News and Publications
Update on market volatility
SPECIAL RELEASE
Montreal, September 23, 2008 - Market volatility has drastically increased in recent days; we are currently passing through a turbulent period as reflected in all global financial markets and asset classes. This communication is intended to help shed some light on the current situation and the impact on your investments.
Overview of the Situation
The global economy and financial markets have been grappling for more than a year with a widespread move to reduce the level of indebtedness. Many recent events encompassed in this heavy trend have led to excessive volatility within the markets. The global economic slowdown, the decrease in American real estate, the credit squeeze, and the redirection of recent trends related to resources has created much turmoil and worry.
The recent difficulty experienced by major U.S. financial institutions adds to the list of controversies with which investors have had to deal with. Following Bear Sterns, bought over by JP Morgan in March, it was time for Lehman Brothers, another corporate bank, to walk the same path, seeking US bankruptcy protection. As of Tuesday, AIG, a mega insurance company found itself on shaky ground. Please note that none of the portfolios under active management at Natcan had holdings in Lehman Brothers or AIG when the news was announced this week.
All these events have heavily impacted the markets, most of which, on a global front, have significantly retracted. The U.S. S&P 500 Index has fallen 8% since the beginning of the year , with even greater declines in the MSCI World Index (-12%).
The Canadian market is experiencing one of its most volatile periods in 10 years. It is worth mentioning that our market depends heavily on resource-related sectors and the decline in the price of raw materials has been excessive since the start of the year. The S&P/TSX Index fell 5% in 20081 and 6% since the beginning of September.
It is important to note that the situation is less alarming for the bond market, favoured in the wake of an economic slowdown and the search for gilt-edged securities in a tumultuous situation. In fact, the performance registered by the Canadian Dex Universe Bond Index is 3%, since the start of the year1.
Reassuring Interventions
Unprecedented and tough interventions were carried out by the U.S. monetary and tax authorities in order to lessen the impact of the credit crisis that continues to hold sway. Other than budgetary measures, the Federal Reserve has reduced its official market rate by 2.25% since the beginning of the year.
The Fed came to the rescue of the Financials sector in many ways. Most recently, an urgent loan worth $85 billion was issued to AIG to prevent the insurer’s bankruptcy, roughly an 80% share of the company’s capital. According to many interveners, this was by far the Fed’s most radical intervention in the private sector.
A Necessary Process
Market corrections are healthy and necessary processes. When markets have been bullish for long periods of time, it is preferable that they regularly find more reasonable ground.
Even events related to the U.S. Financials sector could be perceived, in some ways, as desirable. They are part of the process to reduce the financial leverage that has prevailed globally for more than a year. This initiative is necessary in order for markets to purge the excess of credit from the previous years and once again find a more healthy and sustainable long-term level of growth.
If these circumstances arouse so much worry, the measures instituted by the regulatory authorities to stabilize the market have in some ways succeeded. Additionally, it is worth noting that the rest of the world is envious of the Canadian banks clean bill of health.
We invite you to read the latest edition of the Weekly Marker in which we examine the deleveraging process.
Your Investments are in Good Hands
Our management approach is dominated by a pronounced emphasis on the preservation of capital. Long before the market jolts of recent days, portfolios were positioned cautiously. Therefore, our Canadian equity portfolios have registered excellent relative returns in the past weeks. The Natcan Canadian Equity Fund illustrates this fact with 1.69% of value added since the beginning of the month1 and 2.88% since the start of the quarter.
Our foreign equity funds are also ahead of their respective benchmarks so far this month: the U.S. Equity Fund has outperformed its index by 0.72% while the International Equity Fund and the Global Equity Fund are ahead by 2.05% and 1.41% respectively.
These excellent performances in turbulent times can be explained by our rigorous, prudent approach, including our decision to avoid, see eradicate, U.S. banks or commodity stocks trading at unreasonable levels on the Canadian market.
Rest assured we are closely monitoring the situation. Please do not hesitate to contact us should you have any questions or comments.
Natcan Investment Management
1 All returns are before management fees, in Canadian dollars as at September 19, 2008.
This document is for information purposes only, and is not and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction. While the information provided herein has been obtained from sources we believe to be reliable, we do not guarantee its accuracy or completeness, and it does not confer any right to purchasers. The information and opinions herein are subject to change based on market and other conditions. The views expressed should therefore not be relied upon as the basis of your investment decisions. Past performance is not necessarily indicative of future performance. No part of this publication may be reproduced in any manner without the prior written permission of Natcan Investment Management Inc.
About Natcan Investment Management Inc.
Founded in 1990 and subsidiary of National Bank of Canada, Natcan Investment Management Inc. is asset management firm serving institutional clients (pension funds, endowments, insurance companies). The company also manages several mutual funds and private wealth portfolios. With over $28 billion in assets under management and more than 40 investment professionals in its Montreal and Toronto offices, it ranks among the leading portfolio management firms in Canada.
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Inquiries:
Jo-Annie Pinto
Assistant Vice President, Communications and Distribution Operations
Natcan Investment Management
Tel.: 514-871-7215