The Canadian economy may be underperforming but that’s not preventing the country’s assets from delivering the best returns in over half a decade. After witnessing the slowest two-year growth outside a recession in at least 60 years, the Canadian stock market has been one of the world’s top performers this year. Total returns for Canadian government bonds and stocks and combined gains for the loonie are seeing their best performance since 2009.
“Gold has been having a banner year and oil has also had a great run in the last few months,” says Steve Tate of Tate Financial. “We’re also seeing some Canadian dollar appreciation, which is carrying the Canadian stock market. Although things are good at the moment, I wouldn’t recommend anyone to make any big, reactionary moves.”
Although oil has rebounded from last year’s slump, manufacturing has yet to fully recover and anxiety about the overheated real estate sector continues to be a factor. Yet despite these uncertainties, and the role they’re playing in what has been one of Canada’s weakest economic expansions, investors from across the globe continue to place their money in the Canadian market.
“Canada is seen a safe haven worldwide,” Tate says. “We’re still AAA rated on our bonds, and with low interest rates, the Canadian bond has been killing it this year. Canada is seen a safe place to invest. With Asia being a bit choppy, Europe not performing well and the U.S. under scrutiny, people are flocking to safe havens like Canada.”
Gold has played an important role in Canada’s stock market performance this year, and Tate believes it makes sense for advisors to have 5 – 10% of the precious metal in their portfolios. “I don’t advocate anyone jumping all in with gold, though,” Tate says. “Given the rollercoaster that gold has been on over the past 8 – 10 years, I think it can be a bit scary for people. Although, some of my clients are invested in gold and they’ve had a great year.”
After a tough 2015, not many advisors would have predicted the performance we’ve seen this year. And for Tate, 2016’s unexpected results reinforce a fundamental message: embrace diversification and stay the course. “Although 2015 was a bad year for so many, those investors who made switches may have missed out on the rebounds and improved performance this year,” he says. “That’s why staying the course is so important.”