Investment

Joe Oliver: Regulators should require investment returns be reported in real terms

Published

7 months ago

April 26, 2024

Canadian investors would benefit from knowing by just how much inflation is reducing their investment returns. Tony Fell, former CEO of RBC Dominion Securities, has written the Ontario Securities Commission recommending it make inflation-adjusted performance reports mandatory. Informed investors are good for markets’ integrity and efficiency, which is what regulators are supposed to aim for. So it’s a sound recommendation that merits adoption across the country. It wouldn’t cost a lot and would be relatively simple to implement. Statistics Canada already publishes the consumer price index every month.

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Article contentMost people either don’t know or overlook how much inflation is eroding their investment returns. Nor are investment and mutual fund managers eager to bring that information to their clients’ attention. They may well oppose Fell’s proposal. But disclosing the real purchasing power investors have gained or lost would enhance transparency and enable better-informed decision-making.

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Understanding inflation’s impact would help investors see how closely their nominal returns are keeping pace with purchasing power, especially over an extended period when a modestly lower yield can produce a huge difference in principal. Since 1957 the Standard & Poor’s index has gained 10.26 per cent a year. After inflation, however, its return has been 6.37 per cent. That makes a huge difference. An initial investment of $10,000 in 1957 would have grown to an impressive $5,185,000 in nominal terms by 2023. But in real (i.e., inflation-adjusted) terms, it would be only $520,506 — not bad, but not even 10 per cent the inflation-swollen amount.

Understanding the ravages inflation can exact would encourage investors to focus on real returns over the long term, leading to more realistic financial planning and a better chance of reaching retirement goals. It could guide investors in deciding which sectors to invest in, how much liquidity to hold, how to deal with volatility in markets and currencies and how to navigate different economic environments.

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Article contentInflation awareness may well lead investors to chose equity over fixed income securities, equity having historically provided returns that outpace generalized price increases, in part because many companies can adjust prices and revenues to keep pace with inflation. In contrast, in an inflationary environment an apparently risk-free strategy of staying in treasury bills could significantly erode the purchasing power of retirement savings. During 2022, the TSX rose 8.5 per cent in nominal terms but only 1.7 per cent after inflation. However, the yield on one-year Canada bonds was just 0.84 per cent at the beginning of January, producing a real loss of six per cent.

Generally, value stocks perform better when inflation is higher, growth stocks when it’s lower. Certain sectors, like commodities and real estate, can protect against higher prices since their underlying assets can appreciate in value. Consumer staples and utilities, which offer essential goods and services, may also fare relatively well as demand for their products is relatively price-inelastic. Being aware of inflation-adjusted returns can sensitize investors to such factors. It can also make clients less accepting of mediocre performance and less tolerant of high fees, especially during periods of low or negative real returns. Many analysts believe Canada’s stock market will perform only modestly over the next decade because of our economy’s mediocre productivity growth.

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Savings are crucial for the more than three-quarters of Canadians in the private sector without a workplace pension plan. They are among the 4.9 million Canadian households who own mutual funds, many of whom are not financially sophisticated, and the millions of others who own individual stocks and ETFs. So this initiative would have a very broad and beneficial application.

The U.K. Financial Conduct Authority requires investment firms to provide inflation-adjusted performance figures in their communications with clients. The American Securities and Exchange Commission encourages them to provide such information in prospectuses, but does not require it. Canada could show our southern neighbours the way.

Provincial governments have supervisory authority over securities commissions, which have been slow to adopt disclosure of mutual fund fees nationally, partly due to the convoluted policy-making process of the Canadian Securities Administrators. Ontario Premier Doug Ford has an opportunity to show leadership on this issue. The federal government also has a compelling interest in Canadians’ financial security, which is very much a middle-class issue that should find favour across the political spectrum: Jagmeet Singh rails against “corporate greed,” Justin Trudeau claims to care about the middle class and “those working hard to join it,” and Pierre Poilievre has drawn attention to the damaging consequences of inflation, especially for “working-class” Canadians.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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