2012 Investment Outlook and Review

                                                      Rowe&mali 

                                                                                                      Wealth and Capital Management

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                 2012 Market Outlook and Review

   This year, daily market volatility and glum economic headlines has tested the resolve of equity investors. Frequently in 2011, markets have moved up or down 3% or more day-to-day. Many investors have concerns that a new recession is on the horizon for 2012 based on news, mainly out of Europe. So what are investors to do you might ask?

   First, we will take a look back at the advice that we(Rowe & Mali ) gave going into 2011. Then, we will examine the reality of regional performances around the globe and  review how we judge the performance of portfolios, and lastly we will give you our recommendation for the year that lies ahead.

 

    Did you know….although this year has been relatively flat for equity investors, the MSCI World Index is up almost 50% since the low of 2008.

     What We Said – 2011

   For most clients comfortable investing with some volatility in order to obtain a possible enhanced rate of return, 1. we continued to advise that they hold a larger value of their portfolio in regional equity investments. Typically, this meant that they created a global portfolio with investments held in regions such as North and South America,  the Far East,  Europe, etc. Many of these investors had already created a global equity portfolio in the two years previous to this one and so no changes really needed to be made. 2. In the middle of the year during, uprisings in the Middle East, and after the fall of much of the value to ME indices we called investors to allocate a portion of their portfolio to this region.

     Markets in Perspective – 2011

    Although much of the news causing investors to question whether the sky is falling is coming out of Europe, and with good reason, investors will be surprised to find out that with a globally diversified portfolio, not all new is bad news.

   For example, the Morgan Stanley US index is up 0.55 % this year. Yes, UP! Considering the amount of flak some people throw at our southern neighbors, this may come as a surprise to many. Chances are quite high that you have a portion of your portfolio invested in this area and it is probably paying your account a dividend to boot.

   Some markets that have not fared so well include, of course Greece, down a remarkable 64% YTD even though the region is down a more tolerable 14%. Other big losers include Egypt (-48%), Bangladesh (-43%) and in case you haven’t heard, Argentina (-42%). In Canada, we are down about 14% as measured by Morgan Stanley.

   However, even in a year such as this there remains some areas that have posted gains for their regions. They include Ireland, up 8% YTD, Quatar +5%, and Indonesia, up a respectable 4%. So where was the strongest region? That came from a Frontier economy, not yet developed, or much in the news… Jamaica/Trinidad & Tobago, up an astounding 26% YTD.

   For the record, most regions and individual countries have a positive, many double digit growth, over the course of the last 3 years.

   It is important to note that although these market indices are posted as such, they do not include the dividend payments that investors normally receive by holding certain equity investments. The index value given is from trade day ONE in 2011 to the current date (YTD). In investment portfolios, the amount of gain (or loss) in an index value is constrained by making regular deposits which purchase those investments at varying values.

  Quick Fact.

If you deposited money monthly into your portfolio and your portfolio mimicked the MSCI World Index exactly for 2011, assuming the index was down 7%, you may still have a positive return on your investments due to periodic dividend payments and averaging your purchase price of new deposits.

  Judging Portfolio Performance – Benchmarks and Investment Style

   Rowe & Mali Wealth and Capital Management continues to use three different Benchmarks to measure productivity of a portfolio. They are as follows.

1. For Canadian Only Portfolios -  The S&P TSX Composite or MSCI Canada Index

                                                          (Currently -14% YTD)

2. For Global Portfolios              -   The MSCI All world Composite Index

                                                          (Currently -7% YTD)

3. For Conservative or Income

                           based Portfolios -  The Existing Canadian Prime Rate.

                                                           (Currently 3%)

At R&M, we do not adhere to a buy-and-hold strategy of investment management. Instead, we believe that we can enhance the rate of return of portfolios by assessing risk in the overall market and utilizing “riskier” investments during times of lower risk in the economy and vice-versa.

  What we are saying now – 2012

    2012 will see a return to positive growth to markets after satisfying market participants that a return to negative global GDP will not happen. Any hint of recession will be muted by single quarter or alternating quarters of GDP growth/decline. If, indeed, two consecutive quarters were to show negative GDP  growth( classic definition of recession), this would be short lived. The return to positive market performance will suggest that global economic expansion which started anew in 2008 continues. Look for regions which benefited in 2009-10 to show above average growth during this resurgence. It is not new for markets to succumb to corrections throughout any year, for whatever reason, such as in 2010 and 11, and the coming year will be no different. This should be treated as a “matter of fact” by investors, even though it may be a hard pill to swallow, as it drags out such as it has done this year. Notably, most countries expect a slowdown of economic growth not a retreat, and the IMF’s own outlook for  global GDP in 2012 is slower in the first two quarters increasing above 4% in quarters 3 and 4.

   For the upcoming year we suggest…

1. Investors should continue to hold a larger portion of their portfolio in equity investments - Global Large Caps. This is the same as last year. We do not imagine that volatility in the market will go away, however, it is our belief that sovereign debt management will be resolved and the market in 2012 will foreshadow further proof of existing economic growth, even if that growth is lower than forecasted previously.  What fear lies in the market at this point is negative economic growth, so even flat growth should enable market gains and a continuation of the market growth which started in 2009. Governments will continue to interest rates low, creating a still good environment for equity investing.
2. Investors should continue to buy into different regions of the Globe. Emerging, or rather emerged, markets now contribute 50% of the global economy and growing. Many of these regions continue to be deflated due to global fears but have a regional outlook for economic growth that would surpass the global average. This can enhance your RoR over the course of the next couple of years if you can handle some volatility. Also consider a small portion of your investments into Frontier markets if growth is your main motivation.
3. The global economic expansion is not yet done and will continue. By our guesstimate, we view equity markets at between 40-50% risky, last year we would have put it at the same or slightly lower but in 2009 we assumed most risk in the market had disappeared after share prices fell and money evaporated from equity markets. We are in year 3-4 of the current market and economic cycle. Markets are still lower than their previous market cycle highs. When the markets reach the previous highs of 2007/8, it will be assumed that the risk in the overall market is 50-60% which has not occurred as yet. Most markets still sit about 20-30% below their previous highs. The natural path for the economy is to expand. This expansion of global production is reflected in the markets. Assuming an 8% unemployment rate in any country but an annual population growth of 3%, would mean in simple terms, that more people are working than the previous year. Correspondingly, production is becoming more efficient and thus production per

capita is also typically growing, most notably and quickly  in emerging industrial countries.

4. Investors should prepare for day-to-day volatility. Personal emotion, news reaction, more money, investment tools and the higher degree of derivative investments all play a factor in the increase in the degree of change in our financial markets more than ever.

  If you have any questions regarding this article, your portfolio or any other item, please feel free to contact me at shawn.lariviere@rogers.blackberry.net. Or find me on facebook at our business page Rowe and Mali Wealth and Capital Management or Shawn Lariviere, FMA.

    To all, a blessed and prosperous New Year!

 

   

  

 

Incorporating in 2012 - Rowe and Mali Wealth Management Services

    To my Valued Clients,

   As many of you have already heard, I will be leaving my current life sponsor, London Life, to incorporate my own insurance, investment and capital management firm early in 2012.
   The name of the firm will be Rowe & Mali Wealth Management Services and will provide more products and services to my individual and small business clients. Furthermore, the move should allow me to better price current product offerings and allow for online investment account accessability.
   The web site being developed currently will have the domain roweandmali.com and should be online in December along with a toll free number for clients outside of the Greater Toronto Area.
   My main motivations for making the move are to better control future personal and corporate taxation, expensing, staffing and commissions.
   I have teamed with associate broker advisors to offer a full range of small business financial tools including corporate savings, insurance, pensions and benefits, share buy-outs and small business(SME) start-up and expansion capital.
   On the individual side, as a broker, I can now offer my clients a wider range of personal insurance and investments (RSP/RESP/TFSA/life insurance/etc) than before and with the introduction of margin, limited partnership and real estate investments, am better suited to offer my clients a large shelf of options. I will also be introducing brokered mortgages to my clients in the coming year, subject to approval from the Financial Services Commission of Ontario (FSCO).
   All small business accounts including corporate savings plans and health plans will not notice any visible change during the initial transfer to my new firm.
   It has been a pleasure working with new clients and meeting new people thus far and all current clients are invited to follow me to Rowe & Mali. I will be contacting each one of you to ensure that you are aware of the transfer details, changes of accounts or signatures needed, if you wish to continue with me. Please contact me directly if you have any questions or concerns for me.

    Rowe & Mali is committed to Canadian Small and Medium sized Enterprises (SME). We provide financial tools to ensure a successfull start, continued growth and eventual succession of Canadian Small Businesses with 1-100 employees.
  
  

Managing investment client expectations.

    Oct 5 2011

    By Shawn Lariviere, FMA

 The current global market environment is testing the suitability of investment portfolios and is a great time for Advisors to exercise prudence in determining the real risk of clients.

    As of today, many global markets have broken bear territory (a decrease of 20% from highs) and the coverage is highlighted daily on news and business channels. However, before we start panicking, lets examine first off, what is happening to many investment portfolios which are not invested in guaranteed products.

   Many equity portfolios are have depressed values over the summer months reaching bear territory, previous to that, they rode the wave continuation of market growth that had started in 2008. This returned, by index values, roughly 10 % at the beginning of the year.  Typically, following market indices, an all stock account (used for example to provide volatility) started in January is down about 5-8% at this time, but the same account started in June may have a 20% loss thus far. It is not yet a given that 2011 will be a losing year for equities however, portfolios may have an easier time reaching parity as investors can grow deposits at a value over the summer, with dividends, to create a positive rate of return for the year. Long-term accounts such as youthful client RSP's and locked-in accounts may have an easier time accepting the volatility whereas short term speculation accounts,  Margin, & Leveraged investors will all be wearing their risk in plain view. Some, especially longer term and locked in account holders may feel (wrongly) that they cannot do anything about it anyhow and so attempt no such action. In cases such as this it is the Advisor who must take a personal analysis of the client. The investment, age of investor,  and the type of account all play a role in guaging the clients "actual" risk parameter.

   The first thing to assume when a client is invested in market performance items is that either the Advisor or the client has determined that the client is suitable for some degree of volatility in their search for larger returns. Secondly, it seems, either the Advisor or Client has a general understanding of the underlying investments within the portfolio and an agreement to invest as such.

   In the search for greater Rate of Return on the portfolio many clients may take on more risk initially than they are comfortable with, in fact the presumed risk of the portfolio beforehand affects them much less than the actual risk of the market on their money. It is absolutely paramount, that Advisors reach out to clients during downturns in the market to guage the level of comfort that they are feeling when the situation is at hand rather than an envisioned scenario. It is not uncommon for many clients to stay the course that their Advisor has recommended but their are plenty of instances where the short talk will cause the Advisor/client to determine that a comfort zone has been breached.  In other instances, the Advisor may realize a new short term goal that must be taken into consideration within the portfolio and, of course, it is not uncommon for the client to speak of a situation that would invite referrals, hence, evidence that these talks provide dual benefits.

   Many clients, if not most, working outside of a private client services realtionship, will ever get a call from their advisor unless it is a sales call( ie,bank). This part of due diligence will ultimately bring you closer with your clients, attract new ones, open new cases, and prevent large falls to your client and your own investment account and assets under management.

   Shawn Lariviere, FMA
   can be reached on the go at shawn.lariviere@rogers.blackberry.net with any questions or concerns that you may have, on facebook or at roweandmali.com.

  
   

Personal Insurance - Life, Mortgage and Group Insurance Understood.

  One of the most frequently misunderstood aspects of finance, but one that is very frequently requested,  is the product of personal insurance. The difference between life, mortgage, and group insurance can be daunting. I hope that after this blog you will have a better grasp on what insurance may be best for your situation.
  To understand insurance at all, one must grasp the role of insurance and the point in the insured's lifetime that it will be needed, if at all, and understand that personal insurance can be temporary or it can be permanent.

      Temporary (Term) Insurance

   This type of insurance covers the insured for a set amount of time(the Term),5, 10, 20 years and no longer, usually to an age maximum of 75-80. Insurance such as this is usefull for individuals that have a large debt that is expected to go away in the future such as a large mortgage or  young children who will eventually outgrow their dependancy on parents.
  The lower cost of term insurance is due to the fact that during the term of the individual it is unlikey that the insured will decease. It is therefore insurance against premature death. Having said that, most of us can recall an example of someone relatively close to us passing at a youthful age.
  One thing that is vitally important about Term insurance is its conversion element. This means that if term insurance is in force at the time that an individual loses their health, the insured has the ability to change this product for permanent insurance without any medical explanation any time during the term.
   To magnify the importance of this element of term insurance, let's take the simple fictional example of Noah, a 48 year old male, with two daughters aged 4 and 7 and a wife Christa with whom he shares a  $210,000 mortgage. Noah has just learned that he has been diagnosed with cancer and has to prepare his family to possibly live on his wife's income alone. Can you see the value in creating a permanent insurance product, based on good health? Im sure Christa can. 
  
   
   Permanent Insurance(whole life/universal life/etc)

   Simply,permanent insurance guarantees the insured a payout at death. Due to this, it is more expensive for the same amount of coverage as compared to a term insurance product. Insurance such as this is for individuals who  foresee the cost of burial etc, taxes on property, income, or have a desire to leave behind an inheritance for a benficiary or to provide money for taxes payable on the succession of ownership of shares as part of their estate.
   The premiums for insurance such as this can be designed to be payable for a set amount of time, or for the life of the policy. Over time, in both situations, the premium is reduced due to the time value erosion money purchasing power. Ie; $20 today may feel like only $10 dollars fifteen years from now and so on.

   Mortgage Insurance

  Mortgage insurance is a creditor insurance product that covers the Term of a mortgage. Becasue this is creditor insurance, it covers only the balance of your mortgage. This means that year after year of your term, you are paying the same premium for less coverage, due to your decling mortgage balance. Also, due to the fact that this is creditor insurance and not Term insurance, you have no ability to convert in the event of a loss of health. Case in point,  in year 3 of a 5 year term, you have fallen ill to a mild stroke. Your mortgage balance is still $210,000. When you renew your mortgage, under good faith,you will have to forego mortgage insurance due to health reasons. You can try to get life insurance but will either be rated with a higher premium or declined altogether, once again due to health reasons.

   Group Insurance (workplace, associations etc)

   Group insurance is term insurance for individuals who will maintain their association with their workplace, assoc, chamber etc and is a "benefit"  offered at a discount for being part of the group .
   This is term death benefit insurance that covers the term of "while employed, associated, etc" up to an age maximum of usually 65.
    The death benefit coverage is dictated by the employer or provider of your benefits package with options to select more coverage at  an additional cost.
    The conversion of this type of insurance for those leaving the group is dictated in the benefits manual for the company, assoc,etc.

    Consider

    1. Utilizing a combination of term and permanent insurance in order to keep premiums low while debts and responsibilities are large. Forego mortgage insurance for term insurance. The prices will be comparable if not cheaper, but the contract will be tied to your life rather that the lenders collateral. This will give you options in the event of "What if?" which is what term insurance is specifically designed for.
   2.Select the minimum of Group insurance available from the group. All other insurance should be linked to your own name, health and circumstances from a licenced insurance agent.
   3.For assistance with estate planning and succession planning of corporate shares etc, consider doing this at the earliest time due to the cost savings and time value erosion of your permanent insurance premiums. Plans can be tailored to suit multiple beneficiaries, corporate partners or the corporation itself and charities.
 

  You can contact Shawn at contact@roweandmali.com or on the go at shawn.lariviere@rogers.balckberry.net for your insurance needs or use the Rowe & Mali Free online quote banner on this blog page.
  

  Shawn Lariviere, FMA
   is the Principal Advisor at Rowe & Mali Enhanced Wealth Services

 

  
 
  

   roweandmali.com

Wild Volatility in Global Markets

   Global Market Volatility in Perspective 

Global markets in the last couple of weeks have seen wild swings in index values, sometines by as much as 5% per day. Although swings such as these are not usually welcome by investors when they bring the market lower, keep in mind that when markets are further along in the  economic cycle,reaching euphoria, we also have wild swings such as these which cause markets to raise the value of indexes. In Canada, who can remember 300 point daily increases in hte value of the TSX? They did happen, more than once. Rememeber Nortel? Remember what followed?
   The common denominator of these wild swings is reaction, and in particular, over-reaction to news hype. Invariably, volatility such as these have emotions at their root many times.
   Since the current economic cycle began its expansion phase we have had at least 3 different emotional reactions that caused the market to fall. Greece, Japans tsunami and nuclear scare, and the US debt downgrade by S&P. Keep in mind that none of these events have caused the markets to retreat for long and that up until now, we have had two years of positive markets and postive economic indicators, for the moast part.
    It is my beleif that the current economic cycle will continue to expand led by asian countries as they are further along in their own regional growth than that of the west and Europe. This may now be the beginning of eastern countries who have lower industrialization of their workforce and thus lower wages, leading the way into and out of future economic cycles. Trade, with these countries will become more valuable as time goes on for its partners. The US economic picture has not diminished, maybe been overtaken due to its inability to consume, lend and thus grow, but the engine of the US will roar once again. Time, and some hard lessons, has not been kind to our neughbors.