Balanced Pool Quarterly Review
For the period ending
December 31, 2009
After a dismal 2008, the markets recovered strongly in 2009 resulting in the Balanced Pool’s return of 17.4% for the year. Equity market returns were particularly attractive after significant rallies from their lows in early March.
In the quarter, the Balanced Pool was up 2.0%, ahead of the benchmark return of 1.7%, while for the year, the return of 17.4% for the Pool was nicely ahead of the benchmark return of 15.7%.
For both the quarter and 12 month periods ending December 31, 2009, positive security selection in both bonds and foreign equities drove the outperformance relative to the benchmark, while the Canadian equities, despite lagging the S&P/TSX Composite, were the primary contributor to the absolute return of the Fund.
ASSET MIX STRATEGY
With the global economic recovery still facing many challenges, equity markets are already pricing in much of the anticipated growth for 2010. Nevertheless, we believe that Canadian equities can continue to perform well if this cyclical recovery persists. Commodities will continue to benefit from the strength of emerging markets which now account for more than half of world growth. Consequently, we continue to favour Canadian versus foreign stocks. Bonds offer a buffer to stocks in the event financial markets suffer another setback in the months to come. While bond yields may come under pressure when monetary authorities begin to withdraw the massive stimulus undertaken in recent quarters or when economic expansion picks up steam, they will provide better safety if the economic expansion falters.
As many uncertainties remain concerning the outlook for 2010 and 2011, we prefer to maintain a cautious stance within the portfolio. The current economic recovery is still very fragile and a meaningful risk of a secondary downturn remains. Governments face major challenges in the future dealing with today’s financial excesses and consumers and corporations are still exercising caution. In this environment, we are maintaining a fairly neutral asset mix with a modest overweight in Canadian equities and underweight in foreign stocks.
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