EFT Pool Quarterly Review
For the period ending
June 30, 2010
Equity markets fell in the quarter as fears of a double dip recession intensified. On the other hand bonds, in particular Government of Canada bonds, benefited from this concern as yields declined.
The portfolio was adversely affected by the performance of the equity portfolio, offset slightly by the asset mix of the Fund which had a slight tilt away from equities.
ASSET MIX STRATEGY
Although the economic recovery commenced on a strong note in the latter part of 2009, it currently appears to be faltering. The imposition of stringent austerity measures by many governments to counter growing deficits and total government debts are having a negative impact on the growth of the affected countries. Nor are these measures solely confined to the weakest nations. Virtually all countries have to retrench following the massive stimulation undertaken to counter the worst affects of the most serious recession since the Second World War. It is now necessary for corporations and consumers to pick up the slack in order to sustain the current recovery. This is far from certain as consumers continue to deleverage in the face of weak labour markets and corporations continue to hoard their massive cash resources. With China showing signs of slowing and with weakening growth prospects for the global economy, the threat of deflation has increased.
In this environment where investors are concerned about the potential for financial contagion, a possible second global credit crisis and an increased risk of a double dip recession, it is prudent to maintain our underweight equity exposure. Fixed income holdings remain modestly overweight as bond yields remain under downward pressure.
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