Blogs & Comment

Markets: Second quarter report

All the benchmarks in one convenient place.

(Photo: Ryan McVay/Getty)

I do hope you’ve been out enjoying some of the beautiful weather we’ve been blessed with lately. It’ll help keep your mind off the stock market, which has been anything but hot. In fact, just as the temperatures started rising, the equity indexes started falling, and most investors’ equity allocations will be showing a net loss on the year to date.

Yes, another quarter has passed by, and it’s time for me to provide you with some benchmark numbers so that you can do a performance appraisal on your holdings. Whether you are a do-it-yourselfer, or are keeping tabs on your adviser, it’s useful to have an objective yardstick against which to measure your progress. So when you get your June statements, compare them to the numbers I provide here to see if any changes are warranted.

Speaking of accountability, I haven’t been exactly perfect so far this year. At the beginning of 2011, I advocated three things for your asset allocation. First was an absolute minimum in cash; second, an underweight in fixed income securities, and third, an overweight in equities. Whatever your strategic allocation normally is, whether as a safe, balanced, or aggressive investor, my recommendation was—and remains so today—to scale back a bit on your bonds, and ramp up a bit on the stock side.

My cash recommendation has worked out just fine. As for fixed income, I did say that you shouldn’t reduce it to zero, because I just might turn out to be wrong. I was right: I got it wrong. So maintaining some allocation to bonds has been a saving grace, though an increased rather than a reduced allocation would, in retrospect, have worked out better.

As for equities, the second quarter of 2011 has been rather dismal. Taking the S&P/TSX Composite Index as a starting point, the TSX rose 5.01% from the first of January to the end of March, but fell 5.78% from April to June, such that Toronto stocks are now down 1.06% on the year to date. We’re seeing ever-strengthening economic indicators in Canada, but geopolitical worries coming out of Japan, Libya, Greece and other financial flashpoints are outweighing any domestic progress right now.

South of the 49th parallel, things have been a bit rosier. For example, the Dow Jones Industrial Average, which gained 6.41% in the first quarter of 2011, added another 0.77% in the second quarter. The broader-based S&P 500, up 5.42% in the first three months of this year, gave back only 0.39% in the second three. The Nasdaq Composite followed suit, rising 4.83% in the first quarter, and declining only 0.27% in the second quarter.

Net, the Dow is now up 7.23% on the year to date, the S&P is up 5.01%, and the Nasdaq is up 4.55%. The Canadian dollar is up 3.18%, but even taking that into account all three U.S. indexes still lead the TSX’s 1.06% decline. It’s been a long time since the U.S. markets led ours, but in the second quarter it definitely happened.

Let’s look around the world before we look again at Canada. Of the 21 most major equity markets on the planet, in the second quarter Germany’s Deutsche Börse, the U.K.’s LSE and the DJIA took the top three spots, with gains of 1.77%, 0.95% and 0.77% respectively. Tokyo’s NIKKEI took fourth spot with a gain of 0.63%, and Singapore’s STI rose 0.47% in the second quarter. All the other major markets lost money: Canada’s TSX was in 17th place, beating out Finland’s HEX, down 10.68% in three months; Brazil’s Bovespa, down 9.01%; and Denmark’s KFX, down 7.73%. I imagine most of you don’t have a lot of money invested in the latter three, but any diversification you’ve made into U.S. stocks is now paying its freight.

To wrap up, let’s look inside the TSX to see how the wealth was distributed. Unevenly, to be sure: telecom stocks rose 7.62% in the second quarter (one thing I predicted correctly); consumer staple stocks rose 1.61%; industrial stocks rose 0.61%, those being the best three sectors. At the bottom of the pile were energy stocks, down 11.48%; materials stocks, down 8.60%; and gold stocks, down 8.17%.

There you have it. I hope this helps in assessing how your own stocks performed. And as wrong as my allocation recommendation was for the second quarter, I’m sticking with it heading into the third.