Fourth Quarter 2012 Review

The Canadian equity market increased 1.7% during the fourth quarter as intervention by global central banks helped stimulate equity markets worldwide. Gains were led by the consumer staples, information technology and industrials sectors. The materials and energy sectors were the worst performing sectors and the only ones that posted negative absolute returns. Large-cap stocks outperformed their small-cap counterparts.

Global equity markets outpaced the Canadian market with the MSCI World Index returning 3.9% in CAD. News of the European Central Bank’s commitment to unlimited bond buying spurred the rally. Emerging markets had another positive quarter returning 6.9% and outperformed developed markets. U.S. equities increased 0.8% as fears of going over the “fiscal cliff” were alleviated. The weakening of the Canadian dollar added to foreign market performance.

Fixed income posted positive returns with the DEX Universe Bond Index increasing by 0.3%. The federal and provincial sectors underperformed the overall Index, with the majority of underperformance in the long-end of the maturity spectrum. The corporate and municipal sectors outperformed the DEX Universe Bond Index. The Canadian yield curve shifted upwards marginally with the most significant movements in the short and mid ends of the curve as the 3 and 8 year federal bond yields increased by 13 and 15 basis points respectively. The Bank of Canada maintained its overnight rate at 1.0%, while the U.S. Federal Reserve left the Fed Funds Rate target unchanged at 0-0.25%.