Quarterly / Year End Commentary - Holdun


Patience was handsomely rewarded last year as almost all of the major equity markets as well as Emerging Markets posted double digit returns.


The biggest driver of the roaring stock market rally has been the accelerating growth in the US, Europe and Asia. Global growth continues to be robust and broad based, driven by industrial activity and investment.

US stocks were front and centre as investors bet on strong economic growth, solid corporate earnings and hopes that President Trump would roll back regulations. Trump also boosted markets with a large corporate tax cut. For the first time, the S&P500 ended every single month of the calendar year with a gain.


The so-called FANG stocks continued their outperformance and were responsible for a sizable portion of the overall gains.


For 2017, the pan-European benchmark logged a 7.7% advance, representing its biggest annual jump since 2013. However, European stocks have underperformed largely due to the strong Euro.


Rose 6% last year, underperforming most world markets as its large energy component dragged. The energy group lost almost 13% even as US crude oil prices rose 12%, while materials were up 6% and financials added 9%. Those 3 groups account for almost two thirds of the index’s weight.

The wilting dollar has also lifted commodities priced in that currency, which have also benefited from a synchronized pick up in global trade and surprisingly strong demand from China.


Everything from coal to iron ore has reaped gains. Copper has been a standout performer in part due to expectations of rising demand for the mass production of electric vehicles.

Gold turned in a banner year too, despite not being needed for its role as a guard against inflation, which has been tame.

US benchmark oil rose 12.5% in 2017. The market has improved amid optimism after years of oversupply finally ebbing capped by rising demand and the OPEC supply cuts being extended through 2108.

Bonds also did well, even though stronger than expected global economic growth is typically a headwind for fixed income securities. US treasuries (7-10 year) returned a little more than 2%, and US investment grade fixed income was up 6.4% as credit spreads tightened to their lowest level of this cycle.

There is considerable angst out there as to what happens to the bond market if inflation picks up and yields rise. I have included a chart to show the impact of a 1% rise in interest rates from current levels.


The US dollar struggled last year against most major currencies.


Overall, the Holdun Canadian Equity gained 12.4% (in local currency) and outpaced its benchmark by 3.3% in 2017. Stock selection within the portfolio was the largest source of added value this year. This outperformance was also driven by our overweight in Consumer Discretionary.
The Holdun U.S. Equity gained 21.8% in 2017 and matched the return of the S&P 500 without any exposure to the FANG stocks. Sector selection was the largest added value and is followed by our underweight in Energy within the U.S. portfolio. Stock selection was the largest drag on performance during the year.
International Equity ex North America gained 22.0% in 2017 and lagged its benchmark by 2.3%. Our partial exposure to USD-hedged instruments created a drag on performance during the year.