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April 15, 2018

IoT Identified As Megatrend

The Internet of Things (IoT), digital and low carbon economies, and shifts towards a multi-polar economic and political world order are some of the industry, political, and economic megatrends that will shape the 21st century through 2050, says a report from BMI Research, a Fitch Group Company. ‘Towards 2050: Megatrends In Industry, Politics And The Global Economy 2018 Edition’ examines how these trends will evolve and looks back at what has changed since the first edition of the report was published in 2016. “There will be no single paradigm to define the coming era,” says Yoel Sano, global head of political risk at BMI Research. “By 2050, we can expect to see the emergence of a multi-polar world; growing tensions between central and provincial or local authorities; new technologies that will dramatically transform the workplace, society, and warfare; climate change and resource scarcity that will make migration patterns more volatile; and the development of new ideologies in response to these challenges.” Over the next few decades, it views a shift towards a more multi-polar world order from a U.S. led order as virtually inevitable as China, India, and several middle-ranking powers will rise economically and geopolitically. The report says the biggest shift in recent years is the challenge to the idea of the omnipotence of the forces of globalization as populism takes hold. However, the proliferation of the internet will buttress its development and BMI Research does not believe that globalization as a macro megatrend will be less meaningful in the coming three decades.

Staying Put Rewards Investors

Investors in a variety of asset classes are rewarded for staying put during so-called volatility events, says research from PGIM, the global investment management business of Prudential Financial. After an extraordinarily long period of low volatility, equity markets are see-sawing and shaking investors’ confidence. However, the report finds that volatility takes only a temporary toll on the performance of stocks and corporate bonds. Its institutional advisory and solutions group examined the performance of different asset classes before, during, and after sudden increases in the VIX, an index that gauges expectations for near-term market volatility, post-peak events, which are characterized by a longer period of ups and downs that eventually return to more normal levels. It defined these spike events as a 50 per cent increase in the average VIX over two months. Over a 68-year time period with 26 volatility spikes and 25 post-peak events, it found that spikes do damage in the short term, but markets recover within a few months following the sharp uptick in volatility.

Precedent Set When Former President Attends Auction

It may have been the luxury cars, the booming stock market, or a visit from former U.S. President George Bush but, whatever the reason, ‘Auction Week 2018’ in the Phoenix/Scottsdale area was mobbed with buyers and tire kickers. Regular contributors Peter Volny and Linda Goddard were there and have a report on the various luxury cars that were on display and for sale. Total sales at the event were $248 million for roughly 2,668 cars sold with more expected to close after the auctions, a number which is down roughly five per cent over 2017. To read about the $9 million Jaguar D-Types or Jay Leno’s 2018 Corvette Carbon 5 Edition and more, read ‘Precedent Set When Former President Attends Auction,’ by Peter Volny & Linda Goddard, on the Private Wealth Canada website

Markets Bake In Pain From Tariffs

Although the announced U.S. tariffs are a “negative for the global economy, recent market moves have probably more than baked in the pain they will cause,” says Sean McLaughlin, head of capital markets research at Cambridge Associates. Moreover, it is impossible to know whether the announced measures will be implemented, be scaled back, or fuel a full-blown trade war. This means investors with thoughtfully diversified portfolios, which incorporate sufficient liquidity, should stay the course amid today’s trade tensions, he says. Most mainstream economists believe that tariffs do more harm than good. Trade only occurs if it brings mutual benefit, allowing one country to secure goods or services from another that can produce them at a lower cost, a higher quality, or both. The tariffs announced in recent weeks are likely to modestly shrink global earnings and raise consumer prices. Repositioning a portfolio might make sense if an investor believed that market prices did not reflect the earnings or currency impacts of recent trade proposals. However, there is little question that the proposed tariffs are more than priced in.

Sharia-compliant Gold Standard Considered

The World Gold Council and the Bahrain-based International Islamic Financial Market (IIFM) are looking to develop a sharia-compliant standard for gold contracts that could see the asset class more widely employed in Islamic finance. Under current Islamic finance rules, gold is classified as a currency and is limited to use in spot transactions. A number of industry bodies, such as the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), have looked to expand the number of gold-based financial products deemed permissible under sharia law. Executives from the World Gold Council and the IIFM have discussed transaction documentation for a number of sharia-compliant, physical gold products including investment accounts, regular savings plans, and exchange-traded funds.

VC Misses Global Record

Venture capital (VC) investment raised fell just shy of the global record for a single quarter as 2018 started. A quarterly report on global VC trends by KPMG Enterprise said US$49.3 billion of venture capital investment was raised across 2,661 deals in the first quarter. A record-breaking $29.4 billion of investment in the Americas – including $28.2 billion in the U.S. alone – combined with high investment in Asia helped fuel the strong VC market. While venture capital deal volume continued to decline, the median deal size globally continued to grow across all deal stages in the quarter reaching $1.3 million for angel and seed stage rounds, $7.7 million for early stage rounds, and $15 million for later stage rounds. “Venture capital investors continue to pour money into late-stage companies, in part because of the number of aging unicorns that have remained private,” says Brian Hughes, national co-lead partner, KPMG Venture Capital Practice, and a partner for KPMG in the U.S. “With strong IPO exits by Dropbox and Zscaler this quarter, and an increase in the number of IPO filings, we could see the tide turning over the next few quarters, bringing with it a resurgence in early stage deals activity.”

Net Inflows Return To Hedge Funds

Last year saw a return of net inflows to the hedge fund industry, alongside improved performance which helped push total assets under management to a new high of $3.6 trillion, says Preqin’s year-end survey of hedge fund managers. Thirty-one per cent of managers reported that the fundraising environment had become more challenging in the past 12 months, a significant drop from 47 per cent that said the same in November 2016. At the same time, greater proportions of managers reported that their hedge funds had met or exceeded their performance goals in 2017 compared to the year before. When looking at the causes of improved performance, the greatest proportion of fund managers cited the Trump administration, both due to the ‘Trump Bump’ – the U.S. market rally in the immediate aftermath of the presidential elections at the end of 2016 – as well as tax reform proposals passed in December 2017.

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April 9, 2018

Taxes On Wealthy Could Increase

High income earners in Ontario will see their provincial income tax increase modestly as part of proposed changes to the province’s personal income tax (PIT) regime in the 2018 Ontario budget. The Ontario Liberals are proposing to eliminate the surtax from the PIT and introduce two new tax brackets while adjusting the tax rates to make up for the loss of revenue from the elimination of the surtax. The two new tax brackets, which would increase the total number of brackets to seven from five, will be from $71,501 to $82,000 and $82,001 to $92,000, respectively. The top provincial bracket remains the same at $220,000 and above. The government says the changes are to simplify the province’s system of personal income tax and make it fairer. However, it says the issue is that the surtax is calculated after personal tax credits have been applied to taxable income, thereby reducing that amount. Because of that, higher income taxpayers were receiving a disproportionate benefit from those credits relative to the benefit available to lower-income individuals. Under the proposed changes, it is estimated that roughly 1.8 million Ontarians would pay about $200 more in provincial income taxes every year on average, while about 680,000 lower income Ontarians would see a reduction of about $130 annually. All other taxpayers would see their PIT stay the same. The proposed changes would result in an increase in tax revenue to the government of about $275 million in 2018, $285 million in 2019, and $295 million in 2020. The proposed tax rates are effective for the 2018 tax year, with the government saying that it will introduce legislative amendments to implement them. If the changes are passed, new PIT withholding rates on employment income will begin July 1.

Gender Balance Real Target

The real issue is gender balance, not parity, says Diana Van Maasdijk, co-founder and executive director, of Equileap. She told the ‘Investing in Gender Equality’ session at the CFA Society Toronto’s ‘10th Annual Spring Pension Conference’ that gender equality has gone mainstream, including in the financial world, in the past few years. For example, asset managers now see companies without sexual harassment policies as investment risks and reports from the past 10 years show financial returns higher for companies without gender gaps. These companies also take less risk and improve opportunities for long-term growth. However, more is needed than having more women at the board level. There needs to be parity not only in pay, but in parental leave and benefits for both men and women. What is needed is gender balance, she said. The current system is not fair to men either as they have more heart attacks, experience more stress, and don’t get to spend quality time with their families. And while gender parity is being talked about more, it is not moving fast enough. She said World Economic Forum estimates are that at the current rate, achieving gender parity will take another 217 years.

Active Managers Fail To Beat Benchmarks

The majority of active managers across all categories failed to outperform their respective benchmarks over the one-year period ending December 29, 2017, with the exception of Canada dividend and income equity, says the SPIVA Canada Scorecard. Despite a slow start during the first six months of the year, the headline broad market indices posted high single-digit gains in 2017, with the S&P/TSX Composite and the S&P/TSX 60 returning 9.1 per cent and 9.78 per cent, respectively. Almost all of the returns came in during the second half of the year. Despite poor performance by the broad market indices during the first six months of the year, funds in the Canadian equity category struggled to outperform the benchmark. The large majority of active managers investing in domestic equity underperformed the benchmark, with only 6.78 per cent of Canadian equity funds outperforming the S&P/TSX Composite over the one-year period. Yield-focused active strategies fared well in 2017. Within the Canadian dividend and income equity category, 57.89 per cent of funds outperformed their respective benchmarks over the one-year period. However, over the 10-year period, no funds were able to outpace the S&P/TSX Canadian Dividend Aristocrats. Managers investing in U.S equities saw almost no change in their relative performance over the various periods compared with the mid-year 2017 scorecard. The data also showed that an even lower percentage of managers outperformed their benchmarks in the international equity (26.92 per cent) and global equity (20.97 per cent) categories over the same period.

Automation Raises Stakes To Prepare Workers

The unequal distribution of the risk of automation raises the stakes involved in policies to prepare workers for changing job requirements, says an Organisation for Economic Co-operation and Development (OECD) working paper as part of its ongoing ‘Future of Work’ initiative. Covering 32 countries, it estimates with the tasks that AI and robots cannot do shrinking rapidly, about 14 per cent of jobs in those countries are highly automatable (probability of automation of over 70 per cent) or over 66 million workers in the 32 countries covered by the study. While there is the potential to free up workers to do more productive, less routine tasks and to provide consumers with access to more and better products and services, technology will likely change many of the existing jobs, requiring workers and companies to adjust. Some jobs may become entirely redundant although the extent of automation will likely depend on policy, institutions, and social preferences. As result, education systems will need to adapt to the changes brought about by automation and teach children and youth the skills that allow them to take full advantage of the current wave of technology adoption. For those already in the workforce and whose jobs are being affected by technology, adult learning is a crucial policy instrument. Unfortunately, the likelihood of participating in any type of training, on-the-job and outside the job, is significantly lower among workers in jobs at risk of being automated. Effective and well-targeted adult learning opportunities for re-skilling and up-skilling workers are not all that is needed. For the smaller group whose jobs may disappear entirely, requalification must be accompanied by reinforced help from labour market and social policies. Newly-created jobs may require very different skills from those that are being destroyed and may be located in a different region. These displaced workers would need adequate social protection, including income support, and tailored re-employment assistance.

Global Market Conditions Complicated

Globally, investors face complicated market conditions after a volatile start to the year, says Russell Investments’ ‘2018 Global Market Outlook – Q2 Update.’ U.S. tax cuts, synchronized global growth, and strong corporate profits are battling monetary tightening and inflation pressures for control of global economies, it says. The tailwinds are prevailing for now, but it believes headwinds could overcome markets later in the year as interest rates rise, inflation picks up, and profit margins come under pressure from rising labour costs. Protectionist trade policy has also emerged as a risk, but it views a full-blown trade war as unlikely. “We continue to see Europe, Japan, and emerging markets outperforming the U.S. in what could be a relatively flat year for global equities,” says Andrew Pease, global head of investment strategy at Russell Investments. “We are still looking to add risk into market pull-backs, but we recognize that ‘buying the dips’ may become more challenging as markets grow more sensitive to recession risks later in the year.”

Investors Appetite For Risk Increases

Investors around the world showed an increased appetite for risk with confidence rising during March, says State Street Associates. Its ‘State Street Global Investor Confidence Index’ increased to 111.9, up 4.8 points from February. The North American index showed the biggest increase, rising 5.8 points to 109.8, while Europe rose 1.6 points to 102.1 and Asia increased 1.3 points to 109.6. Rajeev Bhargava, managing director and head of investor behaviour research at State Street Associates, says, “Although the global index increased this month, it will be interesting to see if continued Federal Reserve tightening and recent money market stress will impact investor sentiment going forward.”

AB Launches CTFS

AllianceBernstein L.P. (AB) has launched two equity Canadian trust funds (CTFs). The AB Canada Concentrated Global Equity Fund and the AB Canada Global Strategy Core Equity Fund are based on its concentrated global and global strategic core strategies. A third CTF, the AB Canada Emerging Markets Strategic Core Equity Fund, is based on its emerging markets strategic core strategy and will launch later this year. The CTFs are designed to provide qualified institutional investors with access to a deeper and broader global equity opportunity set. The launch makes them available in a Canada-domiciled, privately-placed commingled investment fund format. The concentrated global equity fund focuses on roughly 35 high-quality stocks with underappreciated long-term growth potential. The global strategic core equity fund invests primarily in companies that it believes have sustainably profitable business models, fundamentally lower volatility, and less downside risks in the future.

Chinese Equity Fund Performs Best

The best performer for March among the 44 Morningstar Canada Fund Indices was the one that tracks the greater China equity category, with a 4.1 per cent increase. Nineteen of the 44 fund indices increased during the quarter, including eight indices that increased by one per cent or more. For the first quarter, it had an exceptional month in January, increasing 8.7 per cent, but was in the red for the two subsequent months, decreasing 2.5 per cent in February and 1.7 per cent in March. Fund returns in that category were heavily influenced by currency effects, with the Canadian dollar depreciating six per cent against the Chinese renminbi and 2.3 per cent against the Hong Kong dollar over the quarter, which is beneficial for Canadian investors in foreign securities. In Canada, the S&P/TSX Composite Index started the year with three months of negative performance, resulting in a 4.4 per cent decrease for the Canadian equity fund index over the quarter. While the energy sector rebounded in March, the three largest sectors in the Canadian market ‒ financial services, basic materials, and energy ‒ suffered steep losses in February that they were unable to recuperate by the end of the quarter.

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April 2, 2018

BC Amends Speculation Tax

The British Columbia government has made amendments to its proposed speculation tax following complaints from a number of municipalities that it would affect people who had owned seasonal or vacation properties for years. The tax, announced in February, was to be assessed at 0.5 per cent of the assessed value of a vacant property this year and rise to two per cent in 2019. Carole James, BC’s finance minister, says the tax will now remain at 0.5 per cent for properties owned by BC residents and will only rise to one per cent for out-of-province Canadian residents. The two per cent rise will continue for foreign investors. The tax will also no longer apply to properties in the Gulf Islands, Parksville, Qualicum Beach, or rural Fraser Valley.

Canadian Economy Could Grow

The Canadian economy could grow nearly two per cent this year, but persisting uncertainties could temper growth, says Russell Investments’ ‘2018 Global Market Outlook – Q2 Update.’ These uncertainties include inflation, rising mortgage costs, domestic oil prices, and the outcome of the North American Free Trade Agreement (NAFTA) negotiations. In the ‘Canada Market Perspective’ segment of the report, Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada Limited, says there appears to be no love for Canadian equities as they continue to lag their U.S. and global counterparts. “Trade uncertainties are weighing on investor sentiment and the discount applied to Canadian crude is a serious blow to the economy. Restrained optimism in the markets combined with low unemployment, firming wage growth, and double-digit corporate earnings growth could result in the Bank of Canada being more dovish relative to the industry consensus.” As a result, it remains neutral toward domestic equities and believes the 10-year Canadian bond yield may have a modest upside from current levels.

Cybersecurity Governance Issue

Cybersecurity is not just a technological issue, it’s a critical governance issue with major implications for clients’ portfolios, says Dustyn Lanz, CEO of the Responsible Investment Association. The impact of these attacks is staggering, he says, with various reports suggesting the global financial impact of cybercrime is hundreds of billions of dollars annually, with some experts warning this volume could triple over the next few years. Major global corporations such as Yahoo!, Uber Technologies Inc., Target Corp., Home Depot Inc., TJX Cos. Inc., and Equifax Inc. have been the targets of cybersecurity breaches that resulted in significant financial losses. This means clients need to know that companies in their portfolios are prepared to prevent, respond to, and recover from data breaches and cybersecurity threats. Given the tremendous financial implications of cybersecurity issues, advisors would benefit from analyzing the cybersecurity policies, procedures, and practices of companies in their clients’ portfolios. Although technological solutions provide the foundation for cybersecurity, it’s how a company manages in-house human error and maliciousness that can prevent a costly data breach.

Coalition Seeks Changes To Proposed Tax Amendments

The Coalition for Small Business Tax Fairness is asking finance minister Bill Morneau to take more action on the government's proposed tax changes which it says continue to unfairly target small business. The coalition, which consists of 73 organizations representing hundreds of thousands of business owners nationwide, says while budget measures addressed some of the concerns related to the complexity of earlier proposals on passive investments, the approach outlined in the 2018 budget means many firms with existing passive investments will lose access to the lower small business tax rate on future business income. The coalition is asking the government to conduct an economic impact assessment and delay implementing the tax changes until it is complete. It asks the government not to proceed with the passive investment rules or ensure passive investments are excluded when determining eligibility for the small business deduction going forward. As well, it suggests the government postpone the income splitting changes until January 2019 and consider a full exemption for spousal income and dividends from the new income splitting rules.

Four Seasons Building Luxury Residences In Fort Lauderdale

Four Seasons is building luxury private residences in Fort Lauderdale, FL. The oceanfront property consists of 130 guest rooms and 90 residences, which range from one to four bedrooms, including furnished and fully-appointed as well as unfurnished options. Residences will range from 780 square feet to more than 6,000 square feet with three two-story residences featuring 20-foot ceilings. Owners at Four Seasons Private Residences Fort Lauderdale will have access to the Fort Portfolio of Four Seasons properties and Four Seasons’ service and amenities such as valet parking, doorman, swimming pools, cabanas, fitness centre, spa, massage room, outdoor lounge, beach butler, and yachting services.

Hedge Streak Comes To End

The Preqin All-Strategies Hedge Fund benchmark’s positive streak came to an end in February with hedge funds recording their first negative month since October 2016. They were down 0.08 per cent in the month. CTAs and funds of CTAs were hit hardest by the market turmoil in early February, with both recording their worst performance in over 10 years, down 5.04 per cent and 10.36 per cent respectively. Equity-focused hedge funds also suffered large losses, ending the month down 1.34 per cent – the benchmark’s worst performance since January 2016 when it was down 4.48 per cent. Relative value strategies (0.91 per cent) and credit strategies (0.02 per cent) were the only strategies that posted positive gains in February.

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March 26, 2018

Economy Expected To Slow

After a year of rapid growth, the Canadian economy is expected to slow in 2018 amid the prospect of rising interest rates and lower consumer spending, says an RBC ‘Economic Outlook.’ Gross domestic product (GDP) growth is forecasted to slow to 1.9 per cent in 2018, followed by 1.6 per cent in 2019, compared to three per cent in 2017. “Following a 3.5 per cent increase in consumer spending in 2017, we anticipate that rising interest rates will take their toll on indebted Canadians throughout 2018,” says Craig Wright, senior vice-president and chief economist at RBC. “But a healthy labour market and rising wages will help soften this blow. While the Canadian consumer reins in their spending, we expect business investment and government outlays to contribute more significantly to the economy.”

Office Landscape Changing

With the nature of work, how we work, and where we work constantly changing, the traditional model of commuting to the urban core to work, and then retreating to the suburbs to live and play, has been supplanted by the live/work-play ethos of the millennial generation, fueling urban renewal and the creative repositioning of previously under-utilized core assets. Technological advances have made working from home, work sharing, and hoteling common practices rather than exceptions and this trend is prevalent among the largest employers as well as small, flexible organizations. In ‘Capitalizing on the Changing Office Landscape in Canada’ from Starlight Investments on the Private Wealth Canada website, how the old rules are being reinterpreted in new and innovative ways is examined.

Global Equity Allocation Decline Continues

Money managers’ global equity allocations continued to decline in March, while their global bond allocations rose from a record low, says Bank of America Merrill Lynch‘s monthly fund manager survey. Managers’ global equity allocations dropped to a net 41 per cent overweight this month, down from a net 43 per cent overweight in February, while their global bond allocations rose to a net 64 per cent underweight from a record low of a net 69 per cent underweight last month. Meanwhile, managers’ average cash holdings slipped to 4.6 per cent of their portfolios this month from to 4.7 per cent last month. It also says a net 74 per cent of investors, the highest in the survey’s history, now believe the global economy is in “late cycle.” Expectations for faster global growth fell 19 percentage points to 18 per cent in March, the lowest level since the UK voted to leave the European Union in June 2016. The threat of a trade war (30 per cent) returns to the top of list of tail risks most commonly cited by investors for the first time since January 2017, followed by inflation (23 per cent) and a slowdown in global growth (16 per cent). Investors are reducing risk by increasing allocations to defensive investments such as consumer staples, real estate investment trusts, the U.S., and banks. They are also rotating out of cyclical investments and value plays, including energy, discretionary, materials, and the UK.

Four Seasons Creating Belize Luxury Destination

Four Seasons Hotels and Resorts is developing a new project called Caye Chapel, a private island in Belize featuring oceanfront estates, private residences, and overwater bungalows. Scheduled to open in 2021, the project is in partnership with Thor Urbana, Inmobilia Desarrollos, and GFA Grupo Inmobiliario, three real estate development groups based in Mexico. Four Seasons Resort and Residences Caye Chapel, Belize offer a luxury destination for residence owners and leisure travelers, with approximately 50 private estate lots, 35 private residences, and 100 guest rooms and suites. It is located in the Belize archipelago in the Caribbean Sea, adjacent to the UNESCO World Heritage designated Belize Barrier Reef System, the largest reef system in the northern hemisphere. The island will feature an 18-hole golf course designed by Greg Norman in consultation with Lorena Ochoa, a Fabien Cousteau nature and conservation institute, a marina, and private airstrip.

Stock Hedge Funds Decline

Last year saw the lowest proportion of new stock-oriented hedge funds since at least 2011, says a hedge fund study from the U.S. law firm Seward & Kissel. Only 56 per cent of hedge funds started in 2017 by U.S.-based clients of the asset management law firm had equity or equity-related strategies. This was the first time since the study began in 2011 that there was near parity between newly-created funds with stock strategies and those launched to make non-equity investments. Roughly half the non-equity hedge funds in the study were multi-strategy, with the rest split about evenly among credit, quantitative, commodity, cryptocurrency, and structured-product strategies. These hedge funds were more likely than their equity-focused counterparts to offer lower fees to early investors through founders’ classes and less likely to employ lock-ups or gate provisions on redemptions. They were also more liquid. While nearly all stock funds allowed withdrawals on a quarterly basis, roughly a third of non-equity peers permitted monthly withdrawals. The average management fee across all hedge funds launched in 2017 was 1.56 per cent, while the typical performance fee was 19.25 per cent.

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March 19, 2018

Luxury Home Sales In GTA Should Pick Up

While luxury homes sales in the Greater Toronto Area (GTA), Oakville, and Hamilton-Burlington, ON, have fallen short of last year's record-breaking pace, this segment of the market will still see plenty of move-up activity in 2018, says a report by RE/MAX INTEGRA Ontario-Atlantic Region. Its ‘2018 RE/MAX Luxury Property Report’ shows that 76 freehold and condominium properties sold over the $3-million price point in the GTA in the first two months of 2018, down from 180 sales during the same period in 2017. In the $5-million-plus category, luxury sales fell 46 per cent to 15 transactions in the GTA, compared with 28 one year ago. Oakville reported slower sales in the first two months of the year as well, with six homes selling over $3 million, compared to 15 last year. Fifty-nine homes sold for over $1 million in Hamilton-Burlington, down from 133 in 2017. Only condominium apartments and townhomes located in Toronto proper bucked the trend, with eight sales over $3 million so far this year, up from five during the same period in 2017. And, although sales were soft in the earliest part of 2018, given consistent demand and limited supply, the core should continue to demonstrate growth, says RE/MAX INTEGRA. As evidence, two blue-chip neighbourhoods in the 416 area code outperformed last year's hefty sales volume. These include 10 luxury properties sold in Rosedale, of which the most expensive sold for $8.4 million; and four in the Kingsway/Princess Anne Manor area. The same is true for the GTA's condominium market, with most sales taking place in the city centre. In Oakville, 2018 is off to a slower start, but there should be a notable shift in home-buying activity in late spring and early summer. As well, the average price of luxury homes is forecast to experience a modest increase over 2017 levels.

Wealthy Increasing Art Investments

More than one-third of high-net worth investors in the United States are active buyers of art, says Art Basel and UBS’ ‘Global Art Market Report.’ The total value of art sales grew by 12 per cent in 2017 to an estimated US$63.7 billion reversing the market’s decline in the past couple of years. The U.S. remains the world’s leading market, accounting for 42 per cent of sales, followed by China at 21 per cent, and the UK at 20 per cent. “Despite some remaining political volatility, robust growth in high-end global wealth, accelerating financial market returns, stronger consumer confidence, and increased supply led to a much more favourable environment for sales,” says Clare McAndrew, founder of research and consulting firm, Arts Economics. However, the increase in sales was largely driven by the top end of the market. The report also shows that 35 per cent of U.S.-based high-net worth individuals are active in the art and collectibles markets. Most HNWI collectors (73 per cent) say that the passion for collecting art is an expression of their personality, while 63 per cent say they are motivated by a desire to support arts and culture. Only 32 per cent of collectors feel that the expected financial return on their investment was important, although this was higher (at 47 per cent) for those with wealth over $5 million. The majority of the collectors (86 per cent) say they have never sold a work from their collection. Of active buyers, only one per cent report buying at prices over $1 million. In fact, the most common price range was under $5,000 (79 per cent of report buying in this range).

Climate Change Gains Shareholder Support

Shareholder support for climate-change proposals gained momentum in the second half of 2017, says a report from PricewaterhouseCoopers and Broadridge Financial Solutions. It found that average shareholder support for climate-change proposals rose to 30 per cent in the second half of 2017, up from 27 per cent during the same period in 2016. A number of climate-change proposals received majority support for the first time in 2017, with large investors like BlackRock and Vanguard Group backing two or more proposals. The firms predicted that environmental shareholder proposals would gain even more support in 2018.

Income Steady For Canadian Families

Canadian families and unattached individuals had a median after-tax income of $57,000 in 2016, says Statistics Canada. Median after-tax income increased from 2011 to 2014, but held steady in 2015 and 2016. The slower growth in 2015 and 2016 was associated with the resource price slowdown, which began in the second half of 2014. After-tax income is comprised of income from market sources and government transfers. While growth in overall median after-tax income slowed in 2015 and 2016, there was also a significant increase in government transfer income. Median income from government transfers rose from $5,800 in 2014 to $7,400 in 2016. About half of this rise was due to increased child benefits, which became a larger source of income for families with children. Median employment income for all workers was $33,300 in 2016, up 1.8 per cent from 2012, but virtually unchanged from 2015.

Trade Protectionism Remains Key Risk

Trade protectionism remains a key risk that would negatively affect Canadian confidence, investment, and jobs, says the Organisation for Economic Co-operation and Development (OECD) in its ‘Interim Economic Outlook.’ While it raised its economic forecast for Canada amid a strengthening global economy, it also warns that tensions are appearing that could threaten global growth. Its comment follows moves by the U.S. to impose tariffs on steel and aluminum imports from most countries in the world, with Canada and Mexico exempted. It now expects the Canadian economy to grow 2.2 per cent this year, up from an earlier prediction of 2.1 per cent. It also raised its Canadian growth outlook for next year to two per cent compared with its forecast in November for 1.9 per cent. The revised outlook compares with growth of three per cent last year in Canada. It says the global economic expansion is strengthening as robust investment growth, an associated rebound in trade, and higher employment drive an increasingly broad-based recovery. The pace of expansion over the 2018-19 period is expected to be faster than in 2017 with the global economy growing by 3.9 per cent in both 2018 and 2019, with private investment and trade picking up on the back of strong business and household confidence. However, while “growth is steady or improving in most G20 countries and the expansion is continuing,” says Alvaro Pereira, the OECD’s acting chief economist, “in this environment, an escalation of trade tensions would be damaging for growth and jobs. Countries should rely on collective solutions like the Global Forum on Steel Excess Capacity to address specific issues. Safeguarding the rules-based international trading system is key.”

Active Large Cap Value Beats Benchmarks

The majority of active large cap value managers have beaten benchmarks over the past 10 years, says a Wilshire Consulting report. It says while many actively managed funds do not beat indexes, those active managers that invest in large cap value companies were able to outperform the index ‒ net of fees ‒ by 1.13 per cent on average over the past decade. It also shows that 84 per cent of the segment outperformed indexes on a gross-of-fee basis. This compares with large cap core managers who over the past 10 years have trailed their benchmark by 0.01 per cent net of fees, on average, and produced a median excess return of just 0.09 per cent over the same period. The report says returns for this strategy are consistent with expectations that the ‘average’ active manager will deliver index-like gross-of-fee returns over the long-term.

Opportunities Needed To Find Alpha

The first criteria in the ‘search for alpha’ is that a market must present enough opportunities for managers to extract added value, say Liam O’Sullivan, a principal and head of client portfolio management, and Aaron Young, an associate, client portfolio management, at RPIA. And while it may sound trivial, they say in the article ‘And Now For Something Completely Different’ at the Private Wealth Canada website, to make the statement that fixed income is “something completely different,” it is worth highlighting that there are several structural characteristics of bond markets that make the generation of absolute returns possible.

Company Confidence At Five-year High

Confidence among the world’s largest companies has reached a five-year high, says research from Fidelity International. Its 2018 analyst survey, which takes in the views of its 143 in-house investment analysts, found corporate confidence for the year ahead has risen steadily since 2016. Respondents offered little reason to expect an imminent end to what it calls today’s “near-perfect conditions” despite a recent pickup in volatility in markets, says the survey. The analysts say inflation is not a major cause for concern and, while they report moderate increases in input cost and wage inflation, they expect output price inflation to remain at, or below, consumer price inflation.

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Private Wealth News Archive 2011
Private Wealth News Archive 2010


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