investment review
March 31, 2008 - Report Highlights
The now certain pronounced slowdown or recession in the U.S. has elevated the risk to global economic growth in general. On balance, strong growth in Asia will likely support moderate global economic expansion but risks to this scenario are elevated.
Asset Mix
An economic slowdown and reduced availability of credit will likely put further pressure on corporate earnings over the coming months. In this environment we believe that equity valuations risk further pressure. Accordingly, we have maintained total equity exposure at 2.5% below our long term neutral target. While we do not find Government of Canada bond yields attractive at these levels, the continued widening in credit spreads has more than compensated for the reduction in Canada yields. As a result we have maintained our weighting in bonds at our long term neutral target of 40%.
Bonds
In an attempt to ease liquidity concerns the Fed lowered rates by 2% in the quarter. The Bank of Canada reacted more moderately lowering bank rates in Canada by .75 %. In this environment bonds proved attractive with the broad universe of Canadian bonds posting returns over 2.9%. The Lincluden portfolio exceeded the broad market benefiting from a focus on higher quality credits and a portfolio positioned to benefit from a decline in short term interest rates.
Equity
Equity Markets continued to be weak with all major regions of the Globe suffering declines in the quarter. Continued turbulence in the Financial sector caused that sector to lead the decline. Within Canada, Financial sector weakness presented an opportunity allowing attractive entry points into CIBC, Brookfield Properties and ING Canada. Our gold holdings were reduced into strength as Kinross Gold and Iamgold were eliminated. Domtar was also eliminated. Positive results in Consumer Staple and Material holdings helped limit the declines in our foreign holdings. Drug Store Company Walgreen and Health Care Product Company Zimmer Holdings were added in the quarter.
