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Investment return gap widened for equity investors in 2021 – Advisor's Edge

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That 10-percentage point “investor gap” is significantly wider than the three-year gap of 4.51 percentage points and is the third largest annual gap since 1985, the report noted, when Dalbar’s analysis of investor behaviour began.

The average U.S. fixed-income fund investor finished 2021 with a -1.55% return versus a -1.54% return with the Bloomberg Barclays Aggregate Bond Index.

The report also noted the average equity fund investor continued to be a net withdrawer of assets in 2021, for the sixth year in a row. This type of investor has maintained an asset allocation of about 70% equity and 30% fixed income since 2017.

While the average equity fund investor outperformed the S&P 500 in the first two months of 2021, they only did better than the index in two of the remaining 10 months afterwards. This type of investor performed best in value funds, the report noted, with the average small-cap value fund investor being the top performing size and style investor, earning 30.38%.

Average active equity fund investors experienced a larger investment return gap than average equity index fund investors, the report found. The former had an 18.18% return in 2021 compared to a 28.71% return for the S&P 500. The latter had a 23.44% return, a gap of 5.27%. (Active vs. passive comparisons were not provided for fixed-income investors.)

Although the report didn’t draw a causal link between the investment return gap and the average equity fund investor’s behaviour, it did lay out the different types of investor behaviour that lead to flawed decision-making.

Among these investor behaviours are “optimism,” “loss aversion,” and “narrow framing.”

“Optimism” refers to a belief that good things happen to you and bad things happen to others. “Loss aversion” is when an investor expects to find high returns with low risk. “Narrow framing” is when an investor makes decisions without examining all implications.

“The best financial professionals double as behavioural finance coaches of their clients,” Dalbar said in the report. Financial advisors who can help clients overcome these biases can help them make better investing decisions. The report also emphasized the prudence of a long-term, buy and hold approach, and said that advisors could help clients understand the folly of measuring investment success against statistical benchmarks.

The Dalbar report used data from the Investment Company Institute’s, S&P’s and Bloomberg Barclay indexes as well as proprietary sources to compare mutual fund investor returns to a set of benchmarks. The report spans Jan. 1, 1985 to Dec. 31, 2021 and uses mutual fund sales, redemptions and exchanges each month as the barometer of investor behaviour.

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

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TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

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

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

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

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

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

The Canadian Press. All rights reserved.

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