Quarterly Market Commentary

As at March 31, 2012

Equity markets started the year on an extremely positive note, following the infusion of liquidity into markets through the LTRO program by the ECB and passage of the Greek debt swap. Improving economic conditions in the US and somewhat falling unemployment rates also contributed to the market rise. The MSCI World Equity Index ended the quarter up 11.6%.  Regionally, the MSCI Europe and MSCI Emerging Markets Index were up 7.7% and 14.1%, respectively.  The MSCI Far East Index was up 18.2%.

Bonds markets were mixed in the first quarter.  Following the equity markets, the riskier segments of the market outperformed government issues.  High yield corporate bonds were up 52% on the quarter, in lock step with risky assets.  U.S. government bonds were down 1.3% for the quarter.  On a broad basis, the Citigroup World Broad Investment Grade Index (which includes both government and corporate bonds) was up 1.2% for the quarter.

In currency markets, the U.S. dollar lost against most other currencies.  Over the quarter the Euro was up 3.0% as was the GBP. The Swiss Franc was up 4.1%.  The Japanese yen lost 7.2%.  The Canadian dollar strengthened 2.3% against the U.S. dollar during the quarter.

On the economic side, the past several months have seen a fair amount of strengthening in the U.S. economic data.  The unemployment rate in the U.S. has ticked down from 8.7% at the end of the fourth quarter to 8.2%. On the hiring side, the non-farm payroll numbers were above expectations earlier in the quarter although the trend somewhat reversed by March end.  Consumer confidence ended the quarter higher, though still remaining below historical averages.

The current global macroeconomic situation remains uncertain as central governments across the developed world cautiously attempt to reinvigorate their economies. While the US is seeing signs of the start of a revitalization, much work remains to be done by members of the Euro Zone. While the overall direction of markets has been positive, it has also simultaneously been choppy. Accordingly, we continue to favour a defensively positioned portfolio as we attentively watch for making tactical shifts in the portfolio to take advantage of market dislocations.