June 2021 Portfolio Management Team Update

Elvis Picardo

June 8, 2021

Market & Economic Environment
The TSX Composite reached a new record high in May, boosted by its substantial weighting in cyclical
sectors, while U.S. indices traded sideways in the month.

The index gained 3.3% last month, reaching an intra-day record level of 19,914.01 on May 31. The Canadian
benchmark’s gains for the month were led by cyclical stocks including miners, banks and energy producers
as optimism swelled about the economic reopening in Canada and globally. The best-performing sectors
on the TSX last month were materials (+7.8%), financials (+4.3%), consumer staples (+4.3%) and energy
(+3.9%) sectors, while health care (-3.5%), and utilities (-0.9%) lagged for the second month.

The S&P 500 was little changed at 0.6% in May, as it was hindered by the underperforming technology and
communications services sectors that together constitute 37% of the index. The Dow Jones gained 1.9%
while the Nasdaq Composite declined 1.5%. Large-cap stocks marginally outperformed small-cap
companies, with the Russell 1000 +0.3% for the month and the Russell 2000 +0.1%.

On a year-to-date basis, most of the major equity indices in North America and Europe have posted doubledigit
gains, while gains in Asia and the largest emerging economies (China, India, Brazil) have been more
muted. YTD, the TSX is +13.2%, with the S&P +11.9%, the Dow Jones +12.8% and the Nasdaq Composite
+6.7%.

(Data Sources: FactSet and Bloomberg)

Our Strategy

After last year’s huge volatility and uncertainty, investors should have little cause for complaint with the
solid gains registered by equities so far this year, amid declining market volatility and a significantly brighter
outlook compared to a year ago. The TSX Composite, in particular, has been a major beneficiary of the
“reopening trade” in recent months and currently trades over the 20,000 level. But as noted in last month’s
Update, two undesirable consequences of robust global growth – Canadian dollar appreciation and the
possibility of inflation – continue to pose challenges to investors.

The Canadian dollar continues to display a strong correlation with energy and commodity prices. With WTI
crude oil up 4.4% in May to bring its gains for the year to 37%, the Canadian dollar continues to be one of
the best-performing major currencies against the US dollar with a 5.5% gain YTD. A stronger Canadian dollar
erodes returns from USD-denominated assets, which make up approximately 20% of our large balanced
portfolios. On the inflation front, notwithstanding the shortage in key supply-chain components such as
semiconductors and rising prices for several commodity inputs, the Federal Reserve and Bank of Canada
have steadfastly maintained that such inflationary pressures may be temporary.

With the proportion of the vaccinated population in Canada and the U.S. increasing rapidly, investors may
soon perceive the economic threat from the pandemic to be in the rear-view mirror and will begin looking
for the next catalyst to justify pushing the markets higher. But with corporate earnings estimated to reach
record levels this year, and with consumer spending poised to surge due to pent-up demand during the
pandemic, the fundamental economic backdrop looks reassuring.

The Portfolio Management Team (PMT) remains comfortable with the current asset allocation of client
portfolios. Although it expects markets to grind higher over the remainder of the year, the PMT will
continue to be vigilant about seasonal volatility in the summer months and may take some profits off the
table if the market outlook deteriorates.

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.