Despite the pervasively negative sentiment expressed in the financial news media, stock markets around the world produced positive returns in 2012. The best performing market region was where the news was most grim a year ago – Europe. Equity markets across Europe generated a total return of 17.3%, eclipsing the collective emerging markets, which delivered 16%. Closer to home, the US market generated a very solid total return of 13.5%, while the Canadian market generated a relatively modest 7.2%.
In providing our outlook for 2013, we believe that two dichotomies are currently at work. First, while governments in the developed world continue to struggle with their shaky finances, and will do so for the next few years, the leading public companies in their jurisdictions are doing very well. While the United States will come up against another debt ceiling in the near future, the great majority of mid and large cap public companies in the US have very strong balance sheets. In fact, many are sitting on vast reserves of cash, both domestically and offshore. The same can be said of many leading public companies in the United Kingdom and Europe.
This leads us to the second dichotomy, the negative financial news media that has often ignored many outstanding successes in the corporate world. Here’s a great example: a year ago, we focused our First Quarter commentary on one of our favorite holdings, 3M Corporation. During 2012, 3M quietly delivered a total return of over 16.5%, handily beating the S&P 500. Yet, there was nary a mention in the media. Instead, we had an avalanche of breathless coverage of the “fiscal cliff”, which no doubt will soon be followed by an intense focus on the US debt ceiling story. While negative media sells, a good story is being missed. We are in the fifth year of a steady stock market recovery from the dramatic downturn of 2008-2009, an achievement that has gone virtually unreported.
In 2013, we expect more of the same. We believe that the United States will continue its slow and steady pattern of economic growth, and that the well managed companies in that market will continue to benefit. Under its new political leadership, Chinese growth rates are picking up steam, which will help resource based economies like Canada’s. Europe will be trickier, as there are elections scheduled for Germany and Italy, and France will labour under an anti-business socialist government. Nonetheless, leading companies in both continental Europe and the UK are truly international, and will benefit from continued economic expansion on a global basis.
While we can’t do anything about negative media sentiment, we can continue to do what we do best: invest in well managed companies that generate increasing cash flow from operations and allocate their free cash flow wisely. We are very optimistic that such companies will continue to perform positively for our clients in 2013.
As an aside, we are also proud of the fact that Rempart Asset Management has entered its third year of independence on a very sound footing. Our assets under management continue to grow steadily, as our approach to generating steady returns for our clients and our reporting transparency continue to win us new business. We know that none of this would be achievable without your loyalty, and we thank-you.
We wish you all the best for a healthy and prosperous 2013.