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October Monthly Market Commentary & Forecast

Date: October 11, 2019

The global markets continued their rally in October as investors had hopes for a resolution to the Brexit concerns and the constantly changing US-China trade war.

The MSCI World index jumped 2.45% in October led by the US markets with the S&P500 increasing 2.04% for the month while the Dow Jones lagged slightly with a 0.48% move.  The Nasdaq had a stellar month and rose 3.66% on the back of solid corporate earnings from Apple, Facebook and other technology companies.  Encana wasn’t the only one fleeing Canada as investors sold the TSX by 1.05% as the beleaguered energy sector dropped another 4.33%.  Consumer discretionary, staples and health care also led the markets lower with 4%+ losses for the month.  The only positive movers for the month were the materials sector +2.93% and industrials +0.85%.

The yield on the benchmark US 10-year Treasury inched higher by 2bp to 1.70% as hopes for a resolution to the US-China trade war led investors to take profits on some of their YTD fixed income gains.  The Federal Reserve once again lowered interest by 25bp to 1.75% for the third time in three consecutive FOMC meetings.  The commentary this time was a little less hawkish as there was the potential for a pause in the recent rate cut trends.

One area of the economy that is not keeping pace with growth is North American business spending.  The US Q3 GDP report came in at a soft gain of 1.9%.  Once again this was led higher by consumer spending up 2.9% and strong homebuilding activity.  The business investing side of the equation suffered a 3.0% decline as companies are reluctant to spend on major capex expenditures in the wake of ongoing trade wars.  One of the biggest declines came from spending on structures such as machinery and equipment, which dropped a whopping 15.3%, chopping 0.5% from Q3 growth.  Every major category declined but the largest pullbacks were from the volatile mining and energy sector.  The impact of the GM strike and Boeing’s 737 Max delays led to a 3.8% drop in machinery and equipment spending.  The one area that surprised the markets was the decline in information technology equipment as this is only the second time in five years that it dropped.  Some of this decline comes against higher comparisons from the prior year as last year’s corporate tax cuts and accelerated expensing pumped up demand at the time.  We hope that the fog of uncertainty dissipates for American businesses so that they can resume their business spending. This is likely to come from the resolution to the trade war.


Market Return (%)*
Canada (S&P/TSX) (0.9)
US (S&P) 1.5
MSCI (World) 1.8
Best (Argentina) 15.5
Worst (Belgium) (1.5)

*In Canadian dollar terms as at October 31, 2019

The Canadian economic picture is also slowing down and this was echoed by the Bank of Canada finally turning dovish and acknowledging the slowing economic momentum.  The record debt levels and debt service ratios are making it harder for consumers to spend.  This is unlikely to change anytime soon as the sharp drop in interest rates and mortgage rates are attracting people to take on more debt.  The GM strike in the US will likely have a negative impact on Canadian GDP for the upcoming quarter.  The volatility in resource prices, lack of government execution and bureaucracy barriers for infrastructure projects and the move toward a more socially conscious environment is dampening capital expenditure programs in the resource-rich western Canadian provinces.

With all the above negative business investment and economic headlines, the Dow, S&P and Nasdaq are hitting new highs as the market is focused on a positive resolution to “phase 1” of the US-China trade deal.  Hope is that the early round of September $100B tariffs may be lifted (and/or halting the imposition of new tariffs scheduled for December 15), and that China would resume its purchasing of US agricultural products.  In addition, although we’ve had a mixed picture on the earnings front, they have mostly proven to be better than investors had feared, hence another reason for investors to buy these markets.  Investors have not grown excessively exuberant despite the market’s double-digit gains and have plenty of money available to deploy on any sort of selloff.  Investors certainly are not swinging at every pitch as witnessed by their rejection of several overvalued IPOs and punishing companies that miss on revenue and earnings expectations.  The result of the above cautiousness is that cash levels of $3.4T are at their highest levels in a decade.  This is comforting to know for those worried about any sort of economic slowdown and market selloff.  Yet, we do not expect a meaningful transfer of investor capital in the stock market.

Our Stone cash levels have stayed the same and our portfolios have been structured as more defensive compared to the index.  This is always subject to change – being data driven.  We believe the best way to invest in markets such as these is to have a total return focus.  Investors should be rewarded by buying companies with a strong growth profile and growing dividend stream.  We use our proprietary investment process daily and in volatile market conditions such as these, we seek to ensure that we can manage downside risk and adjust the portfolio accordingly while seeking to achieve our long-term investment goals.

We remain invested and are committed to companies that provide revenue growth, improving free cash flow and higher earnings per share. We are active portfolio managers with a disciplined investment process including the implementation of various risk management tools to benefit our investors.


Kindest Regards,

Richard Stone,
Chief Investment Officer
Stone Asset Management Limited

FUND PERFORMANCE – Series F/FF 1 mo 3 mo 6 mo YTD 1 yr 3 yr 5 yr 10 yr Since Inception Inception Date
Stone Dividend Growth Class, Series F 1.0 3.2 3.3 17.2 12.7 8.6 6.0 8.6 9.6 07/31/2003
80% Morningstar® Canada Index, 20% Morningstar® US Large Cap Index (0.2) 1.6 1.3 18.4 13.6 8.4 7.4 9.1 8.4  
Stone EuroPlus Fund, Series F 1.3 2.7 (2.7) 7.9 10.4 3.5 4.3 6.1 3.6 05/31/2008
Morningstar® Developed Markets Europe Index 3.5 4.8 1.6 14.8 12.4 8.7 7.1 7.3 3.9  
Stone Global Balanced Fund, Series FF 0.7 0.9 (0.3) 10.6 10.0 5.6 5.7 7.5 8.1 12/31/2008
15% Morningstar® Canada Index, 15% Morningstar® US Large Cap Index, 30% Morningstar® Developed Markets Large-mid Cap Index and 40% Morningstar® Canada Liquid Bond Index 0.8 2.0 2.8 13.9 12.6 7.4 7.0 8.2 8.7  
Stone Growth Fund, Series F 2.5 0.8 (1.7) 10.8 6.0 9.4 5.4 8.3 6.5 09/30/2001
50% Morningstar® Canada Index and 50% Morningstar® US Large Cap Index 0.8 2.4 2.1 19.2 14.4 10.2 8.4 9.6 8.1  
Stone Global Growth Fund, Series F 2.0 0.3 (2.5) 16.6 12.6 12.9 13.3 13.3 8.8 07/31/2003
Morningstar® Developed Markets Large-mid Cap Index 2.6 3.9 2.8 17.9 14.0 11.6 11.2 11.8 7.5  
Stone Select Growth Class, Series F (2.4) (8.6) (15.0) (8.9) (14.7) (12.1) (12.3) n/a (15.2) 09/01/2014
50% S&P/TSX Capped Energy, 50% S&P/TSX Capped Materials (3.3) (2.3) (5.8) 5.5 (0.5) (4.1) (1.7) n/a (5.9)  
Stone American Dividend Growth Fund Series F 0.7 0.2 (2.2) 6.4 1.2 3.0 5.6 n/a 6.0 07/17/2014


Morningstar® US large Cap Index 1.7 3.1 5.3 17.4 6.9 13.8 14.6 n/a 15.5  
Stone Dividend Yield Hog Fund (0.3) 3.6 2.8 14.2 4.7 (1.1) (3.0) 3.9 2.0 02/07/2006
Morningstar® Canada Index (0.9) 1.1 0.8 17.9 13.1 6.8 5.5 7.3 5.4  
Stone Global Strategy Fund Series F 0.9 (0.9) (2.8) 6.1 3.4 3.4 4.3 8.1 4.1 09/22/2006
15% Morningstar® Canada Index, 15% Morningstar® US Large Cap Index, 30% Morningstar® Developed Markets Large-mid Cap Index and 40% Morningstar® Canada Liquid Bond Index 0.6 1.9 2.6 13.8 12.4 7.4 7.0 8.1 6.5  
Stone Covered Call Canadian Banks Plus Fund Series F 1.0 5.4 4.1 19.3 11.9 6.9 5.9 n/a 5.5 07/17/2014
S&P/TSX Financial Services Index (0.1) 3.5 1.3 16.6 9.9 6.5 4.8 n/a 5.0  
Stone Small Companies Fund Series F (5.3) (10.1) (20.2) (12.9) (21.6) (10.6) (4.9) (2.3) (4.5) 02/07/2006
Stone GaleForce Dividend Growth Pool 1.8 2.4 4.1 12.4 4.3 6.8 5.2 n/a 6.5 05/17/2012

                                                                                                                                                                          As at October 31, 2019
The returns set out above are historical annualized compounded returns net of all fund fees and expenses.  The returns assume a re-investment of all distributions.  Historic returns are provided for general information purposes only and may not be indicative of future returns or fund performance.  Performance data of other Series of the Funds may differ from those shown above due to differences in fees.  Please visit our website at for performance data of all Series.

©2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.


There are risks associated with investing in mutual funds. Please refer to the simplified prospectus or offering memorandum for details of the risks associated with these funds. The principal risks associated with the Stone Dividend Growth Class are market risk relating to fluctuations in the stock market and equity risk relating to fluctuations in individual securities. The principal risks associated with the Stone Global Balanced Fund are market risk relating to fluctuations in the stock market, equity risk relating to fluctuations in individual securities, credit risk associated with investments in bonds and interest rate risk associated with fluctuations in interest rates. The principal risks associated with the Stone Growth Fund are market risk relating to fluctuations in the stock market and equity risk relating to fluctuations in individual securities. The principal risks associated with the Stone Global Growth Fund are market risk relating to fluctuations in the stock market, equity risk relating to fluctuations in individual securities and foreign investment risk associated with investments in foreign companies.

All mutual funds carry the risk that the mutual fund may decrease in value. The degree of risk varies depending on the investment objective and strategies of the mutual fund. Before investing in any mutual fund discuss with your financial advisor how it works with your other investments and your tolerance for risk. Please refer to the simplified prospectus or offering memorandum for more information regarding the risks associated with these funds.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus or offering memorandum before investing. Any indicated rates of return are the historical annual compounded total returns including changes in security value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with a fund’s performance, rate of return, or yield. If distributions paid by the fund are greater than the performance of the fund, then your original investment will shrink.

Distributions paid as a result of capital gains realized by a fund and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, then you will have to pay capital gains tax on the amount below zero. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Information contained in this publication is based on sources such as issuer reports, statistical services and industry communications, which we believe to be reliable but are not represented as accurate or complete. Opinions expressed in this publication are current opinions only and are subject to change.

Stone Co