We have experienced within the last few weeks, an exceptionally high level of volatility. Compared to the last corrections, the Ebola crisis or even the closure of the US government, we quickly notice that volatility has reached peaks of nervousness that we had not seen since 2011.
Early in this crisis, we anticipated a V-shaped correction, similar to what we have experienced in recent years. However, this time, our risk management parameters have been shaken and our alarms were triggered which resulted in a liquidation of a series of positions within our portfolios, mostly Americans and US denominated stocks.
One of the factors motivating our change in our asset allocation strategy is the movement in the US dollar. It has reached our target prices and we do not anticipate further gains on a short term basis.
According to our beliefs, oil prices which have been a negative for our Canadian currency is presently oversold. A rebound in energy is possible and would have a positive impact for our Loonie. That being said, we believe that this situation will be short lived and for increased protection, we still reduced our exposure to the US dollar.
Even if all US indices are technically weak, it does not necessarily mean that we should liquidate all securities. We will rather increase our awareness by being more careful and selective in our choices and strategies.
We are continuing to use the same investment theme; we are changing and modifying our asset allocation by reducing the allocation to stocks particularly shares denominated in US dollars.
After avoiding Canadian securities and currency, we will quietly rebuild our exposure to our Canadian market. We will begin with energy that provides protection to our US dollar exposure. We hope that the energy sector will enter a period of consolidation and that interesting opportunities arise. If this were to happen, we would already be invested and will fully enjoy the benefit.
Despite the market rebound of the recent days, we will continue to keep higher liquidity and cash than usual. We are still concerned about the strength of this rebound. We are less aggressive than we were to take position in the market. We expect and need more strong confirmation signals to allocate our cash.
Stay tuned, we have great news for you shortly.
See you soon!
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