Good morning,

 

Before beginning this note, I took a look back at the one I wrote at the end of 2020. We were beginning another set of tight restrictions here in Ontario, with kids delaying the start of school and restaurants and gyms closed for anything other than outdoor activity. We were in the midst of a campaign to get as many vaccinations in arms as possible to prevent the further spread of COVID-19. We had come off a tumultuous year in equity markets and yet there was optimism on my part for what the new year could bring. COVID itself remained a virus that we knew was spreading and yet at the time, we might have heard of one person that someone knew through work that caught it.

 

There are some things about last year’s note that seem eerily similar as I write this one and yet some that aren’t...

• Restrictions in Ontario to start the new year: check.
• Vaccinations in arms: yet again.
• Tumultuous market year last year: maybe not so much – things got off on the right foot and made 2021 a fantastic year for equity investors.
• Knowing someone who caught COVID: our entire family went 4/4 with omicron over the holidays! Thankfully, the kids’ symptoms were very mild and Steph and I are doing well now too.

 

I had also written a paragraph about the challenges we would face in 2021, including the prospects of vaccinating people in developing countries and building back the developed economies that were hit the year before. Thankfully we are seeing progress on both fronts, although there are still too many people waiting for their first dose. Economic growth has resumed across the globe but the threat of meaningful inflation has emerged for the first time in many years. This will be the challenge of 2022, as I have written previously this year. Should issues be supply-driven, then hopefully the continued reopening (and diversification) of supply chains will help alleviate concerns. However if there actually has been inflation at the consumer level (which we are likely seeing in the form of house prices, among other indicators), then this is a demand issue and will need central bank intervention in the form of interest rate hikes to help bring rising prices under control. I have spoken many times about the importance of a ‘playbook’ for scenarios at the government level and the playbook for inflation is well-known. This is a good thing, as central banks can react more quickly, before (hopefully) inflation gets out of hand.

 

I remain positioned for the prospect of interest rate hikes in our portfolios. We continue to hold positions in preferred shares, which was a massive contributor to performance in 2021 and I believe will continue to help us this year. We expect businesses that have the ability to successfully pass along price increases without a meaningful reduction in demand will outperform, while companies that have too much debt on their balance sheet or are trading at unreasonably high valuations will suffer. By the 3rd week of January, I should receive updated portfolio performance data for each of our managed strategies – and will forward at that time. As you likely know already, portfolio values are materially higher than they were at the start of the year. Our growth portfolio had performance which I think will be in line with its benchmark, while the aforementioned exposure to preferred shares in our income portfolio have resulted in significant out performance of its benchmark.

 

For the new year, I remind you that you are able to top up your TFSA (this year’s amount is $6,000 again), as well as make new contributions to your RESP if you do, for fresh government grants. For those of you withdrawing from RRIF accounts, your new minimum amounts are now available. Please call us for those details. As we know, Ontario is in a fresh lockdown so I can be reached by cell for at least the next few weeks. Shalu and Marta have their phones forwarded to their cell phones as well, so can be reached by their usual numbers. Marta is back part-time from maternity leave, working 3 days per week. And last but certainly not least, we are thrilled to welcome our newest team member, Lauren Grimmer! Lauren comes to us after finishing her bachelor’s degree at the University of Guelph and will have the role of administrative assistant on our team. Thankfully, Janice (our previous assistant who retired in February of 2020) has agreed to continue to work on a part-time basis for us and well help with Lauren’s training.

 

I thank you again for your support of our team and look forward to the continued return to normalcy in our lives. I hope you and your family remain healthy and happy, regardless of what life will throw at us in the coming year.

 

Best regards,

George Wright, CIM, FMA