Canadian market outpaces global developed markets in first half

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

For the first half of 2021 the Canadian stock market outpaced markets in the developed world. Canadian stocks are up over 17%. Our stock market is well positioned for any inflationary environment or what they call the reflation trade. The TSX is one of the most economically sensitive global indices in the world. Inflation-sensitive (or inflation friendly) sectors comprise 73% of the TSX composite weight, compared with less than 40% of the S&P 500.

Financials, materials, industrials, energy, real estate and consumer discretionary are known to be those economically-sensitive sectors. The Canadian stock market is on a roll and ready to roll in the economic restart or grand reopening. From S&P Global …

We see the Canadian market outperformance in U.S. dollar terms. For American readers, and on my Seeking Alpha blog I suggested that U.S. investors consider Canadian stocks.

Canadian markets and U.S. markets make for a very nice tag team.

Canadians are ready for the grand reopening

A recent Bloomberg post offered that the Royal Bank of Canada’s spending tracker shows consumer activity in early June was well above pre-pandemic levels. Consumer confidence has been hovering at record highs for more than a month. Job posting data from Indeed Canada show restaurants are ramping up hiring. Mobility data from Google shows Canadians are doing more walking, driving and taking public transportation.

The GDP numbers put the economy on track for growth of at least 2 per cent annualized in the second quarter, down from 5.6 per cent in the first three months of 2021. The expansion is seen accelerating to a pace of 9.1 per cent in the third quarter, with a 6 per cent gain in the final three months of 2021, according to a Bloomberg News survey of economists earlier this month. The Bank of Canada has projected growth of 3.5 per cent in the second quarter.

Recovering from recent weakness caused by lockdowns

Canada appears primed for the reopening. We lead the developed world in vaccination levels. Most of us (the lucky ones) are flush with cash thanks to pandemic savings. We can’t wait to travel and buy experiences.

Let’s cross our fingers for Canada and the rest of the world. The virus is always the wild card. My guess, after too much reading on the virus and vaccines, is that Canada will have an incredible Summer. The vaccines are effective, even against those variants of concern.

The 2021 first half time show

  • Canadian stocks are up 17.3%.
  • Canadian bonds are down 3.5%.

If we look south of the border, U.S. stocks are up near 12.3% in Canadian dollar terms. The Canadian dollar has been stronger in the first half of 2021 compared to the U.S. dollar.

  • International developed markets are up 6.5% in Canadian dollar terms.
  • Developing market stocks are up 6% also in Canadian loonies.

A typical Canadian 60/40 balanced portfolio is up about 5.2% to 6.2% if we look to the BMO one ticket ETF and the iShares asset allocation ETF.

If we look at the horizons asset allocation ETF we see that they continue with that drastic outperformance. HBAL is up over 8% in the first half of 2021. Those ETFs are also total return, tax-efficient.

The sector watch

Canadian REITs are up 21.5% according to the BMO equal weight ETF. On the REIT front you might also consider the actively managed CI REIT ETF – RIT.

Energy (oil and gas) producers are up 55% year to date. Of course I put investing in Canadian energy stocks on the table, some 110% ago. Congrats to readers who jumped on that faster that I did.

We’re holding iShares capped energy index ETF.

BMO’s equal weight oil and gas ETF is up 48%. That index includes some pipelines that will bring down the performance. Pipes don’t have the sensitivity or torque of the producers.

A must read …

Here is an absolute must read on the global energy reality. The author suggests that traditional energy might offer very favourable long term prospects. That might be good for investors. Not so good for the planet.

On the commodities side, the Purpose Real Asset ETF gained 12.2% year to date. A modest quarterly distribution will be coming early July. There is a 1.35% annual yield.

And courtesy of Horizons commodities ETF offerings. Here’s the scorecard year to date.

  • Gold is down 7.4%.
  • Silver is down 2.3%
  • Oil is up 45%
  • Natural gas is up 25.9%

The S&P GSCI Commodity Index is up 26% years to date in U.S. dollars. I hold that index in ETF form in a couple of U.S. dollar accounts.

  • The TSX capped financial index is up over 23%.
  • Equal weight bank and insurance up 23.4%
  • BMO’s equal weight bank index ETF is up 27%.

Readers will know that I’m a fan of adding commodities and REITs and bitcoin to create the new or greater balanced portfolio. You can hit this page for the core ETF portfolio models.

Canadian tech is pitching in as well, delivering returns of near 18.5%.

Materials are essentially flat for the first half of 2021.

  • Consumer staples are up 9%.
  • Utilities are up 3.5%
  • Industrials are up over 16%.

If we look to the Canadian healthcare sector (aka cannabis, no really), we see that Horizons HMMJ ETF is up 28.5%.

In March of 2019 I asked – should you invest in the cannabis sector? Without real profits it might be more akin to speculation. That said, many feel that meaningful profits are on the horizon and the stock market is starting to take notice and light up.

I’m still a bitcoin HODL

Of course, I am investing in bitcoin. I see that as ‘just another asset class’. The price of bitcoin has been up as much as 120% in 2021. It currently is on the plus side by about 14%.

Of course that could change by the time you read this, or by the second time that you read this post. Bitcoin has been in positive territory throughout 2021, but it has been more than a rough ride to say the least. I covered what the heck is going on with bitcoin in a recent MoneySense post.

That was my most recent portfolio purchase this week (bitcoin), but it was a modest contribution. Over the next couple of weeks I will sell some of my well performing Canadian stocks and move more to bitcoin. I’ll try to get that back to the 5% portfolio weighting target.

I’m up over 100% on my bitcoin. That said, I hold it as a long term hedge against inflation and currency debasement. Essentially it is Modern Monetary Madness insurance. I’m not so sure that governments can create as much money as they like, and it does not matter 😉

Recent reads on Cut The Crap Investing

Adding more colour to the themes in this post …

We’re at the earnings peak on Sunday Reads.

A very popular post (with a little help from the headline) …

Building the $8 million portfolio.

And that investor ‘got there’ with a strategy similar to, or including …

The beat the TSX portfolio.

And one of the most popular posts of the year …

Canadian retirees get a massive raise thanks to the Purpose Longevity Pension Fund.

Dale Roberts is the Chief Disruptor at A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on July 1, 2021 and is republished on the Hub with his permission.

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