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There are always worries and items 'hanging over our heads' from an investment perspective. Our current worries range from European deleveraging to increasingly unpopular austerity measures and fears that the euro dream may implode. They include concerns over a possible hard-landing in China, war with Iran and dysfunctional politics in the US. Investors understandably have little comfort.

At TriDelta, we work to control which investments we buy to ensure portfolios are appropriate and well positioned. We have managed to avoid disaster by successfully navigating through the difficult markets, but even this sometimes doesn't provide much comfort.

The investments we select operate in the same difficult universe, but our approach is refreshingly different and typically effective even in the face of a difficult macro environment.

Before we buy any investment we consider the macro environment, analyse the business in depth, assessing its ratings, ratios, competitive position, suppliers, customers and financial circumstances. We search for the few opportunities we believe are undervalued and offer an attractive potential return with reduced risk.

But we cannot time the stock market and we think it is equally futile to attempt to time our relative performance. Clients should expect our performance to be somewhat variable in the short and medium term, but to demonstrate stability over longer holding periods.

A few key current market observations:

The asset mix decision now favours increased equity exposure - relative yields on fixed income vs. the TSX Composite remain at all time extremes.


Click to enlarge.

The last time the market reached these levels was in December 2008, just before the TSX moved higher.

The Canadian economic picture remains strong with inflation and employment levels holding steady.

Long term technical analysis on the TSX points to an oversold market at the end of 2011.

In the US 2011 ended with signs of continued recovery in employment and a slight decrease in the rate of inflation, although still high compared to the recent past at 3.39%.

The US economic situation can be summed up as continued recovery, albeit a slow one.


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