January 20th, 2023

Q4 2022 and Year End Strategy & Market Reviews

Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Third Quarter of 2022. You can download the full reports via the links shown below.


We have just concluded another year of tremendous volatility, although it finished on a positive note. The S&P500 total return for the fourth quarter was +7.6% in US dollars or +6.3% in Canadian dollars. The fourth quarter TSX total return was +6.0%. For the year, the S&P500 total return index was down -18.1% in US dollars or -12.5% in Canadian dollars. The TSX total return was -5.8% for 2022.

While it’s never fun to have a down year, the previous two years featured strong gains. Between 2020, 2021 and 2022, the average annualized total return for the S&P 500 was approximately 9.6%, which is close to the average of the past 50 years.

The losses of 2022 were almost entirely comprised of a forward price/earnings (P/E) multiple contraction of -22.07%, and were slightly offset by a positive contribution from dividends (+1.33%) and positive forward earnings per share of +3.37%. In other words, most of the decline was a result of people willing to pay less for every dollar of earnings in 2022 than they had been previously, mainly as a result of higher interest rates and perceived risk.

Two-year stretches of P/E multiple contractions are rare, and 2021-2022 ranks as the greatest two-year P/E multiple contraction of the past 38 years. Meanwhile, earnings themselves have not collapsed. Current forward earnings growth is still positive for 2023 and 2024 at +5.1% and +10.1% respectively, such that the forward P/E multiples are starting to look reasonably attractive at 16.7x and 15.2x compared to the historical 10-year average of 17.3x. Our experience is that the market begins to look forward to the next year (2024) usually by the second quarter of the current year.

While there are no shortages of negative economic forecasts for 2023, we think there is a reasonable chance for the Federal Reserve to tame inflation and for the economy to remain resilient. Even if we are wrong and we do experience a mild recession, our best guess is that long term interest rates will fall, which would lead to P/E expansion and support for market valuations – potentially reversing the historic P/E contraction of 2022. 

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities


During the quarter, our overall equity exposure decreased by 6% to 96%. Our US equity exposure increased from 37% to 38% while our Canadian exposure increased from 53% to 58%. Cash decreased from 10% to 4%. It is important to keep in mind that many of our clients’ portfolios are invested in equities globally, through our North American plus International Equity strategy, meaning that the actual weights of US and Canada within their equity holdings will be proportionately less than this given the 15-20% allocation to international companies.

We have continued to position the portfolio toward value-oriented stocks. Value stocks now make up 63% of the portfolio. Our exposure to growth stocks was trimmed by about 1% to 29% of the portfolio. Staples, which we don’t classify as either growth or value, make up the ~8% balance of our equity exposure.

During the quarter, we added a number of new stock positions, including: 

Enghouse Systems Ltd. acquires and integrates technology companies. After a brief lull, it’s most recent quarter showed stronger revenue and EBITDA growth. This Canadian company also announced two acquisitions that should re-accelerate growth.

Arthur J Gallagher & Co is one of the leading insurance brokerage, risk management, and human capital consultants in the world. We like this business and consider it defensive, as most insurance purchases are non-discretionary. 

Eaton Corp. PLC is a power management company that benefits from the shift to renewable power. New orders and backlogs have accelerated, and secular tailwinds should support prolonged revenue growth at mid-to-high single digits.

Elevance Health Inc. is one of the largest health benefits companies in the United States. We like the demographic-driven stability and growth characteristics of health care, and believe the company is well positioned to benefit from this trend. 

A more detailed review of each company can be found in the full report per the link above.



Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities

Download Full Commentary


Inflation was percolating at the start of 2022, and the war in Ukraine served as a catalyst to drive it even higher. In response, central banks aggressively hiked interest rates as you have seen. Against this backdrop, both stock and bonds lost money. Since 1926, there have only been two calendar years when stocks and bonds were both down.

We believe that a changing of the guard may be unfolding in terms of stock market leadership. During the fourth quarter, the MSCI EAFE and MSCI Emerging Markets Indexes both outperformed the MSCI USA Index. This trend may continue after 15 years of outperformance by the United States, thanks in part to a fading US dollar.

We are cautiously optimistic about 2023. Inflation is showing signs of cooling, which means we may be getting closer to the end of rate hikes. We believe that the companies we own, with stable earnings, low leverage, and pricing power, are well positioned for 2023. And history suggests that forward returns are typically strong in the aftermath of a bear market.

We recently added several new stock positions, including Arthur J Gallagher & Co and Eaton Corp, which are highlighted on the previous page. We also added:

Avery Dennison is a materials science company specializing in labeling and functional materials with dominant market share, pricing power and economies of scale.

FinecoBank is one of the most established online banks in Italy and stands to benefit from the wealth transfer to younger generations and higher interest rates.

Keyera Corp is an integrated energy infrastructure business with extensive interconnected assets and a generous dividend yield.

Keysight Technologies is a global leader in testing and measurement equipment with exposure to several themes that we like, including electrification and reshoring.

A more detailed review of each company can be found in the  full report per the above link.



Owen Morgan, MBA, CFA
Portfolio Manager, Fixed Income

Download Full Commentary


During the last quarter of 2022, fixed income also markets continued to wrestle with three things: inflationary data, ongoing interest rate hikes and elevated recessionary risks.

In December, The Bank of Canada made two statements that highlight recent uncertainty. First, the Bank noted that “its Governing Council will be considering whether the policy interest rate needs to rise further,” potentially signaling that the rate hike cycle is close to an end, then noting that the “annual run rate inflation is still too high, and short-term inflation expectations remain elevated,” leaving the door open for further hikes.

Like Canada, the headline economic story in the US was inflation. The market currently expects another 50-75 bps of overnight interest rate hikes in 2023, and for the rate to peak at 5.0% in June. We anticipate that, like the Canadian situation, the Fed will pause and watch the state of the economy in the second half of 2023 before making further moves.

Subtle shifts in the Bank’s commentary and five consecutive months of declining inflation in both countries have us feeling more positive than we have in months.

Firstly, we believe we are near the end of the rate hike cycle, and therefore the impact of higher rates on fixed income securities should soon end, barring any unforeseen shocks. Secondly, there is a risk of a recession in our view, but we believe it will be mild. Consensus forecasts of Canadian and US GDP expects positive growth in 2023 and the labour markets in both countries remain tight.

With a rate hike or two still likely, we maintain a shorter duration than the benchmark. Some of the investment opportunities in the 2-3 year range offer yields that are almost as attractive as those maturing 7-10 years out, and we don’t believe the relatively minor additional yield of longer bonds compensates us adequately for the additional maturity risk or remaining interest rate risk.

We believe the current yields are more compelling than they have been in many years. As a result, we are looking for opportunities to lock in investments for the benefit of our client portfolios. To get a deeper understanding, you can read the full report via the link above.