Second Quarter 2011 – July 31, 2011
Fund managers’ corner
With the recent volatility in the markets, it appears the bull market has ended. Do you see a further pullback in the near future?
AEGON
We believe that the current volatility in the market is the consequence of two key issues. First, confirmation that we are in a subpar economic growth environment; and second, the sovereign debt issues in Europe. While the latter issue has caused a considerable amount of volatility in the marketplace, we believe that policy makers in that region understand the problem and are dealing with the issues. Ultimately, this risk will settle down.
With respect to the former issue, we continue to see improvement in reported earnings for companies, notwithstanding a weaker economic backdrop. This, in conjunction with an accommodative interest rate environment, is supportive of a rising market. As such, we are not calling this correction the end of the bull market, but rather, a correction within a rising market. We remain optimistic on the upside potential for the market.
Stephen Carlin, CFA and Marc Goldfried, CFA
AEGON Capital Management Inc.
HSBC
With ongoing concerns surrounding European sovereign debt, uncertainty with respect to US budgetary negotiations, and slowing global economic growth, financial markets have been “digesting” a number of potential risks. These uncertainties have driven a flight to quality by investors and increased risk aversion over the past few months, to the benefit of most fixed income markets.
Bond yields in Canada have fallen materially as fixed income markets have rallied strongly with investors seeking the safety of fixed income investments. The yield on the 5-year Government of Canada bond has dropped almost 80 basis points from its recent peak in April. It is our belief that while these exogenous risks will continue to weigh on investor sentiment in the near term, they do not alter our main investment thesis – that the economic recovery will continue and that economic growth will accelerate from its current slow pace in the second half of this year and into 2012.
Based on these expectations, we feel that the recent rally in the Canadian bond market is overdone and that Canadian bond yields will begin to move higher over the next year.
Patrick Gautier
Vice President, Equity Portfolio Manager
HSBC Global Asset Management
BMO
There continues to be many cross currents in the market which have weighed on investor confidence and contributed to recent volatility.
We know that global growth has slowed down and the U.S. housing and employment pictures have shown little signs of improvement. Furthermore, emerging markets continue to tighten monetary policy to control inflation, while the Eurozone is deeply mired in a debt crisis which could cause distress to its banking system. The U.S. is also faced with its own decisions to control its debt situation.
On a positive note, corporate balance sheets are solid and interest rates (outside of Greece, Portugal, Spain and Italy) remain low, which supports future growth. Overall, risks have increased and the market is vulnerable to a further pullback given the range of potential negative outcomes. However, the reality is that, when the dust settles, we may just be in a period of slow growth with continued volatility as the world sorts out its balance sheet.
Fund Report
Select the fund to view quarterly report.
AEGON
Educators Diversified Fund
Educators Balanced Fund
Educators Money Market Fund
Educators Monthly Income Fund
HSBC
Educators Mortgage and Income Fund
