Markets: First quarter report

An interim progress update.

Early in 2011 I offered up a suggested asset allocation to begin the new year. With the first quarter of the year in the books, and your March account statements on the way, now is an appropriate time to see how the markets have been treating us.

Whether you’re doing an appraisal yourself, or using a full-service broker, or discretionary portfolio manager, it’s still your money, so it’s incumbent on you to do one. My task today is to provide you with some benchmarks so that you can see how well you should be doing, and compare that with how well you are doing. (On a lighter note, you can also see how well I’m doing with the asset allocation recommendation I made at the start of the year.)

Cash: At the end of December 2010, the highest 1-year GIC in Canada (at institutions with CDIC coverage) paid 1.88%, the highest 5-year GIC paid 3.10%, and the highest 90-day term deposit paid 1.50%. Right now those same securities pay 2.03%, 3.30% and 1.25% respectively. Said another way, cash continues to pay rock-bottom rates, and so our suggestion to maintain only the strictest minimum allocation to cash seems to be working out so far. But if your cash isn’t paying this much, you may wish to look further afield for a place to park it.

Bonds: Unfortunately, I no longer have any Canadian bond benchmarks to go by (suggestions are welcome). However, I can tell you that a Government of Canada 1-1/2-year bond (the 5.25s due June 1, 2012) was priced at 105.61 to yield 1.44% to maturity in December. Today that same bond, now due in 1.19 years, is priced at 104.69 to yield 1.26% to maturity. By the same token, a 5-year Canada yielded 2.26% in December, and yields the exact same today. A 12-year Canada yielded 3.34% back then and yields 3.39% to maturity today.

In sum, bonds aren’t making you rich, and prices remain vulnerable when the target overnight rate begins to edge up; that’s expected to happen soon. Our recommendation for a reduced allocation to bonds has thus far been appropriate.

Equities: The S&P/TSX Composite Index rose 5.21% in the first quarter of 2011 (it gained 3.45% in the first quarter of 2010; and 8.69% in the fourth quarter). That’s similar to the Dow Jones Industrial Average, which is up 6.68%; the S&P 500’s gain of 5.67%; and the Nasdaq Composite’s rise of 4.82%, but only when you don’t count in the change in the Canadian dollar. The loonie is up 2.69% on the year, and so each of those U.S. returns is actually 2.69 points lower — to a Canadian investor — than the straight numbers.

Looking around the 21 most major equity markets in the developed world, with each measured in its own currency, Canada’s TSX is in fourth place. The top-performing equity market in the developed world, believe it or not, is Spain’s IBEX 35, up 7.28% in the first quarter. The DJIA takes second place, and the S&P 500 third. On the downside, India’s market is down 4.90%, worse than Tokyo’s Nikkei, which is down 4.63% and, somewhat of a surprise, Mexico’s Bolsa takes third-worst spot with a decline of 3.48% year-to-date.

And finally, looking within the TSX, five of its 13 sectors are in the red; gold stocks are down 5.42%; metals and mining stocks are down 3.66%; and consumer-discretionary stocks are down 2.36%. On a more positive note, health care stocks lead with a 19.77% first-quarter gain; followed by info tech stocks, up 11.24%; and energy stocks, up 10.65%.

These benchmarks should give you some idea of how your own collection of securities should be performing thus far this year.