E29: Third Quarter Letter 2023 - Misunderstood Edition

Foreign. This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation and past performance does not guarantee future returns. Normally, at the end of this disclaimer I throw in something funny to lighten things up. However, the release of this quarterly letter falls on the same weekend of the horrific acts of terror in Israel, and I've got nothing funny to say. Ginzer wealth stands with Israel um Yisroel Chai Today on the Unlimited Podcast I share with listeners my 2023 third quarter letter to clients. I talk about one of my favorite podcasts, Revisionist History by Malcolm Gladwell, Things Overlooked and Misunderstood. And I talk about the very same thing as relates to financial markets so far this year. Let's go. Foreign. Welcome everyone. This is my reading of my 2023 third quarter client update letter released a few days ago in October. And this is, as always, for those that like to hear the smooth sounds of my voice as opposed to reading the letter directly. And here we go, two Gensler Wells clients. As you all know, Gensler wealth produces hey, this podcast, the Unlimited Podcast featuring investment and other topics we think would be of interest to you. This is especially true when we feature some of the managers and strategies we invest in on your behalf. And I have a little footnote here that regular listeners will recognize. And it goes as follows. For the balance of this letter, please recall that our clients have different investment goals, objectives and risk tolerances and therefore will have different portfolios which may not include some of the strategies discussed on the Unlimited podcast or detailed herein. And then I continue. I love interviewing our guests and putting these together for you. I hope you enjoy them as well. One of my favorite podcasts is Revisionist History, hosted by the famous journalist and author Malcolm Gladwell. At the beginning of each episode, Malcolm describes his podcast as my podcast about things overlooked and misunderstood. As we take stock of the investing and economic landscape in 2023 so far, I would like to share with you what I believe is overlooked and misunderstood. Misunderstood the US equity market has had a good 2023 so far. Looking at the S&P 500 index, the main barometer of the US equity markets, one might conclude that US public companies are having a good 2023, up 13%. This quote misunderstanding has been widely reported on, so I can't take credit for it. As you likely already know, the performance of seven large tech companies Alphabet, which is Google, Amazon, Apple, Meta or Facebook, Microsoft, Nvidia and Tesla, which comprise more than 28% of the index's weighting, has been strong. The equal weight S&P 500 shows quite a different picture, with the market up only 1% year to date, excluding the big seven, it's been a pretty poor year so far. And in the letter, which I always encourage even if you're listening to this, see if you can get onto the website ginslerwealth.com and you can see the charts and graphs, et cetera, that are in the letter. In the letter there's a chart of the US equity market indices, the S&P 500 and the S&P 500 equal weight and it shows from the beginning of the year what I've just described the S&P 500 up 13%. But if you equal weight the holdings or the constituents, I should say of the S&P 500 it is actually only up 1%. That's a 12% difference. So in other words, the market as it appears, may not really be reflective of all the underlying of all the 500 companies in the S&P 500 misunderstood Canada's equity market performance is broad based the chart below shows the performance of the S and P TSX Composite Index, the broadest measure of the Canadian equity market performance, along with the performance of the s and P TSX 60, which only includes some of Canada's largest 60 public companies. And there's a little endnote there that says the S&P TSX 60 is a subset of the S&P TSX composite. It has 60 constituents and represents Canadian large cap securities with a view to reflecting the sector balance of the S and P TSX Composite. The two lines in the chart that our listeners can't see but are there in the website. The two lines are almost indistinguishable from each other and show a meager 3% return year. To date, we don't appear to have the issue of a few large companies materially contributing to equity market performance. However, in 2023, Canada has experienced a similar issue as the U.S. two of Canada's largest tech stocks, Shopify, once Canada's largest company, and Constellation Software have contributed over 3% of Canada's stock market performance so far in 2023. This means that the rest of Canada's public companies, measured as a whole, have had a negative 2023. And you'll also see A chart here that shows the S and P TSX composite return year to date along with Shopify and Constellation software. And it's very clear Shopify and Constellation have had dramatic 2023 so far, with Shopify up 51% as at the end of September and Consolation up 33%. Overlooked bonds have failed yet again to act differently than equities for those invested in the quote traditional 6040 end quote stock and bond portfolio, which is not gent clients. By the way, 2022 was a horrible year as both stocks and bonds moved in the same direction down this year has been more of the same. The chart below shows that so far this year the performance of the broad based equity and fixed income or bond indices are quite similar. And then I had a little note for our Gensler wealth clients here. As you know, your Ginser wealth portfolios also include alternative investment and income strategies with the goal of generating reasonable returns while not necessarily acting similarly to traditional stocks and bonds. And the chart that is referenced shows the S and P T S X so Canada's market, the S&P 500 equal weight, which is the US market, the one that I mentioned earlier, and the S and P Canada Aggregate Bond Index. And while not sort of following the exact same line or pattern, they sort of flow with each other and end up in relatively the same spot. The s and P TSX, you'll recall, up 3%, the equal weight s and P 500 up 1% only and the bond index down 1%. So very, very similar, not really providing much of a difference so far this year. Misunderstood question mark Consumer Spending in the face of Lowered Financial Confidence Given the pace of interest rate increases over the past year, it is surprising to me that consumers continue to feel good about current business conditions. And that's something called the Present Situation Index line in the chart that I will describe in a minute. But less surprising that they aren't feeling so great about the near future. And that's the Expectations index line in the chart below this paragraph. And the chart is basically the consumer confidence index, but specifically broken into two lines, the Present Situation Index how do we feel today, Tom? And Expectations Index, how do we feel about what's coming around the corner? To put it simply. And what you see is the Present Situation index is pretty high. It's, it's not at its highest levels ever, but it's still still reasonably high. And the Expectation index is much lower than the present situation, which means that people think things are going to get, let's say, worse or, or bad so interestingly, that's that's how people are feeling right now. And I'll continue my letter Given consumers bleak expectations for the future I would have expected to see and government central banks are desperately hoping for spending to slow down as people brace for impact. But what is happening instead? The highest spending levels in history. Continue. An October 1st Wall Street Journal article's title says it all. Americans are still spending like there's no tomorrow. It is very hard to tame inflation if people don't slow their spending. And so what's in the letter? Here is a chart showing retail sales over time in trillions of dollars. And it shows that we are now at the highest level basically in history, 8.5 trillion or so. And I would direct you to take a look at the charts on the website if you have a moment. Putting it all together, putting all these things overlooked and misunderstood together, we have equity markets that appear stronger than they actually are. Bonds suffering alongside equities and persistent inflation, causing consumers to expect tougher times ahead, but spend in a way that could very well lead to more interest rate increases, or at the very least, keep current rates higher for longer. There's a little footnote here, by the way, that says listen to the Unlimited Podcast Episode 17 Bonds Just Bonds with Richard Usher Jones to learn how bonds work and what happens to bond prices as interest rates rise. Hopefully listeners who listen to that know they will go down. So that's just a footnote to that sentence there. So following on that sentence that sort of puts everything together, the next section is investing in GICs. So is the best approach today to simply take advantage of 5% plus guaranteed investment certificate rates GIC rates. This is perhaps the most misunderstood course of action in long term investing. And then I have a little footnote here that says if you have shorter term cash needs, by all means invest in shorter term and ideally cashable GICs. There are pros and cons when investing in GICs. Pro you are guaranteed to earn the stated interest rate. Con, you are guaranteed to earn the stated interest rate. In fact, the list of cons continues. You will give away more than half your return to CRA for those in the highest tax bracket and therefore may not even earn an after tax return above inflation. You may need to lock your capital away for an extended period of time without being rewarded with the liquidity premium in the form of higher returns. And you'll potentially miss out on larger returns from other more favorably taxed asset classes. In short, for many investors, investing in GICs is the safest way to potentially not meet your long term investing goals and objectives. While the outlook may be uncertain hint, it always is and consumer expectations are being lowered. Remember, as I reviewed in my last quarterly letter, that we are spending our time managing your investments with a focus on reducing volatility, protecting the downside, seeking tax efficient high income generating investments, and capitalizing on potential market stress or distress. We do the above while always maintaining exposure to equity markets as well. Because we don't believe in trying to time the markets. We know from past history that equity markets will be the first to rise and likely dramatically upon the first hints of better times ahead. This should not be overlooked or misunderstood. Thank you for your trust, support and confidence. We are available 247 should you need us. Sincerely, me, Brian Gensler, President and CEO thanks for listening for our clients. Thanks again for your trust and confidence and more podcasts on investing topics coming in the next few months, so stick around. We'll be right back.

The unlimited podcast is hosted and produced by Brian Ginsler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on Social medianslerwealth. Thanks for listening and see you next time.

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