Jan 14, 2025

Performance Report Letter

The year 2024 was one of modest economic growth, declining inflation and strong stock returns.[1] GDP growth declined modestly from 2.9% to 2.7% in the US, from 5.2% to 4.6% in China and from 0.7% to 0.5% in Japan, while increasing from 1.7% to 1.9% in Canada and from 0.1% to 0.9% in the euro area. Unemployment increased substantially from 5.0% to 6.7% in Canada and from 3.7% to 4.1% in the US while declining slightly from 6.5% to 6.3% in the euro area. However, the most positive economic development may be the general decline of inflation, from 3.4% to 1.9% in Canada, from 3.4% to 2.7% in the US, and from 2.9% to 2.2% in the euro area.

Most central banks cut their key interest rates in response to lower inflation. The Bank of Canada cut its target overnight rate from 5.00% to 3.25%, and the US Federal Reserve reduced the Federal Funds Target Rate from 5.50% to 4.50%. However, bond yields did not respond accordingly. Ten-year Canadian government bond yields increased slightly, from 3.11% to 3.23%, whereas their US counterpart increased significantly, from 3.88% to 4.58%.

Here are our observations on asset-class returns in 2024:

  • Short-term and total-market Canadian fixed-income indices produced 5.7% and 4.2% returns, respectively.
  • Short-term and total-market global fixed-income securities (hedged to the Canadian dollar) produced 3.4% and 2.4% returns.
  • Canadian equity delivered a 21.7% return.
  • US stocks returned 34.3% in Canadian dollars and 23.8% in US dollars.
  • International developed-market stocks returned 12.6% in Canadian dollars and 11.3% in local currencies.
  • Emerging-market equity returned 17.2% in Canadian dollars.
  • Large-cap stocks outperformed their small-cap counterparts in the US, international developed, and emerging markets. Canadian large- and small-cap stocks produced similar returns.
  • Growth stocks outperformed value stocks in the US and emerging markets, while the inverse held in the Canadian and international developed markets.
  • The US dollar appreciated by 8.8% against the Canadian dollar. This appreciation has boosted US stock returns measured in Canadian dollars. By contrast, other developed market currencies have only appreciated by 1.2% relative to the loonie.

We’re now halfway through the 2020s and have had positive results over those five years. Admittedly, the market’s steep drop when the global economy shut down due to COVID-19 in 2020 and the terrible returns of 2022 were no fun. Bond annualized returns were muted in 2020–24, ranging between 0% and 2%. However, disciplined investors were rewarded thanks to substantial equity returns. The Canadian and US markets returned 11.1% and 16.2% (annualized), while international developed and emerging markets returned 6.9% and 4.2%.

The year 2025 brings new risks and opportunities. Some investors may be concerned about elevated stock prices and the impact of political risk on portfolios. PWL manages risk in several ways, three of which are particularly noteworthy. First, a portion of (most) portfolios is invested in bonds, which reduces volatility. Second, portfolios are diversified through thousands of individual securities, eliminating the risk of permanent catastrophic losses. Third, portfolio rebalancing favours capital preservation, as gains from rising stock prices are used to replenish bond allocations.

In 2025, we will remain faithful to our time-tested strategy: investing with a long-run mindset, ignoring the distractions from market gurus and new investment fads, staying fully invested through the ups and downs of the market, managing risk prudently, and optimizing taxes and costs to help investors reach their financial goals.

[1] Sources: DFA, Bank of Canada, Statistics Canada, US Federal Reserve, US Bureau of Labor, US Department of Commerce, Eurostat, Trading Economics. All return data is calculated in Canadian dollars unless otherwise mentioned.

About The Author
Raymond Kerzérho
Raymond Kerzérho

Raymond contributes to PWL with his thirty years of experience in investment strategy and fixed income portfolio management.

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