Newsletter

2023 is well underway and we wanted to reach out to wish a Happy Family Day to you and your loved ones.  No matter your plans for the long weekend, we hope you are able to enjoy some quality time with family and friends.

We have had a great start to the year so far, some reminders for the weeks ahead;

• March 1, 2023 is the deadline for contributing to an RRSP for the 2022 tax year.
• Tax season is around the corner and your tax slips should be available for you in your account portal.  I’d be happy to help if you are having trouble getting them.

Regarding the market, please see the link below for Optimizes full report.  If you have any questions please don’t hesitate to ask.

Sincerely,

Joe and Stu

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From the Desk of Optimize Wealth Management – The Optimize Perspective

Overall, 2022 was a year of high volatility, with inflation data, interest rates, geopolitical uncertainty, and continuing
headwinds from the pandemic taking the focus. But over the last year, the U.S. Fed-funds rate has climbed from
0.25% to 4.5%. The spike in commodity prices we saw due to geopolitical tensions have mostly normalized and
inflation is beginning to moderate downwards.

Despite volatility, the Optimize Portfolios performed strongly with respect to both equity and income-focused
mandates. We saw value-based companies significantly outperform growth in 2022, and we expect this trend to
continue for at least the short term, with opportunities for growth and more cyclical sectors emerging. Something
we are also monitoring is the movement of the U.S. Dollar; as was observed in Q4, this will have an impact on equity
performance of U.S. multinationals that may play into how earnings are perceived and reported.

On the yield-focused side of the ledger, 2022 provided ample opportunity for tactical decision making. In reducing
exposure to investment grade debt, as well as other rate-sensitive investments such as real estate, we were able to
add significant value by reducing downside risks in a material way. We expect to see some continued challenges in
the real estate space, but strategy selection will be the key driver of success. Projects able to better account for, and
pass on higher interest rates will be able to shine, where the same factor will play to the detriment of competitive
projects. We also expect to see tactical buying opportunities in the investment grade debt space, although we
believe broadly that equity continues to carry better risk adjusted returns based on current valuation.

We have seen evidence of wage growth deceleration, while maintaining robust employment figures, suggesting
the Fed may successfully engineer a soft landing, potentially avoiding recession. With China’s economy gradually
beginning to reopen, supply chain issues will continue to abate, which should further fuel deflationary pressures. All
this to say, we are optimistic for the year ahead and very much looking forward to the opportunity these markets
are presenting us.

This report is provided by Optimize Wealth Management. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. Optimize Wealth Management and its affiliates and related entities are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

With fall well underway and the holiday season quickly approaching we thought it would be a good time for another newsletter. Market wise, please see the link below for Optimizes full report, and as always if there are any questions please don’t hesitate to get in touch. On a personal note, Kal is now 6 months old and almost crawling! No sleep is being had, but I am told that will change at some point….hopefully.

Additionally, we now have an exciting new product to offer, the Manulife Bank: Advantage Account. The Advantage Account is just that, a bank account with advantages! Now, who doesn’t want that? Below we have listed a few of the benefits this account offers.
Benefits:

1. Combines the advantages of a chequing and high interest savings account
2. Fully liquid – no penalty for withdrawal.
3. No monthly fee
4. With a $1,000 + balance everyday banking transactions are free.
5. Access your money from 1000’s of ATMs across Canada (Canada Exchange Network), through online banking and the Manulife Bank App

If you are interested in learning more just send us a message and we can go into further detail.

We hope everyone is having a wonderful October!

Full Report from Optimize Wealth Management:
https://castlewealthservices.com/wp-content/uploads/Market-Commentary-October-2022.pdf

Sincerely,
Joe and Stu

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From the Desk of Optimize Wealth Management – Outlook Ahead

The inflation story is far from over — as are the monetary policy practices of the central banks — and we are likely to
see elevated inflation that exceeds central bank targets over the near term. With slower economic growth, investors
should also expect downward earnings revisions, as analysts cut price targets to discount the effect of higher prices
and higher interest rates throughout the economy. However, should inflation moderate by the middle of 2023, the
central banks will have enough room to lower rates if need be.

Despite slower growth, if the labour markets can continue to remain robust and cushion the effects of higher
interest rates, we remain optimistic that a full-blown recession can be averted in Canada. Certainly, the prospects
for a softer landing appear much greater for Canada, compared to other nations such as those in Europe, which
continue to struggle with skyrocketing inflation, high unemployment and an energy crisis that is only expected
to get worse as the winter months arrive. Canada has the enviable position of being a net exporter of food
and energy, as well as having comparatively strong public finances, which continue to provide a solid economic
buffer. These and other factors lead us to believe that Canadian equities will continue to outperform their global
counterparts well into 2023. We expect that the U.S. will outperform developed Europe and Asia, two regions that
face ongoing and significant geopolitical challenges.

With the continuing uncertainty, investors should also expect continued volatility. However, while market declines are
never easy to endure, they are a normal part of the investing cycle. And, investors may be wise to remember that
they are most often followed by periods of strong returns. In looking at market corrections of 10% or more on the
S&P 500 Index since 1980, the average one-year return from the low of the correction is 23% and the average two-
year return Is 37.5%. Periods of retrenchment have always been followed by new growth, economic expansion and
improved equity values. There is little reason to expect otherwise in this cycle.

Full Report from Optimize Wealth Management:
https://castlewealthservices.com/wp-content/uploads/Market-Commentary-October-2022.pdf

This report is provided by Optimize Wealth Management. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. Optimize Wealth Management and its affiliates and related entities are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

Market Update

With the doom and gloom that controls media today, we figure it would be a good time to provide another market update with some proper context.  We’ve had a lot of good conversations over the last month despite the challenges currently in the markets.  In our opinion Optimize has been a strong performer despite what you see in headlines today.  Overall markets are down -14% to -24% year-to-date.  The Optimize balanced growth portfolio is down about -7% year-to-date and has a one-year return of +4%.  We are definitely down from the highs of last year’s gains, but the Premium Income fund within the portfolio (which we’ve often referred to as “Pension Style Investing”), has really provided strong stability within your portfolios.  Currently the Premium Income fund is only down a few % year to-date with growth year over year.  Access to this style of management is one of the primary reasons the move to Optimize was originally made, and we’re happy it’s turning out in all our favours.

If you have questions or concerns, please reach out, we’re happy to chat through the details about your accounts at what’s happening in the markets today.  We are definitely not out of the woods, and there remains a lot of uncertainty for 2022, but we’re in good hands to capitalize on the growth that lies ahead.

Full Report from Optimize Wealth Management:
https://castlewealthservices.com/wp-content/uploads/Market-Commentary-June-2022.pdf

Sincerely,
Joe and Stu

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From the Desk of Optimize Wealth Management – Looking Forward

In the world of the 24-hour news cycle, and if-it-bleeds-it-leads journalism, we are inundated with negative headlines at all hours of the day. Current sentiment is overwhelmingly negative, volatility is high and uncertainties remain. We have seen substantial declines in the major indices, particularly in recent days with investors weighing the prospects of a “hard” or “soft” landing. As mentioned earlier, we are likely to continue to see companies revise their earnings lower, as well as analysts cut price targets, as they discount the effect of higher prices and higher interest rates throughout the economy. The markets will likely continue to be volatile in the coming weeks as uncertainty remains elevated and as investors digest each piece of economic data. Again however, it’s also important to remember that market corrections (defined as a decline of 10% or more) are almost always followed by periods of strong returns, i.e. the average one-year return from the low of a correction on the S&P 500 since 1980 is 23%, and the average two-year return is 37.5%. Encouragingly, the labour market also remains robust and should naturally cushion the effects of higher interest rates and reduce the likelihood of a potential recession.

Regardless, we are extremely pleased with how the Portfolios have performed. The benefits of broad diversification and the inclusion of institutional “pension-style” asset classes has resulted in lower volatility, lower downside capture and ultimately higher-quality risk-adjusted returns. The current market dynamics will remain challenging for some time, but the secular rotation from growth to value, will continue to favor our existing allocations and overall long-term strategy. More specifically, the Portfolios emphasis on value, its current overweight to financials, increased exposure to Canada, as well as the combination of alternative asset classes should continue to provide a strong defense against current headwinds, but also ensure consistent and stable returns over time. Clients are well positioned, as we eventually exit this correction and although we will likely continue to see volatility in the short to medium term, clients should keep their long-term financial goals in mind as they are well established for success.

Full Report: https://castlewealthservices.com/wp-content/uploads/Market-Commentary-June-2022.pdf

This report is provided by Optimize Wealth Management. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. Optimize Wealth Management and its affiliates and related entities are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

Spring greetings from Joe and Stu!

To start off with an important announcement, Joe and Karalee had an early arrival this spring: Kal Thor Quach – born 8:52pm on Apr. 3, 2022, 4lbs 1oz, 18 inches.

Congratulations Joe and Karalee!

We are actively adding insurance contracts right now to facilitate the transfer of any insurance that was provided by Pat. Please expect to hear from us in the weeks to follow, to facilitate this transfer.  If you had purchased any insurance with Pat and haven’t heard from us, please let us know so we can update the agent of record for you and continue to look after your Life, Disability and Critical Illness insurance needs.

This week Optimize has sent out their Spring 2022 Quarterly Portfolio Commentary, you can download it here if you missed it: Optimize Spring 2022 Quarterly Portfolio Commentary.

Chat soon!  Sincerely,

Joe & Stu

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From the Desk of Optimize Wealth Management – Outlook Ahead

While the start of 2022 has been a turbulent one for the markets, as we look forward, we view the current environment as largely supportive for equity markets. Despite the backdrop of slower economic growth and the ongoing geopolitical tensions in Europe, the Canadian and U.S. markets are well supported and expected to continue to perform well.

As the year progresses, we expect that the supply-side constraints that have helped to drive inflation, largely created by the pandemic, will continue to temper. However, this is likely to be offset by the effects of the conflict in Europe, should it persist, as Ukraine and Russia contribute to the production of various commodities, particularly food and energy. As well, the recent Covid lockdowns in China are expected to create further headwinds. In its meeting in May, Chair Powell was explicit in suggesting that the Fed will continue to tackle inflation and additional 50 bps rate hikes remain on the table. As such, we can expect interest rates to rise in the coming months.

For now, we continue to capitalize on opportunities as they present themselves during market pullbacks, focusing on adding quality companies with lower valuations to our portfolios — opportunities that were largely difficult to find throughout 2021. As we have suggested in the past, this is a time in which thoughtful portfolio oversight, evaluation and scrutiny continue to benefit investors. Most important, we continue to advocate that — during these volatile times — individual investors remember that successful investing involves maintaining the fortitude to stick to your plan, continuing to be invested and staying the course.

Optimize Wealth Management (Optimize Inc.) represents to the reader that this Mandate or Model Portfolio is not a Mutual Fund or an Investment Product but rather a portfolio strategy. The forward-looking statements and forward-looking information are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in the forward-looking statements and information. Therefore, actual future results and trends may differ materially from what is forecasted in the forward-looking statements due to a variety of factors. Past performance or hypothetical performance.

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From the Desk of First National – Residential Market Commentary

With the Canadian economy showing strong signs of recovery the way is clear for another half-a-percentage point increase in the Bank of Canada rate.

Statistics Canada figures for February show that gross domestic product (GDP) grew by another 1.1%, with just about all sectors of the economy showing improvement.

Preliminary data for March indicate a further 0.5% increase.  First quarter GDP growth is expected to hit 5.6%, which is nearly double the official forecast.

This rapid rebound from the Omicron variant of COVID-19 now has the Bank of Canada warning that the economy is overheating and more interest rate increases will be needed to cool it down and slow the pace of inflation.  That has cemented expectations for, at least, a 50 basis point increase in the Bank’s Policy Rate at the next setting on June 1st.  There is also the possibility of a 75 basis point hike.

In testimony before the Senate Banking Committee last week Bank of Canada Governor, Tiff Macklem, warned that the central bank may have to push its Policy Rate beyond the neutral range.

“It’s possible that we may have to go above the neutral rate for a period of time to return inflation to target, but it’s a bit above 2% or 3%, it’s not 7% or 8%,” he said.

“It’s going to be delicate. “But we do need to raise interest rates to moderate that spending growth and get inflation back to target,” Macklem said.

https://www.firstnational.ca/mortgage-brokers/resources-for-mortgage-brokers/article/residential-market-commentary—interest-rates-and-a-hot-economy

Greetings and Happy 2022 from Joe and Stu!

Since we’ve taken over management at the end of 2021 we’ve been actively trying to connect with everyone one-on-one. If you haven’t heard from us, please know you will soon! If you have an immediate need, please reach out by calling, texting or emailing.

Joe Quach – joe(at)castlewealthservices.com, 226-546-5424
Stuart Driedger – stuart(at)castlewealthservices.com, 431-341-2100

Below you’ll find some detailed information from Optimize Wealth Management and First National Financial about the current state of the economy and an outlook on 2022. Overall 2022 looks predictable, which is great news after the last couple years of uncertainty.

We look forward to connecting and working for you!

Sincerely,
Joe & Stu

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Important Information and Dates

1)RRSP Deadline is fast approaching!  March 1, 2022 is the final date for RRSP contributions that can apply against your 2021 income.

2)2021 Tax Slips have been sent out directly from Optimize.  You can also access your tax slips through your online portal.  If you need a hand finding them, please let us know!

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From the Desk of Optimize Wealth Management

Very Strong Financial Results in 2021: Client portfolios had another very strong year in 2021, with Canadian equities in our portfolios outperforming the TSX by 9.5% and the U.S equities outpacing the Dow Jones over the course of the year. Our Premium Income Fund was up more than 13% in 2021 whereas traditional bonds and North American investment grade debt tumbled 2-5% during the same timeframe. Despite the continued pull-back in the US markets year-to-date, our portfolios have exhibited tremendous relative strength to all of the major financial markets in North America.

A Rising Rate Environment is Actually Good for Certain Sectors: As history has shown, a rising rate environment has had a very positive impact on certain parts of the economy, namely financial services.  In fact, the financial sector of which our portfolios have an overweight position, has consistently outperformed the S&P 500 by a greater margin than any other sector during periods of rising interest rates. Moreover, Energy companies and specifically oil prices remain well positioned as the geopolitically fueled supply concerns continue to place upward momentum on oil prices. The Canadian housing market continues to remain at very tight levels with employment levels in Canada having fully recovered from the COVID-19 shock.

Strategic Positioning and Proactive Rebalancing across our Portfolio Mandates: While there are certain sectors that are positioned better than others for this type of market, we continue to take a very measured approach within our portfolios and still see tremendous value within large-cap blue chip companies. Investing in companies which exhibit strong Returns on Equity, Solid Dividend Yields, and steady Revenue Growth has always, and will certainly continue to be our focus in 2022. We also continue to hold very strong, defensive names such as Walmart and Costco, which perform very well in current market conditions (Costco, for example, was up over 50% in 2021). To complement and further diversify our portfolios, we also have a very meaningful allocation invested in our pension-style asset classes which exhibit very low correlation levels to the broader markets.

And while we will of course continue to be extremely proactive should we feel the need to make changes within our portfolios, we are already certainly very well-positioned to take advantage of the current market conditions and we look forward to another very strong year overall.

From the Desk of First National Financial

This morning (January 26, 2022) in its first scheduled policy decision of 2022, the Bank of Canada left its target overnight benchmark rate unchanged at what it describes as its “lower bound” of 0.25%. As a result, the Bank Rate stays at 0.5% and the knock-on effect is that borrowing costs for Canadians will remain low for the time being. 

The Bank also updated its observations on the state of the economy, both in Canada and globally, leaving a strong impression that rates will rise this year.

More specifically, the Bank said that its Governing Council has decided to end its extraordinary commitment to hold its policy rate at the effective lower bound and that looking ahead, it expects “… interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving” its 2% inflation target.

These are the other highlights of today’s BoC announcement.

Canadian economy

-The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed

-With strong employment growth, the labour market has tightened significantly with elevated job vacancies, strong hiring intentions, and a pick up in wage gains

-Elevated housing market activity continues to put upward pressure on house prices

-Omicron is “weighing on activity in the first quarter” and while its economic impact will depend on how quickly this wave passes, the impact is expected to be less severe than previous waves

-Economic growth is then expected to bounce back and remain robust over the Bank’s “projection horizon,” led by consumer spending on services, and supported by strength in exports and business investment

-After GDP growth of 4.5% in 2021, the Bank expects Canada’s economy to grow by 4% in 2022 and about 3.5% in 2023

Canadian inflation

-CPI inflation remains “well above” the Bank’s target range and core measures of inflation have edged up since October

-Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022

-As supply shortages diminish, inflation is expected to decline “reasonably quickly” to about 3% by the end of 2022 and then “gradually ease” towards the Bank’s target over the projection period

-Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target

-The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation

Global economy

 -The recovery is strong but uneven with the US economy “growing robustly” while growth in some other regions appears more moderate, especially in China due to current weakness in its property sector

 -Strong global demand for goods combined with supply bottlenecks that hinder production and transportation are pushing up inflation in most regions

 -Oil prices have rebounded to well above pre-pandemic levels following a decline at the onset of the Omicron variant of COVID-19

 -Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated, and with rising geopolitical tensions

 -Overall, the Bank projects global GDP growth to moderate from 6.75% in 2021 to about 3.5% in 2022 and 2023

January Monetary Policy Report

The key messages found in the BoC’s Monetary Policy Report published today were consistent with the highlights noted above:

 -A wide range of measures and indicators suggest that economic slack is now absorbed and estimates of the output gap are consistent with this evidence

-Public health measures and widespread worker absences related to the Omicron variant are slowing economic activity in the first quarter of 2022, but the economic impact is expected to be less severe than previous waves

-The impacts from global and domestic supply disruptions are currently exerting upward pressure on prices

-Inflationary pressures from strong demand, supply shortages and high energy prices should subside during the year

-Over the medium term, increased productivity is expected to boost supply growth, and demand growth is projected to moderate with inflation expected to decline gradually through 2023 and 2024 to close to 2%

-The Bank views the risks around this inflation outlook as roughly balanced, however, with inflation above the top of the Bank’s inflation-control range and expected to stay there for some time, the upside risks are of greater concern

Looking ahead

The Bank intends to keep its holdings of Government of Canada bonds on its balance sheet roughly constant “at least until” it begins to raise its policy interest rate.  At that time, the BoC’s Governing Council will consider exiting what it calls its “reinvestment phase” and reducing the size of its balance sheet. It will do so by allowing the roll-off of maturing Government of Canada bonds.

While the Bank acknowledges that COVID-19 continues to affect economic activity unevenly across sectors, the Governing Council believes that overall slack in the economy is now absorbed, “thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate” and setting the stage for increases in 2022.

Original Article: https://www.firstnational.ca/mortgage-brokers/resources-for-mortgage-brokers/article/bank-of-canada-holds-benchmark-interest-rate-steady-updates-2022-economic-outlook