U.S. outlook

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Will the U.S. Federal Reserve
raise interest rates in 2017?

Dynamic Equity Income Fund

Jasonbiggs

Biography

“There is a lot of room for rates to go up, but I don’t think you will see a massive spike in interest rates, because there are three structural issues in the world that are more long term.”

First, there is the demographic issue. We live in an aging world. The first baby boomer turned 70. That demographic saves more, spends less, and that tends to keep rates lower.

The next factor we are going through is a technological revolution. You had the Agricultural Revolution when everyone worked on a farm, you had the Industrial Revolution when everyone went to the factories, you had the Knowledge Revolution before the Internet when you could go to university and get yourself a good knowledge job that lasted forever.

Now, you have a Technological Revolution where, guess what? Anyone can spend $500 on a smartphone and they have got as much knowledge as everyone else in the world. And that leads to Amazon, Google and Apple, and that causes pricing pressure, which keeps rates low. It’s very hard to have pricing increases in this world right now.

Finally, you have global debt to GDP, which is still at all-time highs, and that tends to put a damper on interest rates and inflation.

BRIAN W. H. BERGHUIS

TD U.S. Mid-Cap Growth Fund

brianberghuis

Biography

“The big beneficiaries of near- or even below-zero interest rates have not been individuals, but governments and large corporations. They are not typically the most dynamic drivers of global growth. I’m confident that markets will eventually recognize the value of a more normalized rate regime.”

Are valuations getting too high?

Dynamic Equity Income Fund

Jasonbiggs

Biography

If you look at the history of the markets and where we are now, stock market multiples are certainly higher than they have been in past. Markets tend to trade around 15 times earnings.

“Multiples are a bit higher than we have seen in history, but interest rates have rarely been this low in history, so I think it makes sense for multiples to be a bit higher.”

The next factor we are going through is a technological revolution. You had the Agricultural Revolution when everyone worked on a farm, you had the Industrial Revolution when everyone went to the factories, you had the Knowledge Revolution before the Internet when you could go to university and get yourself a good knowledge job that lasted forever.

Now, you have a Technological Revolution where, guess what? Anyone can spend $500 on a smartphone and they have got as much knowledge as everyone else in the world. And that leads to Amazon, Google and Apple, and that causes pricing pressure, which keeps rates low. It’s very hard to have pricing increases in this world right now.

At the same time, we have witnessed about six quarters of negative earnings recently. And the market expects to see some earnings growth. That is the big question for this year: Can we start to see them grow?

Stocks at 17, 18 times earnings are not cheap, but they are not that expensive either. In Canada, you can get a good portfolio with about a 3% dividend yield. Then you get a dividend tax credit. The dividend is going to grow if you have the right companies. Over time, the probabilities are that you will do better in stocks as a long-term investment versus other asset classes such as cash and bonds. And that might lead to higher than average multiples.


BRIAN W. H. BERGHUIS

TD U.S. Mid-Cap Growth Fund

brianberghuis

Biography

“U.S. mid-cap valuations are on the high side of normal, but we are not in bubble territory. On a price-to-earnings basis, the sector currently trades at premium of about 10% relative to its 15-year average.”

RICHARD JENKINS

Black Creek International Equity Fund

RICHARD JENKINS

Biography

“In contrast to 2008-2009, when we had a majority of our global portfolio investments in U.S. companies, it is not the case today, as we are finding better companies that meet our criteria in other markets.”

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