Don Cromar, CIM, FCSI

604 718 7511

What’s in Store for 2012?

If the first week and a half of trading sessions in January are any indication of where we are headed, then the bear market is over.  Markets and commodities are forming a base and the number of stocks is starting to rise with now the majority of Dow 30 components on the big US board trading above their 200-day moving averages.  This alone, is a very bullish signal.  Clearly, traders are more upbeat and the VIX - which measures fear and volatility based on the premiums on options – is declining.  Also a bullish signal.

Just six sessions into the new year and we’ve seen upside moves of 8% in metals,  6.7% in materials, 4% in energy and 5.4% in global gold stocks.  Our Venture exchange is up 4% with typical outperformance in Q1 and Q4.  With strength in gold and base commodities, our Canadian big board and venture exchanges are off to a strong start.

Just when all of the analysts have predicted that it’s time to get defensive and buy income producing securities, the growth train has left the station and a rally is under way.  Bond prices are losing momentum and yields are firming up which historically has been good for stocks.  Further, on the heels of an 11% decline in the broad  S&P/TSX Composite Index in 2011, valuations are attractive, company balance sheets are in good shape, and earnings are on the rise.

For all of the above reasons, I am optimistic about stock returns for 2012.  Nonetheless, we still see risks with the ongoing European sovereign debt crisis and the efforts to fiscally integrate the members of the union.  Fringe countries such as Greece will need to agree to austerity programs and oversight from the larger economic powers such as Germany and France.  China, continues to try and engineer a soft-landing and slower rates of growth are to be expected.  South of the border, the US deficit continues to grow and an increasingly disenchanted consumer is reluctant to spend.  The era of global deleveraging is upon us, which ultimately sets the stage for future economic growth.

With this in mind, my focus will be on quality, yield oriented investments as the core of client portfolios with continued exposure to gold bullion, gold stocks, broad commodities, and emerging markets.  In Canada, I will seek some additional return with overweight exposure to materials, energy, energy income funds, and real estate investment trusts.

Our fixed-income returns will help diversify risk but won’t offer much in the way of returns as bond yields range from less than 1% at the short end of the interest rate curve to about 2.5% for long term bonds.  High grade corporate bonds and convertible bonds can offer more upside potential with the opportunity for capital gains alongside the semi-annual interest payments.

Given the relatively benign forecast for economic growth, the inherent risks still in the market, and historically low interest rates, I am expecting single digit positive returns in diversified and balanced investment portfolios.  My Balanced Income ETF model has a monthly yield of 4.5% and provides an opportunity for growth in a medium risk portfolio designed for the average investor.  For more aggressive investors, the Growth ETF model offers more upside potential, but with the corresponding volatility that comes with increased risk.

I look forward to another interesting year and all it will bring.  The one constant in this business is change, and with 24 hour global trading, we see it unfolding daily from one market to the next. 

All the best to you and yours and happy investing in 2012.

Don Cromar

 

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