opportunistic basis, that’s yielding around 6 percent right now. And also U.S. corporations. So it’s a form of getting higher yield for us, and for our clients and also diversification out of Canada. We’re also cognizant of, you know, some of the issues going on in Alberta with potential sovereignty issues there. And we think this could be a place for some of our clients to find safe harbor if there are any kind of issues there. So as well, a lot of our clients take vacations down south. They want to have U.S. dollar exposure to make sense for us to have some U.S. exposure in our fixed income mandates. So you can see what we have up here is U.S.

Wayne Wachell: [00:30:08] treasuries, the Canadian total market, are a great market and the U.S. corporate market. And you can see emerging market and U.S. high yield. And obviously, emerging market and high yield have done better, but they are more volatile, obvious. You can see how they were thumped in the downturn came, but they longer term they have a higher carry. And most of that carry is what you earn effect. It is going to be losses within those, but typically, you earn your carry over time. So we think it’s a great place to get the versification for our clients. And as well as playing US corporates and also U.S. Treasuries. U.S. treasuries when there’s a downturn actually go up. You can see, for example, in 2008, 2009, they actually went up and die when the rest of the world was falling. So it’s the safest haven in the world when times are rough and we think mixing those together, using our dynamics and active strategies, we can add more value on top of that. So it’s just another thing we have in our arsenal in terms of getting yield. We have our dividend strategy. We are corporate bonds. Now will have this Global Macro Fund and also our mortgage fund as well, which gives our clients more carry. And Ian is going to tell us more about that now and how he’s doing a great job in Canadian bonds.

Ian McKinnon: [00:31:23] Thank you Wayne. That was a perfect setup. I had made my job quite easy. What I want to talk about today. We’ll do a quick review of what went on in 2019. Talk about some of the characteristics of the Genus portfolios, including mortgages and then, a very brief outlook on where we see things going with a couple of charts. So it was a volatile year in 2019. This is showing in the Canadian yield curves. So the interest rates going from 3 months all the way up to 30 years. The gray line is where we started the year last December, 31st. The blue line is where we ended the year. And the magenta line is kind of, that was September 30th. But effectively, yields fell throughout the year, started with Canadian 10 years, just under 2 percent, ended at about 172. So down overall in the year. But actually, if you look at those dotted lines, that shows where the yields actually traverse throughout the year. And in August we at 1 0 9 in Canadian 10 year. So it was, that was at the height of the China U.S. trade tensions and tit for tat and what not. But it was a volatile year. But overall, a pretty positive year for bonds. I’d like to say it was kind of the everything rally. So we had stocks giving great returns last year and unusually bond returns were quite strong. So just the universe benchmark index was up six point seven percent, which is quite a bit more than we would have thought.

Ian McKinnon: [00:32:45] There you go. So you can see the gray bars are the year over year numbers and the blue bars are the last quarter. So we did see interest rates rise in Q4, pushing up slightly just on some resolution of those trade tensions. I think that was a big uncertainty that was weighing on the market. It was keeping rates lower than maybe where they should have been. So once some of that trade tension, uncertainty was lifted, we didn’t see yields rise in Q4. The other coin, side of the coin, though, is credit spreads and corporate credit was quite strong. It was that risk on environment with the positive returns in equities. We also saw very positive returns and in corporate bonds. And so provincial and corporate credit where two of the strongest sectors in the Canadian bond market. Good news for Genus clients is we have a heavy focus towards credit, corporate and provincial. So this is the sort of suite of funds that are available and used in different combinations, permutations, for the clients other than the short term and the government bond fund. The other ones are very credit focused, effectively all corporate bonds and obviously the mortgages are Canadian commercial mortgages. You can see just the one in four year returns. Just to give you an idea, duration is a measure of interest rate risk. So as you have a higher duration, that’s taking more interest rate risk and the yield, of course. So the strategic bond fund is one hundred percent corporate focused. And it’s actually in midterm corporate’s. So sort of five to 10 years or what we call the mid term has a little more interest rate risk. So with the six year plus duration, but offering a pretty attractive yield and pretty good returns for the one year at over 8 percent, that’s pretty impressive for bonds.

Ian McKinnon: [00:34:23] I would say. Commercial mortgages is sort of the other side of the coin where it’s shorter. They’re generally writing five year mortgages. So the average duration or term to maturity is only about three years in the portfolio. But you get this great yield offers approximately 175 to 200 basis points over the government candidate 5 year and very low volatility. So its job is to just not take a lot of interest rate risk and just crank out that yield. And it’s done very well, in that respect. Highlight a couple of credits in the portfolio. So we do have at Addenda, we incorporate ESG research into our corporate credit process and we’re also looking for what we call impact securities. And I think Mike is going to talk about that a little bit more. But impact is where you have a positive measurable impact across a number of focus areas, climate, climate change or the environment would be one of those focus areas. So just I don’t need to go into a lot of detail, but Algonquian Power their list on the stock exchange. But they also issued some green bonds and they’re really into renewable energy. And it’s been a very strong performer for us. And also Sun Life, interestingly, as a corporate did a green sustainability bond, effectively raising funds which will be directed towards projects that are related to climate and energy efficiency, renewable energy. This is just a couple, but we also have, I’d say, a fair number of other investments which are exposed to infrastructure.

Ian McKinnon: [00:35:53] We’ve gone into it started about 10 years ago, what we call P3s. It’s public private partnerships where you’re raising debt from the public entities, but you’ve also got a private sponsorship. So an example would be McGill Hospital in Montreal. McGill always had very old school. I was headed on the campus hospital run Victoria. It was quite dated. The about 7 years ago started to build a billion dollar new hospital. So that was funded with about eight hundred million of public debt with which your portfolio would be involved in. The money was also put up equity from a project-co. And then ultimately, once the hospital’s built, the province takes over all the debt payments and they just pay down the debt. And once the debt is paid down, it was long term debt. The province owns the hospital. So worked out for us. We get a great yield. We get a fairly strong counterparty risk on the other side, not a lot of risk. You have some project risk as they’re building the hospital. But we’ve got a number of investments like that in the portfolio as well as some real estate. So right now, it’s trading a little bit through. And what we’ve seen with some of the green bonds and some of the these impact bonds, they’re fairly scarce. They’re sort of and they’re very collectible. So there’s a lot of demand for them these days. So we have been typically able to buy them at the same spread as their non-green counterpart, if you will. But we’ve seen that spread narrow. So basically, we see no performance from these impact securities.

Wayne Wachell: [00:37:23] Please give us your thoughts on the overall growth in EU space within your bond market as you see it.

Ian McKinnon: [00:37:30] That’s a very broad question, Wayne.

Ian McKinnon: [00:37:33] I think it’s growing significantly. There’s certainly a lot of, I think there’s a lot of investor managers jumping on the bandwagon. I think some of them are greenwashing, where they’re saying they’re doing it, but they’re not actually walking the walk. I think a Genus and Addenda we really do walk the walk. We are actually doing it. We have teams in place. We have built our reputation as having a demand for this product. So we’re now getting the first call. That being said, I think last year I don’t have the numbers, but it was the biggest issue. And we’ve seen the impact in green bonds in Canada and globally. So it’s, I think as the demand has come now, you’re seeing corporations or other quasi governments, sovereign governments, world banks and whatnot, raising debt to feed that demand. So I think it’s just going to keep growing. But we’ve also seen out performance where these securities, I think they get bored and they kind of get closeted away and they don’t trade a lot. They’re very closely held. So there’s always demand and there’s not a lot of new offers of securities in the secondary market. Talk about the mortgage portfolio a little bit, so it’s a Canadian commercial mortgage portfolio, diversified by across geography and across property type. We do not buy any hotels or, sorry, funds or loan to any hotels or residential mortgages. It’s really those main property types, retail. We do have multifamily residential. That’s what that means, like apartment complexes and whatnot.

Ian McKinnon: [00:38:56] As I mentioned, it’s very low loan to value. It has a fifty seven percent as loan to value. So that’s the average of the loan versus the equity of the underlying underwritten loan. And that’s been the case forever. So our guys don’t, this would be like a triple A mortgage portfolio. It is unrated, but they don’t take a lot of risks. Only first mortgages. They don’t do any other mortgages, whatnot, no big pieces, no lending and very, very high quality. That being said, you don’t get, you could get more spread if you went in some of the lower quality stuff. But that’s not the process that they use. So but 175 to 200 basis points over government Canada of five year is sort of the average yield. As you mentioned, the portfolio is relatively short term in nature. They’re writing five year mortgages. So you have about a third of the portfolio that matures every year. So we think this could be very defensive in a rising rate environment, even though it is affected by interest rates, obviously as candidate five year goes up and down. But you’ve also got that whole third of the portfolio that matures every year and then it’s being reinvested. So if rates go higher, so it’s proved to be very defensive in many rate environments. That’s it for the review. I thought just to talk a little bit about our outlook, really three themes and I think they’ll they’ll dovetail what Justin and Wayne have said is support, which is central bank monetary policy, valuation, which is somewhat stretched in credit markets, but we think can continue and finally risks.

Ian McKinnon: [00:40:21] So for us, we’ve got extremely to streamline easy monetary policy going on around the world. Arguably, the Fed and Bank of Canada and also the Bank of Canada, we’re we’re not as easy as others. We have gone to negative rates or zero rates knock on wood. That’s a good thing. But we’re still very supportive and accommodative monetary policy. There is very limited scope, I think Justin mentioned that we’ll see central banks tightening this year, maybe in 2021, depending how the economy evolves. But from where we are now, Bank of Canada just announced no change today in their monetary policy and in their outlook, they actually downgraded their growth outlook for Canada. Just a couple of tents. But they’re, I don’t have a feeling that they’re in a tightening mode. If anything, they may actually be easing. In that easy monetary environment, it’s usually good for risk assets, for equities, for high yield emerging market and also just corporate credit in general. So that’s where we are in the Genus portfolios with that focus. And we think that this will continue. Now, that being said, we saw credit spreads narrow or get lower throughout 2019. It was at risk on year, so there’s not as compelling of an argument to get into, say there was in January of last year of 2019.

Ian McKinnon: [00:41:31] But it’s still we think it will continue based on that strong support. And again, it’s demand for yield. So you’ve got investors clamoring for “where can I get that yield?” And generally corporate bonds have been in favor. Certainly risks. I think we’re all well aware of the geopolitics that are going on. It seems like we’ve been living with this for for many, many years. They kind of come and go. The bond market reacts to them, at this point, it’s hard to predict and it’s hard to. And yeah, the new flue. It’s hard to build your portfolios for any one of these. These are somewhat low probability, but high impact type events are very difficult maybe to forecast. So we generally try to look through them and just manage around that volatility. And the other one would be just a shock to consumer confidence. Consumers are the big drivers of economic growth. So we watch very closely what’s going on with the consumer debt levels, these type of things. But it’s so far so good. Consumers are still still in vogue. We’re still going now just one final chart to talk about interest rates in general. Justin touched on yield curves. This is showing the top 19 developed markets of the world. So no emerging markets, no Russia, no China, no Brazil. But the red is obviously negative and the green is positive. And you can see there’s quite a bit of negative yielding debt out there.

Ian McKinnon: [00:42:50] Couple of highlights here. The Bank of Canada, an overnight the Bank of Canada 175, has the highest overnight rate of the developed world. I’m not sure our economy is really that strong to justify that rate, so that’s where I would kind of think that there’s probably more of a bias to ease. But he’s being very patient. That being said, the other thing to note is there’s only two bonds in the world which have a 2 percent or greater yield on them. And that’s Italian long bonds and U.S. treasuries. Yes, 30 year treasuries. Just just slightly north of 2. And that doesn’t tell you bonds have been kind of bouncing around a bit. People say our yields are too low in North America. Well, they are relatively low to where we were, but they’re not low relative to the rest of the world. And we are seeing capital flow into North America again to find, out of Japan, out of Euro, out of these negative yielding sovereigns to come into North American yields. And it’s coming in unhedged. So they’re taking that currency. So, you know, Wains discussion about emerging markets, this is, you don’t necessarily want to go and invest here. I don’t think if you’re gonna go into global bonds. That’s a tough enough market to be. But going and do global credit, global high yield emerging markets, there’s still lots of yield there. So I fully support that idea.

Ian McKinnon: [00:44:03] We’ll leave it on that note. Mike, over to you.

Mike Thiessen: [00:44:14] All right.

Mike Thiessen: [00:44:18] So at Genus, we are we’re very focused on the markets, very focused on our financial models, but we also have really a core focus on impact and the difference that we’re making as a firm.

Mike Thiessen: [00:44:28] So for Genus, we are a certified B Corp, which means we’re certified as a company that is striving to be a force for good in society. We have to go through rigorous testing. In order to get this, we had to show that we had, that we had sustainable products, that we have a diversified workplace, that we’re employee owned, strong sustainability policy. So we’re proud to be certified B Corp.

Mike Thiessen: [00:44:52] And so, in terms of the products that we’re, that we’re supplying to clients. We have a suite of fossil free funds which have been mentioned a few times.

Mike Thiessen: [00:45:03] So these are sustainable funds. But the area that we’re gonna be talking about today is impact investing. So for those that aren’t familiar with impact investing, impact investing is going kind of a step further than then sustainable investing.

Mike Thiessen: [00:45:17] So with impact investing, we are trying to achieve our financial goals, but also make an impact at the same time. So instead of just taking out the bad stuff out of your portfolio, you’re putting in the good stuff. So instead of just taking out tobacco or maybe you want to take out gambling or fossil fuels or something like that out of your portfolio because you don’t agree with that. You want to align your portfolio with your values. You’re putting in maybe innovative health care companies or renewable energy, so that you can make an impact on society, on the environment, while also meeting your financial goals, And we see impact investing not only as a way to make a difference, the way to activate more of your capital to do good, but we also see impact investing as a hedge against big changes that are happening in our society, in our environment. One of those being climate change. So with climate change, there are large physical risks, so of course, we’re seeing fires, floods, changes in weather patterns, but then there’s also large transitional risk. So our economy is is quickly changing to be more low carbon.

Mike Thiessen: [00:46:26] We there’s more policies coming out by governments around the world, around climate change. Of course, there’s a carbon tax and this is a large risk for for a lot of companies and for a lot of portfolios, because a lot of portfolios are invested in companies that won’t be able to transition as fast as everything’s moving.

Mike Thiessen: [00:46:48] So we see this impact fund as really a hedge against that. So you can make a difference, but this impact fund is probably going to benefit from these transitional changes.

Mike Thiessen: [00:46:59] So that’s quite, quite a strong benefit for class. So at Genus, we have a high impact public equity fund.

Mike Thiessen: [00:47:07] So this is a fully liquid fund investing in public equities. And then we also, just about a year and a half ago, maybe two years ago, started the Genus SVX Impact Investment Council, which is more investing in private issuances. So investing in private equity, venture capital, private debt infrastructure. But today, we’re gonna focus more on the public equity side. So when we’re looking at impacts, it’s it’s very important to measure the impact that you’re making.

Mike Thiessen: [00:47:37] You don’t just want to say that you’re making impacts and just, you know, feel good about that. You need to measure what you’re doing. And so we’ve talked to a lot of our foundation clients. And the way that they’re measuring their impact, many of them, is looking at sustainable development goals. So as I think Ian mentioned before, the Sustainable Development Goals,or SDGs, were created in 2015 by the UN.

Mike Thiessen: [00:48:05] And so there’s 17 goals that the UN is encouraging governments, organizations, companies to strive to accomplish. So some of these goals are good health and well-being, quality education, affordable clean energy. So when we’re looking at our public equity high impact fund, we’re making sure that each of the investments that go into that fund are contributing towards one of these goals. Usually, that they’re contributing towards many of these goals, but they at least need to have a significant part of their business contributing towards these goals.

Mike Thiessen: [00:48:38] And we have three different data providers that verify the impact that we’re making for us, so that it’s not just us thinking that we’re making an impact with these stocks. We have outside sources verify this.

Mike Thiessen: [00:48:54] And then if we look at the 17 Sustainable Development Goals and look at the number of stocks within our public equity high impact fund that are contributing towards that goal, this is the chart we have. So we have so some of the goals such as climate action, decent work and economic growth, affordable and clean energy. We have a significant number of stocks that are contributing towards these goals.

Mike Thiessen: [00:49:16] So with climate action, twenty five twenty, five of our stocks are contributing towards that goal and we only have thirty three in the portfolio.

Mike Thiessen: [00:49:25] So it’s quite significant.

Mike Thiessen: [00:49:27] Of course, there’s some goals that are much more difficult for companies to try and contribute towards, such as peace and justice, strong institutions. That’s you know, it’s hard to find investments in that area, but there are other areas where we feel like the companies that we invested can make a big difference.

Mike Thiessen: [00:49:47] And then here is just a list of the companies in our portfolio. I’m certainly not going to go through all this, but we just wanted to show you that all of the companies within our high impact portfolio, are contributing towards at least two different sustainable development goals. And so these are, this is the the list of the companies and the goals that they’re contributing towards.

Mike Thiessen: [00:50:10] And I’ll jump in to a few of our top holdings here, just to give you examples of what an impactful company or impactful stock would be. So first of all, Vestas Wind. So Vestas Wind is a company in Denmark. The design they manufacture, they install, they maintain wind turbines around the world. And they’re really a leader and an innovator in that space. So about 18 percent of the total world’s capacity for wind energy has been installed by Vestas.

Mike Thiessen: [00:50:39] And there they’re really cleaning up their their supply chain. So not only making sure that their products are sustainable, that them as a company are sustainable, but they’re making sure that that companies that are supplying them are also sustainable and they have some zero net carbon goals for the future as well.

Mike Thiessen: [00:50:58] For their supply chain. Next, we have Kings group. This is another top holding with the our impact fund. So Kingspan Group, it sells sustainable building products. So they sell things.

Mike Thiessen: [00:51:10] They sell products like like energy or building retrofit products in order to lower the energy consumption of buildings. They have, they have insulation for buildings, so that buildings can be more energy efficient, they have water conservation technologies, energy conservation technologies that they’re selling to to builders.

Mike Thiessen: [00:51:33] And then we also have Bristol-Myers. So Bristol-Myers, many of you may be maybe familiar with.

Mike Thiessen: [00:51:38] They spend about five billion per year in research and development to find solutions for major diseases around the world. And they have many pharmaceuticals, medicine, solutions for many of the major, major diseases. And something that we really like about Bristol-Myers is that they have a great program within poorer countries, within developing countries. They have very affordable pricing systems for developing countries.

Mike Thiessen: [00:52:05] They also do a lot of capacity-building for researchers and governments and companies within developing countries, to help them with finding solutions to major diseases within those countries in an affordable way. And then next, we have Microsoft.

Mike Thiessen: [00:52:21] So Microsoft probably isn’t a company that, you know, you think about impact when you hear Microsoft, but they’ve really made a big transition, especially over the last decade, to become quite an impactful company.

Mike Thiessen: [00:52:33] So a significant business line for Microsoft is there a cloud computing. And cloud computing is much more energy efficient than local computing. So they’re, they’re really contributing towards climate action with their cloud computing products. And that’s one of the fastest growing parts of their business. They’re also significant in, in education and also with increasing productivity of employees of workers around the world.

Mike Thiessen: [00:52:59] And then finally, we have Berkeley Group. So Berkeley Group is a U.K. based home builder.

Mike Thiessen: [00:53:05] And so they are quite a leader when it comes to sustainable home building in the U.K. and globally. So about 73 percent of their, of the homes that they build are using either renewable energy or really low carbon energy. And in the next decade, they want to have that one hundred percent. So all of the buildings that they’re, that they’re building are going to be relying on renewable energy. So quite a leader in that space.

Mike Thiessen: [00:53:33] So those are some of the holdings.

Mike Thiessen: [00:53:35] And then as a portfolio, we’re also trying to measure the impact that we’re that we’re able to make for clients within this fund. And so we want to measure that against our benchmark. So with, when we’re looking at financial performance, we want to measure against the benchmark when we look at impact performance. We also want to measure. So the way that we do that, is we look at the percentage of revenue of the average company in the portfolio that is made from impactful products or services. So a company like Vestas Wind makes 100 percent of its revenue from impactful products.

Mike Thiessen: [00:54:09] But then there’s other companies that may just have a significant business line, but not their whole business, that is that is really impactful. So maybe 20 percent of their revenue comes from impactful products.

Mike Thiessen: [00:54:19] But we want the average revenue from impactful products to be over 50 percent. And right now within our Genus High Impact Fund, we have fifty seven percent of the revenue coming from Impact vs. the MSCI World Index, which is the benchmark for this fund, which is eleven percent. So it’s significantly higher than the benchmark and something that that, many of our clients are quite excited about that are invested in this. So, impact investing in general and our impact fund is something that, that we’re quite excited about, that we’re quite passionate about. And now we have a five year track record for this, for this public equity high impact fund. So, so it’s kind of gaining even more steam. And it’s something that a lot of our clients are excited about because not only as I said, they can hedge against things like climate change, but they can also use it to activate more of their capital to really make a difference.

Mike Thiessen: [00:55:16] Ok, so now for Leslie, talk about positioning.

Leslie Cliff: [00:55:24] You did a great job.

Leslie Cliff: [00:55:25] I think. I get to end with. So how do you do? And of course, last year was a great year in the markets, in the bond market and the stock market. So it was a great year for our clients.

Leslie Cliff: [00:55:39] But before I get there, I’ll just talk about how your portfolio is positioned versus a year ago, as you might imagine. We’re more optimistic now than we were a year ago. So you have less cash in your portfolio and more stocks. So the policy for our balance fund, which may not be you, are a balanced fund, is about 60 percent, 65 percent of all our clients. There are the clients that we call normal. They want everything. They want growth, they want safety and they want income. And those kinds of people are in a diversified portfolio called our balance portfolio, which is this. Some of you may be more growth oriented or even more conservative. But this is about 65 percent of our clients. So it’s a good example to show you. So the policy of this bounce client is 60 percent stocks, 40 percent fixed income. A year ago, we were fifty nine percent stocks slightly below, but a big weight in cash, 11 percent. That was largest we’ve been in 30 years. Now today, the equity way to 66 percent. So quite a bit above the benchmark of 60. But I should say a lot of those stocks are 66 percent in the stocks are not high beta stocks. So when you have just those stocks for their beta, it’s actually more like 60 percent because so many of those stocks are so conservative. So we’re really kind of just on the benchmark, even though when you look at your portfolio, it looks like you’re overweight stocks. So as I said, it was a great year in the market.

Leslie Cliff: [00:57:11] This is a chart that goes back to when we started, June 1989. It’s the bond market. What’s different about this chart is it’s a log scale. So often these kinds of charts, you see them flat forever and then they take off. But this one, the slope of the line is the same as at the top is the bottom, it’s the kind of scale engineers engineers use. So you can see the bond market over the last 30 plus years has been pretty, it’s not a straight line. It was really accelerating as rates dropped and it’s flattened out recently. This is the Canadian stock market, very volatile, but upward sloping yield of almost 8 percent over the 30 years. The world stock market in Canadian dollar terms slightly higher, but even more volatile. In fact, this period here from the tech bubble to the breakout after 0 8 was 13 years of flat performance in the global market. That’s mainly the U.S. market, that global sign. And then your Genus Balanced portfolio. So our goal is to have that perfectly straight line. That would be fantastic. We haven’t been able to achieve that. We never will. But a bounce fun return before fee of 7.5 percent. So you can see in the last year we lost a little ground to the markets because the markets were up over 20 percent last year and the balance fund just under 10 percent. Thirty years is a long time. So we thought we’d focus more on the 10 year, do the same thing for 10 years, the bond markets been a pretty flat place for the last 10 years, up 4 percent.

Leslie Cliff: [00:58:50] The stock market in Canada up 7 percent in the world. You can see the U.S. earnings, the U.S. train pulling the world along up 12 and a half percent annualized for 10 years. That’s a huge number. And the Genus Balanced Fund, almost a straight line, drying up 7 percent. So our consistent returns is our goal and this is our proof statement. I’d like to end with just something. You all know the boat. Ten years ago, we started having seminars from panel of experts. So not investment people, but maybe tax people, estate planning people, other interesting topics. We’re thinking about having one in the fall, having an expert from Washington, D.C. to talk about the U.S coming election, we might do this in June. Combine it maybe with Vaughn Palmer or Michael Smith and talk about Canadian politics. So those kinds of seminars that are from experts that not about investments. And we’re so happy to be in this building and have the second floor to have all these seminars here. So that’s our annual review. Thank you so much for coming in. And thank you so much, there’s about the same number of people online, about 50 as there are in the audience today. So it’s our first year have been online. So we hope,we hope the technology worked well. And now it’s your chance. We’d love to get some questions about any topics. If anything is of interest to you.

Leslie Cliff: [01:00:21] Russ. Russ just hold on to it so that people online can hear you.

Audience: [01:00:27] My question relates to the chart that Ian McKinnon put up and it had to do with the negative yields that seem to be mostly in Europe. Is there a particular reason why this is happening in that part of the world as opposed to in the United States or Australia or Canada?

Ian McKinnon[01:00:57] Switzerland was a currency thing, they were seeing a lot of money pouring into their currency, so they tried to really ease their yields to sort of relinquish some some pressure on the, on the krona. But what, it was really the concerns about inflation and disinflation. So the ECB, like the Bank of Canada, has that price stability target and they have just not been able to generate any inflation. And they’re very worried about what’s been going on in Japan, where you’ve had this sort of persistent disinflation and or deflation, which kind of gets consumers to just pull back. It really weighs on your economic growth, if you think you can buy something next year and it’s going to be cheaper than it is this year, you often put off that decision to to make that purchase. So disinflation is is really, I think, generally accepted economically. Justin, help me out here, about it as being very negative for economic growth. So the European Central Bank really, really fighting that and actually pushing yields. Now there’s no negative coupons. well, I think that there might be one. There’s not they’re not doing negative coupons on their bonds. What they’re doing is, they’re putting a slight positive interest rate on the bond, but then issuing it at a premium. So it actually matures at a lower value to generate that negative yield.

Leslie Cliff: [01:02:08] Oh, you can buy a capital loss? That’s something! We tax people in the audience, huh?

Leslie Cliff: [01:02:26] From behind the pillar.

Audience: [01:02:29] Are you at all concerned about the fact that the Canadian yield curve has remained inverted for about the past year? As opposed to us curve, which is, which is normalized last year. On the Canadian economy?

Leslie Cliff: [01:02:44] I don’t think it’s inverted right now. It was as they both were.

Leslie Cliff: [01:02:47] Oh, it’s inverted now. Ian, you should answer.

Ian McKinnon: [01:02:51] The quick answer, is yes. The bond market is telling you within an inverted yield curve that they think that the Bank of Canada is too tight. Now the bond market can get excited and go too far one way too far the other way. But that’s what the market is telling you, that they think that the Bank of Canada at seventy five on their overnight rate, we’ve got Canadian ten years at one forty five to 150 telling you think that the bank is too tight. It has a very high correlation as a recession indicator, but it’s not a good timing element. So it, we can skate through and we’ve seen it go negative and then you can bounce back positive. Well, like what happened in the US, as Justin pointed out, the Federal Reserve was able to reach steep the curve or revert to the curve, if you will, and get it back into a positive by easing up on short term rates and also by buying a fair bit of T-bills in the repo market. The Bank of Canada has been stubbornly patient to not moving on its interest rate. And I think that you will probably see, there’s there’s more risk that he cuts rates this year just to address that inverted yield curve.

Leslie Cliff: [01:03:52] Thank you Ian. So I’m a conspiracist. Does the strength of the Canadian banks, they love higher interest rates. Do they have any influence on the Bank of Canada? They keep that short.

Ian McKinnon: [01:04:03] Arguably, no. I mean, but perhaps, yeah. And that, that’s where this negative yelling thing is a real problem for the banking model in Europe. Right. So I think North American, central banks have been conscious of that and tried to keep rates maybe a little more positive.

Leslie Cliff: [01:04:21] Great. Kirk, maybe just hold on for the mic.

Audience: [01:04:26] I have a simple explanation for that chart, and that is that. The Green Zone there at the bottom are all English speaking countries, some simple facetious comments, obviously. My real question is back to back, to back to exchange rates. What are you seeing in forecasting in terms of Canadian U.S. exchange or U.S. dollar, for example, relative to Canada, relative to Euro?

Leslie Cliff: [01:04:52] We’ll let Wayne do that.

Leslie Cliff: [01:04:55] He gets easy ones.

Wayne Wachell: [01:04:55] I call for help on this one. Go for it. Yeah, our models I showed you right now is it’s a bit red, but negative on Canadian dollar. I think, though, as, you know, they are view longer term is a stronger global economy, that’ll help Canada, I think longer, longer term as it’ll push oil prices up. You know, there’s a, the former governor of the Bank of Canada, what is his name?

Wayne Wachell: [01:05:21] Not Corney, but after that. Not that one, the one before that, anyways. A former banker governor of the Bank of Canada, just came on and said that we actually are understating economic growth in Canada, and that could have a bearing I think too on their policy. But we’re not really measuring a lot of the technology, the software development space that well, we’re losing, how many points we’re losing, you say? Most 50 basis points in GDP growth per annum is being understated in that perspective. We’re not measuring some of this new technology space. Just today, her announcement of 30. The Oxford Development’s gonna build thirty seven new high rises in Mississauga, develop a whole new cityscape there. So we’re really being propelled by this whole real estate boom. Not so much here in Vancouver, but more in Toronto. Just a concern longer term, obviously. I still think a longer term, the global economy’s going to turn around. One thing that’s really bothered me about our call for recession last year, an inverted yield curve was, this cycle was very, it wasn’t typical of previous past cycles. Whenever we had a big blow off or economy really got hot, it overheated. Never really happened. I still think that has to happen before we get another recession. And so in those kind of environments, Canada will do well, I believe. And as well, we’re tied to the US. If the US does well this year and the Fed’s on pause to the election year, they’re going to drag us along. And maybe that’s part of why the central bank’s holding their ammunition there. The central bank here is very good. It’s one of best large banks in the world terms of forecasting, and they usually get it right.

Leslie Cliff: [01:06:58] Well, that was great, but I don’t think he answered your question.You should go.

Wayne Wachell: [01:07:03] For the near term, a longer term, I think it’s going to go down.

Leslie Cliff: [01:07:05] So weaken in the near term, term, longer term fine. Yeah. So with thank, let’s do one more, Marg, if you have a question or one on the back. Two more questions.

Audience: [01:07:21] It’s forward looking concerning the Sars, the norovirus or the Corona virus, or whatever they’re calling this new virus. And markets reacted with the escalation in the number of cases. How would this impact the global economy if it becomes like a Sars, like, you know, epidemic?

Wayne Wachell: [01:07:47] It’s you know, it’s the first reaction to the market yesterday was to hit a lot of the economic sensitive issues. You know, we’re not just. It’s the first impulse is to whack down, slow down travel. It’ll hit the cruise lines that airplanes, Air Canada was down 4 or 5 percent yesterday. So there’s issues around travel and and then the economy, obviously. They seem to be getting on top of it. I guess fast and it doesn’t seem good, at least so far, the ratio of deaths to reported events is much lower than Sars. So it’s a concern, but a definitely a tamper down economic growth and a lot of the cruise lines and the vacation area, for example, and you were hurt there.

Leslie Cliff: [01:08:34] Ok, one more in the back. Hold on just a sec. Let us get you the mic.

Audience: [01:08:47] I think it’s for Mike. Thanks for the impact fund stuff. I was curious about, I don’t know if I saw it or maybe you said it, how it’s doing in terms of performance. And I really appreciate you saying that, the rest of them are greenwash products and the quality might not be their interest as SDGs, so it’s good to see that 57 percent, but how is it comparing and, you know, everyone just criticizes impact or ESG products being less than other returns. So I just wanted to see if you can comment on that.

Mike Thiessen: [01:09:16] Sure. So. Yes, so the impact fund has been, has been for the past 5 years has been performing about 1 percent lower than the benchmark. And I don’t think that’s a function of, you know, investing for good means lower returns. I think that’s a function of, you know, a lot of right now, a lot of the most impactful companies have had been in Europe and Europe, I think we saw some charts before. Europe hasn’t performed as well as the rest of the world. So because of that, it hasn’t been able to perform. But I don’t think that that’s going to be what’s going to happen in the long run.I think, as I said before, in the long run, I think this is a great hedge for climate change. It’s a big transition. So, but it has underperformed slightly over the past five years.

Leslie Cliff: [01:10:01] Just the numbers are 10 and a half and eleven and a half. So there’s still two good numbers. Anyways, I’m going to call, call it in to this and. But please, if you have more questions, come approach us. We’d love to talk to you and really appreciate you coming out. And thank you very, very much.