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December Monthly Market Commentary & Forecast

Date: January 17, 2020

Welcome to 2020. It’s been 20 years since Y2K, a potential technology nightmare. Today Apple, Google, Amazon and Samsung act as your personal secretary via voice command, running your lights, TV, and telling you the weather. With 20 years of parabolic technology change, Apple becomes a dividend-paying stock and Tesla is a serious leading provider of electric vehicles globally. Yet market commentary pundits speak in sound bites.

Our insight for 2020, given the ebullient market returns in 2019, is that stocks now have a high bar to clear. Although there is still much to be agreed on, the US/China trade talks appear to be moving forward with a mid-January target for phase one signing.  Other targets include details about tariff reductions and the beginning of phase two negotiations. The resounding victory for Boris Johnson paves the way for a UK exit from the EU next year.  We’ll have to see how this all plays out.

Investors are baking in some rosy assumptions about corporate profit growth.  Refinitiv (part of Thomson Reuters) estimates that earnings for companies in the S&P 500 will grow by 9.6% in 2020 while revenues grow 5.4%.  These are lofty assumptions given that profit margins have recently been under pressure with labour costs rising on the record-low unemployment rate of 3.5%.  Earnings were only up 1% for 2019 while the stock market rose 28.9%.  These growth assumptions imply a forward PE multiple of 18.3x for the S&P, 14% higher than the historical average of 16x.  Canadian and European markets are far more attractively valued with forward PEs of14.6x and 14.2x respectively.  Any disappointment on the economic or corporate earnings side could bring this rich multiple back to more reasonable levels.


Market Return (%)*
Canada (S&P/TSX) 0.5
US (S&P) 0.8
MSCI (World) 0.6
Best (Argentina) 18.2
Worst (Switzerland) (4.3)

*In Canadian dollar terms as at December 31, 2019


The global markets capped off the year with a strong Santa Claus rally in December to hit new highs.  Investors were excited about the announcement of the potential mid-January signing of the phase one trade deal between China and the US.

The MSCI World Index jumped 2.89% for the month and up an impressive 25.2% for the year (in USD).  The global markets were led by the US markets with the S&P500 increasing 2.86% (and 28.9% for the year) while the Dow Jones jumped 1.74% (and 22.3% for the year).  The Nasdaq had another stellar month rising 3.54% bringing its YTD gain at a remarkable 35.2%.  The TSX struggled to keep up with global markets rising only 0.14% but still up a strong 19.1% for 2019.  The 5% rally in the Canadian dollar from 73.32 to 76.98 made it one of the strongest currencies in the world for 2019.  Adjusting for this currency effect, the MSCI was up 19.19% (in CAD$ terms) for 2019, the S&P 500 up 22.70%, the Dow Jones up 16.47% and the Nasdaq up 28.74%.

Most sectors on the TSX were higher except for the health care and materials sectors.  Materials and energy were the big winners in December as investors bought into equities associated with the rise in both crude oil and gold prices.  Crude oil finished the year at $61.06/barrel up 34% for the year while gold closed at $1523/oz up 18.9% in 2020.  The subsequent Middle East tensions with US-Iranian conflict had caused oil prices to spike temporarily (close to $70/barrel) only to end up lower than pre-conflict levels as there was no material subsequent escalation in conflict.  The backup in yields caused interest sensitive stocks to weaken such as the real estate, banks, utilities and telecommunications sectors.

The yield on the benchmark US 10-year Treasury jumped higher by 15bp to 1.91% as hopes for a resolution to the US-China trade war led investors to take profits on some of their YTD fixed income gains.  However, it was down 78bp for the 2019 year.

The difference in returns between 2018 and 2019 could not be starker.  The markets went from a sea of red in 2018 to a sea of green the year after.  All major markets hit new highs ending 2019.  But it was certainly no easy ride higher.  The markets seemed like they were going to run out of steam several times throughout the year.  The healthy cash levels on the sidelines continued to support the markets on any selloff.  Buying the dips was certainly a good investment strategy in 2019.

The markets were not as volatile as 2018 with the S&P seeing only seven +/- 2% days in 2019 vs. 20 such days in 2018.  Many of the concerns scaring the markets in 2018 were partially resolved.  There is more clarity of global central banks, US/China trade is advancing, and the Brexit show may soon be coming to an end, thank goodness.

The Federal Reserve ended the year with a more consistent message of a more accommodative stance in their policy compared to a year ago when markets were concerned that the Fed was on autopilot mode of continuing to hike rates.  The Fed is expected to hold rates steady into 2020 with no apparent catalysts for change in interest rate policy.  The market likes this current certainty in policy compared to 2018.

Our Stone cash levels have stayed the same and our portfolios have been structured as more defensive compared to the index.  We believe the best way to invest in such markets 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 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 (0.8) 3.4 6.9 20.0 20.0 8.0 6.4 8.1 9.7 07/31/2003
80% Morningstar® Canada Index, 20% Morningstar® US Large Cap Index 1.2 4.6 7.2 24.1 24.1 8.5 8.0 8.8 8.6  
Stone Global Sustainability Fund (Formerly Stone EuroPlus Fund), Series F   1.1 5.8 5.9 12.7 12.7 5.2 4.6 6.4 3.9 05/31/2008
Morningstar® Global Markets 4.2 9.8 9.4 21.8 21.8 9.7 8.1 7.8 4.2  
Stone Global Balanced Fund, Series FF (0.2) 2.8 3.1 12.9 12.9 6.4 5.7 7.3 8.2 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 1.1 4.3 6.2 17.8 17.8 8.0 7.3 8.1 8.8  
Stone Growth Fund, Series F 0.5 9.0 8.6 17.9 17.9 10.3 6.4 8.3 6.8 09/30/2001
50% Morningstar® Canada Index and 50% Morningstar® US Large Cap Index 1.9 6.4 9.4 25.9 25.9 10.6 9.3 9.4 8.3  
Stone Global Growth Fund, Series F 0.4 6.7 5.4 22.0 22.0 15.0 13.3 13.5 9.0 07/31/2003
Morningstar® Developed Markets Large-mid Cap Index 3.0 8.7 11.1 24.8 24.8 12.2 11.8 12.2 7.7  
Stone American Dividend Growth Fund Series F 0.2 6.7 7.6 12.8 12.8 3.4 5.9 n/a 6.9 07/17/2014


Morningstar® US large Cap Index 3.1 9.6 13.0 28.7 28.7 15.0 14.8 n/a 16.4  
Stone Dividend Yield Hog Fund, Series F (0.4) 2.0 6.6 16.9 16.9 (0.8) (2.1) 3.4 2.5 02/07/2006
Morningstar® Canada Index 0.7 3.3 5.8 23.0 23.0 6.9 6.3 6.9 5.6  
Stone Global ESG Strategy Fund

(Formerly Stone Global Strategy Fund), Series F

0.0 5.2 3.9 10.7 10.7 3.7 5.1 8.2 4.4 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 1.1 4.3 6.2 17.8 17.8 8.0 7.3 8.1 6.7  
Stone Covered Call Canadian Banks Plus Fund Series F (0.5) 3.4 8.9 22.1 22.1 5.3 6.2 n/a 5.8 07/17/2014
S&P/TSX Financial Services Index (2.7) 0.2 4.3 16.9 16.9 3.8 4.7 n/a 4.9  
Stone GaleForce Dividend Growth Pool (1.0) 1.9 4.3 14.5 14.5 6.5 5.4 n/a 6.5 05/17/2012
As at December 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.

©2020 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