Where to put new money now
Continue to add new money to existing positions. Emphasize those positions that have suffered relative short-term weakness.
OUR CURRENT THINKING: Stock markets in North America and Europe continue to hold up well. Though U.S. market action has been mixed so far this year, Canadian stocks have performed better than those in most of the world. The S&P/TSX Composite Index has made a healthy advance of about five per cent, thanks, in good part, to strength in mining stocks, particularly gold issues.
Despite a generally positive outlook for the world economy, the neutral performance of many global stock markets reflects a number of uncertainties that have eroded investor confidence. These include an uneven performance of the U.S. economy (though much of this is weather-related), fears about China’s growth and financial system, and volatility in emerging markets. Then too, global interest rates are expected to gradually rise this year as the U.S. Federal Reserve withdrawals stimulus from the economy.
These factors may continue to contribute to higher levels of market volatility, though the prospects of equities ending the year on a higher note look good. In the meantime, should markets suffer a sudden bout of severe fear, we would regard it as an attractive buying opportunity.
We expect that investors who gradually accumulate quality — mainly large-cap, diversified funds — will weather potentially volatile markets the best in the months to come.
BEST INVESTMENT STRATEGY TO ADOPT
There’s nothing like an increase in market volatility to teach investors the folly of investing in funds that simply don’t suit their needs or personality. It’s upsetting to have a volatile fund fall sharply. Even if you can stomach volatile action, you have to feel comfortable that cash needs will be met in timely fashion. In other words, don’t bet next month’s mortgage payment on a volatile fund.
That’s why in our investment advice we always stress diversified, conservative funds as your first choice. In Canada, Franklin Bissett Canadian Equity, Mawer Canadian Equity and NEI Northwest Canadian Equity make first-rate conservative choices.
For foreign investing, we suggest Capital International – Global Equity, Mawer International Equity and Templeton Growth Funds. If you already own Mawer International, use its relatively weak short-term performance to add new money to the fund now. This is a strategy recommend by Peter Lynch (on page 40 of this issue).
If markets do indeed correct sometime this year, and you’re prepared to stomach higher volatility to achieve superior investment results in the near term, then that’s the time to buy aggressive funds such as Dynamic Value Fund of Canada or Mac Cundill Value Fund.