What will the new year bring?

New Years is a great time to reflect on the year that has gone by and focus on the year ahead. This is also the time to review your current investment strategy and ask yourself if it meets your long-term objectives.

Our team would like to share some thoughts from the company's annual Canadian Due Diligence event that recently took place in Toronto. These events provide an opportunity for advisors to hear a variety of Canadian investment managers express their viewpoints on their portfolios, as well as on the expectations and concerns

they have for the Canadian markets.

As you can imagine, because of the differences in style and capitalization, the managers' opinions were diverse. Yet we found some views to be common to them all.

Common goals

All managers put risk management at the forefront of their portfolio structures, and did not succumb to the allure of sacrificing good investment principles for a particular "hot" theme. This matches our own philosophy of managing money.

The managers as a group felt cautiously optimistic about the upcoming environment. None of them forecasted a recession. However, they did warn that we have possibly seen the best returns for the Canadian markets for a while. Consequently, expectations need to be brought back in line with the historical market ranges.

They all believed that companies exhibiting sound financials, as opposed to the more risky speculative kind, would see us through the long-term cycle.

Differences

However, the managers differed in their outlooks on several issues. Here are a few examples:

Income Trusts

Although many of the managers agreed that the government changes to the taxation of income trusts essentially put the brakes on the growth of this asset class, some believe it remains a viable option, especially as a large retiring population demands greater yields. Other managers prefer dividend-issuing stocks.

Oil and Gas

Many of the differences were related to the future supply and demand of these resources. The consensus was that prices could now trade within a range, with oil not dropping much below $50 a barrel. The recent drop from $70-plus a barrel will impact Canada and have a delayed effect on the Alberta economy, especially since income tax legislation now makes it more difficult to raise capital to spur exploration and development.

Interest Rates

The majority of the managers concurred that interest rates would remain low in comparison with the last 20 years. Although their predictions regarding the timing of any future interest-rate decreases varied widely, all were expecting reductions in 2007.

A slowdown in the Canadian economy would lead to lowering of rates.

U.S. Dollar and Gold

The effect of a falling US dollar, and conversely a higher Canadian dollar has hurt the Canadian manufacturing sector. Opinions differed as to how long this would continue. The majority believed we have seen the worst of the US currency drop and related impact to Canadian manufacturers. This also points to a price for gold that will be more stable.

The value of gold is influenced by events that affect the US dollar. Much of gold's rise was stimulated by the falling US dollar. If the US dollar stabilizes at a lower range, the price of gold should also settle within a range.

In Summary

As we have always maintained, a sound intellectual framework and the ability to keep emotions from corrupting it leads to investment success. You can tell from some of the best investment minds in Canada that there is not and probably will never be a complete consensus on asset classes or market direction. Accordingly, your best bet is a well-diversified portfolio directed by competent investment managers with a proven track record within their respective mandates.