Your best InterestA quarterly newsletter for select families and organizations

Fall 2011

The Fortin

Adaptive wealth counsel for discerning clients

Wealth Advisory Group

www.christinefortin.com

Christine D. Fortin B.Com, FCSI, FMA

Wealth Advisor

The Fortin Wealth Advisory Group White Rock, BC

Tel: 604.535.4306Toll Free: 1.800.665.1442

christine.fortin@nbpcd.com www.christinefortin.com

The Last Quarter… and what is to come.Let me first start out by saying, that this has been a year of contrasts. I feel like I have been tossed back into the throes of my earlier financial career as an FX Dealer (currency trader/strategist) as the volatility has been dizzying. We have experienced this volatility before, in short periods of time, but this time it has been the case for the last 4 years and is likely to continue for some time.

Now, onto the recap: The first quarter was wrought with strong increases in the Canadian and US equity markets followed by a second quarter whereby Canada gave those gains back (but they remained in the US). The third quarter was ugly with a capital U, with the sharpest decline since the first quarter of 2009 when we were in the throes of the global financial crisis.

The main drivers of the second quarter’s decline, was the global economic slowdown affecting the future demand for commodities. The third quarter’s declines were due to sovereign debt worries in Europe as well as dramatic downgrading of growth forecasts for the global economy, with a slowdown in China.

How did we position investment portfolios for this?

Most of my clients know that I have been tactfully shifting assets from Canadian Equities to US and Global Equities for over a year now. As a reminder, the premise being the expectation of global slowdown and the impact that has on commodity based economies (Canada), coupled with the expectation of 0.92 CAD/USD from 1.05 CAD/USD (a year ago).

As a result, in the month of September alone, this strategy saved my clients, on average, an additional 7.5% decline.

So that is what is behind us; The key question is what is ahead? Four themes are going to drive the market:

Theme One: Challenges for Western economiesThe first theme relates to some of the troubling issues facing the United States and Europe. Experts sugar coat the real challenges ahead.

When I was a Financial Engineer and Foreign Exchange Strategist I worked closely in advising Ontario Teacher’s Pension Plan, and came to respect their diverse strategies and skills. Thus I follow the updates from their CEO on their approach to today’s challenges.

Jim Leech, CEO Ontario Teacher’s Pension Plan, on dealing with uncertainty:

“It’s tough to know where to have conviction in this market. In my lifetime, never have we been so vulnerable to the whims of policy makers in the US and in Europe and nobody has figured out where the consensus is and where they’re going, they’re not united.”

Also comments from the world’s largest Asset Manager, Larry Fink, CEO Blackrock, on the role of the government:

“I don’t think this environment is any different than the 1970’s. In the 1970’s, the United States was worried about Japan; we really questioned the volatility of this country. We were questioning the kinds of things we were manufacturing. We had Watergate, the oil crisis, and during those ten years the S&P was up 1.5% a year yet corporate earnings were up 12% a year during those ten years.

The same thing is going on now where we’re seeing earnings growth, but we’re obviously seeing a flat market and a lot of it has to do with the uncertainty around government, very similar to the 1970’s. As investors in the 1980’s and 1990’s and the first part of this past decade, government was part of our thought process and now we’re trying to get rebalanced; today we don’t even know what the foundation is.”

Action: Continue to own quality companies whose focus is on earnings growth as well as dividend growth. It needn’t matter where the company is incorporated.

Adaptive

wealth

counsel for

discerning

clients.

Your best Interest A quarterly newsletter for select families and organizations

The Fortin

Adaptive wealth counsel for discerning clients

Wealth Advisory Group

Run from Paris to VersaillesA number of you have enquired as to the outcome of my run from Paris to Versailles.

Well the “Buena Vista” like hill, with a grade of 16%, that lasted 3km was tough to take as was the 30 degree heat, but I was in France, so how bad could it really have been? Almost 22,000 people ran, here is the photo after my finish.

Holding Property JointlyEach week I am queried on the merits of holding property jointly with children or grandchildren.

Usually this is for the purpose of avoiding probate, there are a number of pros and cons to consider. Please visit our website at www.christinefortin.com under Learn More – Educational Publications – Estate Planning to read the article titled “Joint Ownership of Property: Pros & Cons”.

The Last Quarter… and what is to come. continued...

Theme Two: The end of America…… or a new beginning?Despite the Issues facing it, there was broad consensus about America’s ability to make the changes needed to compete.

Jim Leech, on why the US will adapt:

“When I got this topic I sat down and said ‘maybe America is in its denouement.’

And then you sit back and look on a relative basis and say ‘no, you can’t count out the largest, the most innovative economy in the world.’ The US has the economic, the political and the legal constitution to have the flexibility to solve issues.

Those factors aren’t apparent in the Far East, they aren’t apparent in China, we don’t have a democratic government in China, and we’re not sure how the laws work. I think it would be foolish to go rushing off thinking the solution is totally in China and India.”

Larry Fink, on opportunities for US companies:

“Today we have opportunities that our corporations never had: At a time when our country is not doing as well, our corporations are doing quite well by building and manufacturing products, selling products to the emerging world. People forget that we are still the largest exporter in the world, we just happen to be the largest importer in the world by a little more.

And so having a stinger world actually is stabilizing this economy, it’s not hurting this economy, it’s providing the engine for stronger corporate growth; in most cases when selling products overseas creates jobs here too, and it is a myth that all of these jobs are being exported overseas.”

Action: Our move to US Equities continues to be justified and we likely entered at the beginning (see the ‘Loneliness of the Long-Term investor’ under Publications on our website).

Theme Three: Understanding the price of avoiding risk:One topic that got a number of comments was risk avoidance as the paramount objective for many investors.

Larry Fink, on the biggest risk for investors:

“I would avoid 2% treasuries, other than fear it’s very hard to make a living earning 2%.”

Action: Enough said. It is a high opportunity cost to own cash. Look to quality Dividends, Bonds and High Dividend paying Blue Chip Equities.

Theme Four: Opportunities in global markets:An area on which exp erts agreed is that valuations make US and European stocks exceptionally attractive.

Larry Fink, on European multinationals:

“We’re of the view that European companies are probably a good place to invest; they’re benefiting like US companies, the Siemens, the Nestles; we’re talking about companies with incredibly low valuations now that are benefiting from the world. They’re being harmed right now because of the instability in Europe but I do believe that over a longer cycle you will benefit from owning those companies.

Investors worldwide are diversifying: I think that is one thing we have to accept as a nation, the world going forward because of the successes of South America and china and India, the world has a greater ability to diversify than ever before. There’s going to be a bias towards more global investing, less dollar oriented investing.”

Action: Our clients are ahead of the curve as they are already positioned for this theme. Of note, the average dividend rate on our Global Equity portfolio is 5.8% vs. the TSX dividend rate of 1.7%.

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