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September Monthly Market Commentary & Forecast

Date: October 11, 2019

The global markets bounced back in September as investors brushed aside worries of the Sino-US trade war and hopes for a resumption of economic growth.

The MSCI World Index jumped 1.94% in September, led by the US markets with the S&P500 increasing 1.72% for the month while the Dow Jones kept pace with a 1.95% appreciation. The S&P 500 has the biggest year-to-date gains in more than two decades as it continues its longest bull market on record.  The 19% YTD gain for the S&P 500 is the best performance since 1997.

The Nasdaq rose 0.46% as the negative headlines on IPO overvaluation of valued technology growth companies such as the The We Company negatively impacted the index. The TSX also jumped 1.32% in September on the rebound of the value trade, with energy up 4.99% and financials up 6.44%.  Gold bullion had a 2% pullback in September leading the materials index to a 7.51% drop. The growth-oriented technology sector also dropped 7.07% as high-flying Shopify and struggling Blackberry both suffered big pullbacks in the month. The health care sector plummeted another 7.38% in September putting the sub index well into negative territory for the year. Concerns about valuations and corporate governance have made investors nervous about valuations in the cannabis sector.  Funny, once cannabis investors stopped using the product they realized how “high” their share prices had become. The inevitable sell-off is taking place and we continue to stay strongly underweight.

The yield on the benchmark US 10-year Treasury reversed and jumped 19bp to 1.68% as hopes for a resolution to the Sino-US

trade war led investors to take profits on some of their YTD fixed income gains.  The Federal Reserve is facing mounting pressure to lower interest rates after its first interest rate reduction since 2008. We expect to see more Fed cuts and we have a strong bias to another Fed cut this year.


Market Return (%)*
Canada (S&P/TSX) 1.7
US (S&P) 1.3
MSCI (World) 1.4
Best (Argentina) 21.4
Worst (China) 0.2

*In Canadian dollar terms as at September 30, 2019

The concurrent rise in the safety trade Treasuries alongside riskier equity gains reflects the uncertainty investors have about the global economy, monetary policy and geopolitical events and trade agreements.  So much is riding on the geopolitical outcomes.

As we head into a federal election in October, we highlight an interesting article by Jack Mintz in the National Post. As investors overseeing peoples’ money, we agree with his view. He stresses that all leaders have lost focus on the one issue that affects everybody in the pocketbook: Canada’s lacklustre productivity performance.  The Liberal plan alone promises $50B in new spending resulting in $93B in accumulated deficits over the four-year term. Unfortunately, half of this spend will be funded by tax hikes with the remainder in assumed revenue increases.

Fortunately, Canada has had solid economic growth over the past century, and this has allowed us to have an excellent standard of living and social programs. However, we have recently experienced negative productivity rates. Productivity is measured as the GDP per hour worked for all industries.  The following table shows the steady decline in productivity into negative territory in 2018 and continues to lag year to date in 2019.

Canada’s productivity has been declining due to a slowing in investments in non-residential equipment and structures.  The decline has been slow and steady from 11.7% of GDP in 2014 to 9.2% in 2017.  One can point to the collapse in commodity prices over this time as one reason for the decline. The resource sector is very capital intensive and any slowdown in that sector will have a big impact on capex.  A decline in innovation and technology has also had a negative impact on productivity.

All the political leaders are trying to win the election with spending promises and higher taxes. They could not have it more wrong at the worst time. An environment of aggressive spending programs with a risk of a recession would create an economic and monetary policy nightmare for Canada. We believe fiscal prudence is the best long-term choice of the day.  For this reason, this year’s election promises are a major disappointment when it comes to economic policy.

Our Stone cash levels have remained the same and our portfolios have been structured with a focus on preservation of capital; thus we are defensive compared to the index.  We believe the best way to invest in this market environment 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 pride ourselves in our ability to outperform declining markets. The chart below illustrates how the Stone Dividend Growth Class has outperformed in down markets.

Stone Dividend Growth Class – Performance in Down Markets

Calendar Year Returns 2008 2011 2015 2018
Stone Dividend Growth Class F (21.4) (2.6) (2.7) (1.4)
Morningstar Canada GR CAD (33.4) (9.5) (8.7) (9.0)
Source: Morningstar*

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 2.5 3.4 5.9 16.0 5.6 8.2 5.7 8.2 9.6 08/01/2003
80% S&P/TSX Composite, 20% S&P 500 C$ 1.6 2.5 5.1 18.7 7.0 8.7 7.2 8.7 8.4  
Stone EuroPlus Fund, Series F 2.3 0.1 (2.3) 6.5 1.2 1.7 3.6 6.1 3.5 05/02/2008
Comparable European Equity Index $C 2.7 (0.3) 2.0 11.0 2.0 7.0 5.9 6.9 3.7  
Stone Global Balanced Fund, Series FF (0.5) 0.2 1.1 9.8 3.2 4.9 5.7 7.3 8.1 01/05/2009
15% S&P/TSX Composite, 15% S&P 500 C$, 30% Comparable Global Equity Index C$ and 40% FTSE TMX Canada Universe Bond 0.8 1.9 4.3 13.1 7.6 7.1 6.9 7.9 8.7  
Stone Growth Fund, Series F (0.8) (0.4) (0.2) 8.1 (2.9) 9.2 5.7 7.6 6.4 08/01/2003
50% S&P/TSX Composite and 50% S&P 500 $C 1.6 2.7 5.2 18.3 7.0 10.1 8.0 9.2 8.1  
Stone Global Growth Fund, Series F (2.0) (1.2) 0.4 14.3 0.0 11.4 13.6 12.9 8.7 08/01/2003
Comparable Global Equity Index $C 2.2 2.2 4.1 14.9 4.7 10.7 10.9 11.4 7.4  
Stone Select Growth Class, Series F (1.9) (5.0) (11.4) (6.7) (20.1) (10.9) (13.7) n/a (15.1) 09/01/2014
50% S&P/TSX Capped Energy, 50% S&P/TSX Capped Materials 1.1 0.2 (1.2) 9.1 (6.5) (2.9) (3.3) n/a (5.4)  
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
Stone American Dividend Growth Fund Series F 3.9 0.8 0.9 5.7 (5.4) 2.4 5.8 n/a 5.9 07/17/2014


Stone Dividend Yield Hog Fund 3.7 4.5 5.0 14.6 (2.5) (0.2) (2.5) 3.9 2.4 02/07/2006
Stone Global Strategy Fund Series F 1.1 (1.3) 0.2 5.2 (2.9) 2.9 4.2 8.1 4.0 09/22/2006
Stone Covered Call Canadian Banks Plus Fund Series F 5.7 5.3 8.2 18.1 3.9 7.2 5.7 n/a 5.4 07/17/2014
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
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.                                                                                                                                                                                   As at September 30, 2019

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