2011: Investment performance for the 1st half and outlook for the 2nd half !


What was the top performing asset class for the first half of 2011?

In spite of the doom and gloom that has been reported by the press at large, European stocks were the top performing asset class for the first half of 2011, up 6.45%. In fact, European stocks outperformed all other asset classes for the 3 months, 6 months and 1 year time frames.  Canadian fixed income returns continued to outperform for the three and four year time frames with returns of 4.90% and 4.84% respectively, while Canadian stocks maintained their top position in all other categories with the exception of the one month time frame which was dominated by Canadian treasury bills, up 0.08%.  Cash was king for a month. Canadian treasury bills represented the only positive category for the month of June.  U.S stocks and Global stocks did not have a top performing period under the periods of examination.

Equity categories solidly outpaced fixed income investments on the one and two year time frames, with European stocks showing the most dramatic improvement.  On the Canadian fixed income front, it represented the worst performing asset class over the twenty year time frame with the exception of cash.  Foreign equity categories reported negative returns for the three and four year time frames.  The Canadian dollar continues to perform well against its U.S counterpart and has encouraged investment domestically.  Foreign investment in Canadian bonds has occurred in the second quarter as the dollar has been gradually improving and the country has appeared to be more stable financially than other regions of the world.

Outlook for Investing for the balance of 2011.

Volatility in investments will continue into the second half of 2011 as financial markets digest the debt restructuring in the Euro-zone and the debates on the budgetary debt ceiling are resolved in the United States.  Interest rates will continue to head higher in the Pacific Rim as signs of inflation dominate that region.  Corporate earnings are continuing to look strong on a year over year basis, as commodity prices have stayed buoyant and takeover activity continues.  Balance sheets of many large companies remain robust as expenses have been under the microscope.  Market strategists continue to look for a more buoyant second half of the year.

Robert Floyd, CFA, is Lead Manager for BirchLeaf Investments (www.birchleafinvestments.com)