2015 was a challenging year for equity markets. Among the global events that drew widespread attention were terrorist atrocities in Paris and other cities, the Syrian refugee crisis in Europe, and China’s summer stock market correction.

Here in Canada, the investment headlines focused on the decline in commodity and oil prices (oil started the year at $53/barrel and ended at $33 – from its original levels of $100+/barrel between 2011 and 2014). These decreases in oil and commodities no doubt affected our country’s resource-based equity market as well as our Canadian dollar. The dollar started the year at 86.15 and ended at 72.32 vs the USD.

Index returns Final

2015 TMA Equity Allocations: US & International diversification pays off, yet again!

Despite a steady diet of shaky global news, our diversified global equity model portfolio delivered positive returns for the year. Exposure to US and global currencies helped generate these positive results. The year started off very strong with the equity model portfolio reaching a high in May. By September volatility had set in and taken equity returns down to their lowest level in the year. Diversified global equities finished stronger in the fourth quarter with December 31st YTD TMA Model 100% Global Equity returns of 6.15% in Canadian dollars.

Portfolio returns Final

Bond returns

With bond yields being very low, Canadian and global fixed income surprised most investors by generating positive returns that were higher than inflation. Bonds continued to protect investors’ portfolios during periods of market volatility.

What did we learn in 2015?

Investors with broadly diversified portfolios were better equipped to endure the uncertainty in the Canadian market. We remain as convinced as ever that individualized diversification is the right policy every year for all our clients.

2015 has proved that maintaining a globally diversified portfolio according to your personal goals and risk tolerances is still the most rational approach to reaching your desired destination while managing the rocky risks along the way.

While the future remains as inscrutable as ever, our advice remains the same: target market risks and expected rewards according to your long-term personal financial goals. Diversify broadly – and include US, International and emerging market companies – to counteract the risks inherent to any overly concentrated position anywhere in the world. Add bonds to adjust for your emotional and financial ability to bear risk.

Our commitment to you and your family is that we will consistently abide by and execute the following evidence-based principles that make up our investment and client philosophy:

We build, monitor and align your portfolio to your personal financial goals and needs:

Tailoring your portfolio to your financial goals is the best way to stay on track to achieve financial independence.

We use “best practice” client relationship and portfolio management processes:

This consistent multi-step “best practice” approach helps produce better results and a much better client experience.

We take a global approach to investing:

Diversifying by geographic and industry sectors is one of the best forms of risk management and provides global returns benefits to all Canadian investors.

We include value and small companies in your portfolio:

Evidence has shown that the inclusion of value and small companies in portfolios can increase expected returns. Investor patience is however required to fully capture the value and small cap premiums over long-term periods.

We use asset class investments:

Passively managed asset class investments help produce many long term benefits for investors that include; consistent and measured performance, asset class purity, higher after-tax returns, diversification protection, and manager survivorship protection.

We regularly rebalance your portfolio:

Over the long-term, this action will increase your returns and reduce the volatility of your portfolio.

We do not engage in market timing:

Evidence has shown that asset classes have random short-term patterns and that consistent excess portfolio returns cannot be generated through market timing.

We do not engage in any form of speculation:

We will not speculate with any portion of your investments. This will protect you and your portfolio.

We believe in minimizing unnecessary costs in your portfolio:

Studies have shown that lower expenses and increased tax efficiencies will increase pre and post-tax long-term returns for investors.

Thank you for your continued trust and confidence in us. We very much appreciate working with you as your trusted advisors and our entire team looks forward to speaking with you soon.

Canadian Review


The Canadian economy slowed during the year as falling oil and commodity prices and slower global economic growth dragged down key industries, including the resources and manufacturing sectors. The economy fell into a mild recession during the first half of the year, logging a ‒0.7% annualized GDP growth rate in Q1 and ‒0.3% in Q2. Responding to signs of an economic slowdown, the Bank of Canada twice lowered its benchmark overnight rate by 0.25%, closing the year at 0.50%. Growth improved to 2.3% in Q3, due in part to rising exports aided by a recovering US economy and weakening Canadian dollar. Growth was expected to moderate in the 1.5% annualized range for Q4, although the Bank of Canada reduced its expectations in early 2016.

  • Declining resources sector— Oil prices captured headlines throughout 2015 and into 2016 as the per-barrel price fell below $30. Spending by Canadian energy firms dropped by 30%, resulting in an estimated one percentage point decline in GDP growth for 2015.
  • Weaker loonie— The Canadian dollar fell dramatically against the US dollar and other major currencies during the year. It started 2015 at 85 cents (US) and had fallen to 72 cents by year end. In the early weeks of 2016, the loonie dipped below 70 cents to reach a 12-year low.
  • Moderate inflation— Headline inflation was 1.2% in Q3 and averaged about 1.0% through most of 2015, which was near the bottom of the Bank of Canada’s 1‒3% target range. Core inflation averaged 2.2% through Q3, slightly above the bank’s 2.0% target, then declined to 2.0% in November, the lowest rate in more than a year.
  • Manufacturing decline— Factory activity contracted for the fifth consecutive month in December. The RBC Canadian Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 47.5 in December, down from 48.6 in November—its lowest level since the survey began in 2010.
  • High indebtedness— Canada’s household debt burden reached another high in Q3. The ratio of household credit-market debt to disposable income rose to 163.7%, up from 162.7% in Q2. The Q3 measure surpassed the 2014 record. Government concern over rising debt levels brought a requirement for a larger minimum down payment (10%) on higher-priced homes. The rule was intended to cool sales activity, especially in the Toronto and Vancouver housing markets.
  • Strong housing market— Canadian home prices increased 12.0% nationally during the year, according to the Canadian Real Estate Association. The largest regional gains were in British Columbia (19.7%) and Ontario (7.7%), which were driven by rising markets in Vancouver and Toronto. Prices in Eastern Canada were flat and prices declined the most in Manitoba (‒4.7%) and Saskatchewan (‒0.9%).
  • Job and wage gains— In 2015, employment rose by 0.9%, or 158,100 jobs, which was the strongest advance in two years. Canada’s natural-resources sector, which includes mining and oil-and-gas exploration, fell 6.8%, while manufacturing employment rose 2.1%—the first increase since 2012. Job growth was offset by a rise in the labour force, which pushed up the unemployment rate from 6.7% in Q1 to 7.1% in December. Wage growth remained healthy, with a 2.9% year-over-year increase reported in December.

U.S. Review


  • Interest rate hike— For most of the year, investors considered the potential impact of higher US interest rates triggered by a US Federal Reserve Bank (Fed) rate increase. The Fed’s announcement finally came in December and by year-end, the yield on the benchmark 10-year Treasury note stood at 2.27%, up from 2.17% in 2014.
  • Moderate GDP growth— The US economy grew modestly during 2015. Gross domestic product (GDP) increased only 0.6% in Q1 before improving to 3.9% in Q2 (year over year). Growth slowed to 2.0% in Q3, matching the average annualized growth for the past six years. Q4 GDP growth was forecasted to decline to 1.0% and GDP growth for all of 2015 to average 2.5%.
  • Vibrant jobs market— Positive economic signs in 2015 included lower unemployment, which fell from 5.7% in January to 5.0% in the last three months of the year—the lowest rate since 2008. Overall, the economy added 2.7 million jobs, capping the second-best annual gain since 1999. December wages were up 2.5% (year over year), which marked one of the best gains of the current expansion, although still below the 6.33% annual average.
  • Low inflation— Inflation (personal consumption expenditures index) remained low. November’s 0.5% rate (year over year) marked the 43rd straight month of annualized inflation below the Fed’s 2% target rate.
  • Housing strength— US housing activity remained solid with price growth, as measured by the S&P/Case-Shiller Home Price Index, rising 5.2% (year over year) through October. New home sales increased 14.5% through November.
  • Rising consumer spending— Consumer confidence also improved, with the University of Michigan’s Index of Consumer Sentiment averaging 92.9 in 2015—the highest since 2004. Consumer spending, which accounts for more than two-thirds of US economic activity, grew 3.0% in Q3.
  • Struggling manufacturing— Negative economic indicators included declining US factory activity. In December, the Institute for Supply Management’s (ISM) index fell to 48.2 from 48.6 in November, which was the weakest reading since the final month of the recession in June 2009. (Readings below 50 indicate contraction.)
  • Lower profits— Corporate profits declined in Q1 and Q3 by 5.8% and 1.6% respectively, and profits at S&P 500 companies were projected to fall by 3.6% in Q4.

International Review

In 2015, economic growth was the weakest since the financial crisis. In December, the Organization for Economic Cooperation and Development (OECD) revised its 2015 world growth estimate downward to 2.9%—well below the historical average of 3.6% per year.

  • Moderate GDP growth— Eurozone GDP growth increased 0.5% in Q1, which was the strongest quarterly rate since its regional recovery began in early 2013. But the pace slowed to 0.4% in Q2 and to 0.3% in Q3. The slowdown came in spite of improved consumer spending sparked by lower energy prices and the European Central Bank’s (ECB) quantitative easing efforts. A decline in the euro’s value boosted exports and contributed to an improved current account surplus (3.7% of GDP) in 2015. Japan’s economy showed signs of improvement early in 2015 by posting a 3.9% GDP growth rate in Q1. Growth in Q2 reversed with a –0.7% rate before rebounding to 1% in Q3.
  • Diverging Paths for Central Banks— The divergence in actions by the major central banks in 2015 marked the first time since the euro’s launch that the Fed, ECB, and Bank of England have been compelled to strike different monetary paths as a result of diverging economies. In the late 1990s, the booming global economy led the central banks to apply rate hikes, while the 2001–2003 market decline brought similarly timed rate cuts. In September, the Fed postponed raising interest rates, citing concerns with the economy, inflation, and worldwide market volatility. The central bank raised its benchmark rate by a quarter point in December—its first rate hike since 2006—and stated that it would continue on a gradual course of monetary tightening as long as inflation and economic growth allowed. The impact on the US financial markets was negligible, as rates had already begun to increase in anticipation of the move. Even as the US central bank began monetary tightening, most banking authorities across the globe were taking measures to ease their country’s monetary policy in response to signs of an economic slowdown. The ECB implemented a major stimulus program throughout the year, and in December announced new quantitative easing measures along with Japan. More than 40 central banks across the globe eased monetary policy in 2015.
  • Oil Market Decline— The world oil market continued its dramatic slide. After falling more than 50% in 2014, oil declined another 30% to end 2015 at $37.04 a barrel for West Texas intermediate crude, marking the largest two-year price drop on record. Factors affecting the price decline include: (1) excess supply spurred in part by higher production in North America, Middle East, and Russia, (2) slack demand due to slowing global growth, especially in the emerging markets, and (3) OPEC’s waning ability to influence market prices by adjusting its production.
  • China’s Rising Influence— China, the world’s second largest economy, showed signs of a slowdown during 2015, with Q1 and Q2 growth reported at 7% and Q3 growth falling to 6.9%, which was less than half the growth rate in 2010. The Chinese government later revised its growth target to 6.5%, reflecting the weakest growth in 25 years. Markets closely followed the news about China’s declining economic growth and the severe downturn over the summer, when the Chinese equity market declined more than 40% from its peak. Attempts by the Chinese authorities to support stock prices and the Bank of China’s surprise devaluation of the yuan raised questions about China’s impact on the economies of trading partners. The events also pointed to the stresses the government faces in implementing additional free-market reforms and transitioning its economic model from heavy industry and exports to one based more on consumer spending.

Impact on other emerging market countries— After several years of robust growth, emerging market nations began to feel the effects of China’s slowdown, persistently weak global commodity prices, and the prospect of higher US interest rates. In Q4, the International Monetary Fund (IMF) cut its 2015 growth estimate for emerging markets to 4%, which marked the fifth consecutive year of declining growth.

2015 Asset Class & Investment Returns (all returns in Canadian dollars) 

2015 Asset Class Returns

Despite the economic headwinds, all major equity market indices (in Canadian dollars) were positive in 2015, except for Canada.

Canadian companies delivered negative performance. For the calendar year, the S&P/TSX Composite Index delivered a total return of ‒8.32%.

US companies delivered the strongest returns for Canadian investors with the S&P 500 Index logging in a total return of 20.76%.

International companies delivered strong returns for Canadian investors with the MSCI EAFE net div Index producing a total return of 18.14%.

Canadian fixed income returns were positive. The FTSE TMX Universe Bond Index returned 3.52% and its short-term counterpart 2.61%. Canadian one-month T-bills returned 0.56% for the year.

Canadian $ returns were mostly negative relative to global currencies. The Canadian dollar fell against major currencies: ‒16.04% vs. the US dollar, ‒6.52% vs. the euro, and ‒15.75% vs. the yen.

Value companies: Performance of the value company premium

In 2015, value companies underperformed growth companies in all geographic regions. Given that our portfolios are tilted to include higher allocations to value companies, our allocations to DFA Core strategies lagged behind broad indices. Negative 5 and 10 year rolling returns now exist in many of these strategies. While this may persist longer, historically at some point there has always been a reversal with value companies going on to outperform growth companies. Over long periods of time, the value tilt produces a positive return premium to investors.

Value growth

Small companies: Performance of the small company premium

In 2015, small companies produced mixed results. Small companies in Canada and in the US underperformed large companies. Small value companies underperformed the most in 2015. Historically small value companies have produced the highest returns of all asset classes over long-term periods.

Small companies

Small companies in International and Emerging Markets however outperformed large companies. Though underperformance of small value companies was also persistent in these markets.

[i] Index returns are from: Canadian One-Month T-Bills, FTSE TMX Canada Short Term Bond Index, FTSE TMX Canada Long-Term Bond Index, FTSE TMX Canada Universe Bond Index, S&P/TSX Composite, S&P 500 Index, MSCI EAFE (net dividend), MSCI Emerging Market Index (net dividend).

[ii] Index returns are from: Canadian One-Month T-Bills, FTSE TMX Canada Short Term Bond Index, FTSE TMX Canada Long-Term Bond Index, FTSE TMX Canada Universe Bond Index, S&P/TSX Composite, S&P 500 Index, MSCI EAFE (net dividend), MSCI Emerging Market Index (net dividend).

[iii] MSCI data © MSCI 2016, all rights reserved. S&P/TSX data provided by S&P/TSX. Canadian fixed income data provided by PC-Bond, a business unit of TSX Inc.; © TSX Inc., all rights reserved. Russell data © Russell Investment Group 1995–2016, all rights reserved. S&P data provided by Standard & Poor’s Index Services Group.

Note: Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio.

Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities.

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