by Tom Bradley
It was a difficult year for investors. Inflation and interest rates rose, geopolitical tensions heated up, the war in Ukraine dragged on, and stock and bond prices fell. Many would describe where we’ve gotten to as far from normal, even extreme, but I have a different view.
It was the previous year that was off kilter. 2022 was a year of normalization. It was a surprising, dramatic, painful normalization, but normalization just the same. Interest rates returned to more sustainable levels. Oil prices better reflected the underlying economics. Investors again cared about profits and balance sheet strength. Stock valuations returned to their historical range. And the go-for-broke attitude towards investing chilled out (to be clear, it was speculation, not investing).
As a result, the performance chart on page 3 of your Steadyhand account statement that trends up and to the right took a zig down. Generally, our clients gave back their gains from the previous year. The Builders Fund, an all-equity fund, was up 14.7% in 2021 (before fee reductions) and down 12.1% in 2022. The cash reserve in the Founders Fund to start the year (in lieu of bonds) helped soften the blow of rising interest rates, but not enough to offset the worst year ever for bonds. The fund was down 9.9%. Most importantly, however, our clients stayed steady and overwhelmingly stuck to their long-term plans.
Calling what happened in 2022 a normalization doesn’t mean there aren’t still dislocations and extremes remaining. Inflation is still high. Labour shortages remain commonplace. Estimates for corporate earnings seem overly optimistic. Private asset prices don’t yet reflect higher interest rates and lower stock prices. And investor sentiment is, well, downright bearish.
We have no preconceived notions about how this all plays out in 2023 but believe a more normal landscape provides a much better foundation on which to generate returns. As investors, we want the risks and bad news to be out in the open. Check. We prefer expectations to be low. Check. We expect to earn a reasonable income from holding fixed income securities. Check. We want the companies we own to have pricing power, financial resilience and be willing to take advantage of their strong position in a weak economy. Check.
We’d rather not experience another 2022, at least not for another decade or so, but we’re prepared for anything. In my first National Post column of the year (How investors can turn last year’s mistakes into their future advantage), I talk about not wasting 2022. Indeed, it was a good year for reminding us how markets work, and how returns are generated.
In addition, watch for our 2022 Year-end Review video that will be posted in the next two weeks. In the meantime, let’s hope for a more normal 2023.
I encourage you to read the rest of our Q4 Report, where we provide more details on our specific strategies and what we've been doing in each of our funds.
Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.
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