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Market views

Canadian House View

Our Canadian-based professionals are part of a global team who also benefit from the expertise and resources of our parent company, Standard Life Investments Limited in Edinburgh, Scotland.

The success of our investment approach is built upon strong research and the generation of clear insights. The strength of our relationship with clients is built by the clear communication of these insights.

Our balanced approach

July 2010

Click on an asset class to see the rationale of the House View allocation decision.

US Equities

OVERWEIGHT

Positive

Negative

Our view
  • The US market will benefit from a global improvement in earnings and good operating leverage. We also like the more diversified sector allocation, with better exposure to areas such as health care and technology for Canadian investors.
  • The market is pricing in strong earnings growth in 2010. Lower financial loan loss provisions and positive operating leverage offers the prospect of better earnings in an otherwise muted economic environment.

We have increased our OVERWEIGHT position in US equities reflecting valuations, the appeal of the dollar vs. the loonie and the relatively steady growth nature of the market. With firmer growth prospects in the US than in Europe and Japan, we think the US dollar can be in a longer-term rising phase.
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Canadian Equities

OVERWEIGHT

Positive

Negative

Our view
  • Earnings will respond to lower loan losses and generally high commodity prices as the economy expands. Canada remains a geared play on global growth.
  • The market rallied hard in 2009 on the bottoming in the global economy. Key issue is whether commodity prices will be maintained or continue to rise, thus supporting the level of earnings now being discounted in the market.

The portfolio continues to feature high-quality companies. We increased our focus on higher conviction buys and trimmed lower conviction views. We are positive on banks, oils and select commodity producers. OVERWEIGHT.
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Canadian Bonds

NEUTRAL

Positive

Negative

Our view
  • Inflation is low in Canada and the economy is recovering more slowly than the US due to the high loonie.
  • Long-dated corporate and provincial bonds remain attractive. Rates will have to stay low in Canada just to lean against the currency.
  • Long-term yields at 3% are not attractive on a multi-year view, especially compared to equities.
  • Corporate spreads in the short- and mid-term parts of the market are back to their long-term lows, and offer less-compelling value.

As equity markets fell and bonds rallied, we have cut our position to NEUTRAL in favour of US equities. Within the portfolio, we hold longer-dated corporate and provincial bonds, and benefit from still very wide spreads. With economic momentum likely to peak by mid-2010, long-term credit has solid risk-adjusted return potential.
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Real Estate

NEUTRAL

Positive

Negative

Our view
  • Capitalization rates have risen.
  • Real estate typically produces positive returns even in a difficult period.
  • Vacancy rates are low in Canada.
  • Market turnover remains very low, and it requires perseverance to find opportunities at attractive valuations.

This asset class benefits from cash flow and stability over the cycle.

NEUTRAL
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Cash

UNDERWEIGHT

Positive

Negative

Our view
  • We can use cash if conditions warrant for acquisitions or short-term defensive reasons.
  • Not attractive as a long-term asset given the low yields.

We hold minimal cash levels, given their low yields and favourable outlook in bonds.

UNDERWEIGHT
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EAFE Equities

UNDERWEIGHT

Positive

Negative

Our view
  • EAFE tends to outperform in cyclical rallies, as earnings are more geared to the cycle and valuation tends to improve as well. Valuation in the UK and Europe remains at a discount to other global markets, especially compared to Emerging Markets and the Pacific region.
  • Challenges remain. The Japanese recovery remains fragile and dependent on exports. Europe is also highly dependent on trade to stimulate growth and faces tighter fiscal policy due to huge budget deficits; European banks have been slower to recognize losses and have higher government involvement. EAFE recovery requires the Euro and Yen to weaken further.

With a still strong rebound in global activity, we lifted our position in funds in the autumn but remain UNDERWEIGHT. The fiscal situation in Europe, especially Portugal, Italy, Greece and Spain will be a drag on growth even assuming a bail out is organized for Greece.
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Global House View

For details of our Global House View, click here

Standard Life Investments Inc., with offices in Calgary, Montréal and Toronto, is a wholly owned subsidiary of Standard Life Investments Limited, a company registered in Scotland (no SC 123321) with the Registered Office located on 1 George Street Edinburgh EH2 2LL.
©2010 Standard Life Investments.