Second Quarter 2011 Review

Canadian Equity

The Canadian stock market continued to be resilient in the first quarter as a global economic recovery drove the S&P/TSX Composite to a gain of +3.1%. This is the fourth consecutive quarter of positive returns. Nine of the ten equity sectors finished positive. The strongest performing sectors were financials, health care and consumer discretionary while the sole negative result came from energy. Small cap stocks continued to lead large caps with the S&P/TSX Small Cap Index up 4.9% in the fourth quarter.

Global Equity

While concerns remain about the sustainability of the economic recovery, the S&P 500 Index added another 2.3% in CAD in the first quarter, continuing a rally that has been in place since last summer. Exchange rates had a large negative impact on foreign returns as the Canadian Dollar appreciated further against major currencies which detracts directly from Canadian returns. International (EAFE) equity markets ended the quarter down 2.3% in CAD with the Greece debt crisis hanging over markets. Regionally, Europe (-4.9% CAD) underperformed the Pacific +2.8%). The top performing countries were Finland (+8.3%) and Denmark (+6.2%), while Greece (-16.0%) and Spain (-18.0%) had the largest declines. Emerging markets were down 0.9% in CAD.

Fixed Income

Fixed income returns were positive during the first quarter as the DEX Universe Index was up 1.3%. Gains were led by corporate bonds which increased 2.2% as credit spreads narrowed. Central banks in Canada and the U.S. maintained their near zero interest rate policies; however, with strengthening economic data coming in, they began pulling back on some of the temporary liquidity measures that were introduced during the credit crisis. These moves caused the yield curve to shift up in the short-end and flatten on the long-end as the market anticipates interest rate hikes to begin in the next few quarters.