MONTREAL, Nov. 21, 2013 /CNW Telbec/ - Because it is important to periodically review investment strategies in view of retirement, Laurentian Bank Securities is pleased to be offering a summary of current market conditions, along with some concrete suggestions to investors.
The prevailing market context is showing a slightly positive trend in the wake of a period of considerable volatility. While the recovery is ongoing, it is slow, and there are no inflationary pressures. Therefore, investors who previously adopted a strategic approach of diversification to spread out risk should now revise their positions and the combination of their assets — stocks, bonds and cash alike.
Bonds vs. Stock: A Question of Interest
The bond market is currently characterized by rates that are slightly on the rise, after having posted historic lows. "The return on bonds remains purely mathematical," explains Sylvain Ratelle, Vice-President and Strategist with Laurentian Bank Securities. "It depends directly on interest rates, which are rising at a very slow pace."
While more or less short-term fixed income securities are under-performing, stock markets are showing an upward trend. Certain stocks are breaking away from the pack in particular — those listed on the S&P/TSX Canadian Dividend Aristocrats Index (CDA) and their counterpart in the United States. As indicated in a Toronto Stock Exchange document, "The S&P/TSX Canadian Dividend Aristocrats Index captures both the sustainable revenue of dividends and the possibility of increasing the value of capital, which are two key factors in the investor's total return expectations. The Index also offers diversification across all sectors, and it features both growth and value characteristics."
The stocks that are part of this Index must have raised their dividends each year over a period of five consecutive years. "These Indexes outperform the general Indexes, as well as the large majority of mutual funds," underlines Sylvain Ratelle. "In fact, over the past five years, Aristocrats Index stocks generated a return of 12.24%, as compared to 4.80% for the S&P/TSX and 3.71% for the S&P/TSX 60 in Canada. Over the same period, their return in the U.S. was 14.10%. These are high quality stocks that offer regularly increasing dividends. As such, they represent a choice vehicle with a lot of value."
By adding a fundamental filter to these stocks aimed at identifying those that offer particular stability and create value for shareholders, the return is even more substantial at 18.62%.
Geographic and Sectoral Distribution: Secondary Factors
The distribution of assets by geographic markets does not have the same consonance as it did during the previous decade. Assessments are reasonable, and there is no particular market that is booming. While the price-to-earnings ratio is more or less the same in Canada and the U.S. at X13, it is at X11 in Europe and X8 in China. In addition, although other markets may represent savings, it is always essential to take risk factors into account.
For its part, sectoral distribution is no longer as important in and of itself as it was because of the broad range of diversified products available on the market. "For example," concludes Sylvain Ratelle, "the CDA Index is composed of companies operating in all industrial sectors. Taking the cyclical nature of each into account, every stock must be evaluated on its own merit."
About Laurentian Bank Securities
Laurentian Bank Securities (LBS), is an integrated full-service investment dealer, focusing on five lines of business. The well respected Institutional Fixed Income division has a strong presence in Government and Corporate underwritings, as well as in secondary markets. In addition, the Institutional Equity division is solidly established across the country and focuses on serving clients through research, trading and investment banking in the small capitalization sector. The fast-growing Retail division and Discount Brokerage division currently serve clients through 16 offices in Quebec, Ontario and Manitoba. Furthermore, LBS' corresponding business provides complete back office support to a wide range of customers.
1 Laurentian Bank Securities is a wholly owned subsidiary of Laurentian Bank of Canada. The opinions expressed in the present document should not be interpreted as a solicitation of an offer to purchase or sale of securities herein mentioned. The stocks referred to in this document are not intended for all investor types. Please consult an investment advisor before making any decisions. Past results are no guarantee of future performance. Laurentian Bank Securities and/or its officers, directors, representatives and associates may hold the securities mentioned in the present document and may execute purchases/sales of these securities from time to time on the market or otherwise.
SOURCE: Laurentian Bank of Canada
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