Portfolio Update

September 2024

Following steep losses at the beginning of August, global stock indices have recorded strong recoveries. Year-to-date, the S&P 500 is up 22.2% (total return in Canadian dollars), while the S&P/TSX rose 13.7%, the MSCI ACWI 18.5%, the MSCI EAFE 14.4%, and the MSCI Emerging Markets 12.0%. The events of the past month illustrate the risk for investors of attempting to time short-term market movements. As the effects of restrictive monetary policy continue to unfold, coupled with mixed economic data and the upcoming U.S. election, further volatility may persist.

Navigating Market Volatility with a Disciplined Approach

U.S. recession fears contributed to a sharp sell-off in equity markets at the beginning of August, as investors grew increasingly concerned over weakening labour market activity. The U.S. Federal Reserve decision to keep benchmark interest rates unchanged at a 23-year high fueled speculation that the Fed is waiting too long to lower rates. Compounding these issues was the unwinding of the Yen-funded carry trade – a strategy wherein investors borrow in Japanese Yen at low interest rates and reinvest the proceeds in higher-yielding assets elsewhere – which unraveled as the Bank of Japan raised interest rates and the Yen strengthened. In turn, this shift generated intense pressure on global equity markets as Yen-funded investments were rapidly unwound.

Despite this, global equities have since rebounded, clawing back much of the early-August losses. The turnaround follows the release of better-than-expected U.S. economic data, including stronger-than-forecast retail sales, lower initial jobless claims, and headline CPI inflation falling below 3%.

Since the beginning of the year, we have prudently reduced exposure to several investments that we believe have reached their full valuation, thereby raising liquidity within our portfolios. We maintain an eye on redeploying this capital as future opportunities present themselves. Given the potential for continued market volatility, our focus remains on quality companies with strong balance sheets and exposure to growing recurring revenues.

Concluding Thoughts

We have long highlighted that the global economy will undergo a significant adjustment following two years of tight monetary policy. Our interpretation of recent economic data is that activity is slowing in line with our projections. Labour markets are gradually weakening, inflation is steadily approaching target levels, and economic growth is on a decelerating, but still positive, trajectory. While we expect the global economy still faces a challenging period of adjustment in the months ahead, we do not believe an unduly pessimistic scenario is about to unfold. Currently, our equity portfolios are well diversified across sectors and geographies, trading at a compelling 13.2 times 2024 earnings and provide an attractive 3.3% dividend yield. We believe patience in the face of volatility will be rewarded in the medium term.

The information and opinions expressed herein are provided for informational purposes only, are subject to change and are not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any companies mentioned herein are for illustrative purposes only and are not considered to be a recommendation to buy or sell. It should not be assumed that an investment in these companies was or would be profitable. Unless otherwise indicated, information included herein is presented as of the dates indicated. While the information presented herein is believed to be accurate at the time it is prepared, Letko, Brosseau & Associates Inc. cannot give any assurance that it is accurate, complete and current at all times.
Where the information contained in this presentation has been obtained or derived from third-party sources, the information is from sources believed to be reliable, but the firm has not independently verified such information. No representation or warranty is provided in relation to the accuracy, correctness, completeness or reliability of such information. Any opinions or estimates contained herein constitute our judgment as of this date and are subject to change without notice.
Past performance is not a guarantee of future returns. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized.
The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the strategy(ies) may differ materially from those reflected or contemplated in such forward-looking statements.
The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).
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