Mackenzie Minute: June 15, 2018

RICK WEED: The markets have been very calm since the Trump election in 2016. Volatility levels have been near historical lows. In February, we got a big increase, almost a three-fold increase in volatility, due the United States Fed saying that they are probably going to raise interest rates over the course of the year due to the labour market tightening. The markets absorbed that. And then we have another increase in volatility in May due to the Italian elections and the uncertainty about their economy. We feel that increased volatility is actually very, very good for a disciplined quantitative process like ours, which allows us to add value through stock selection.

We feel there is going to be increased volatility in the rest of the year in the stock markets due to all the geopolitical uncertainty from all the tariffs and trade, and summit talk that has been going on recently. We feel the US Fed will be raising interest rates slowly to help combat inflation and the European Central Bank will most likely not be raising interest rates due to their economic uncertainty. Interestingly, the European Central Bank and the Fed have not been fighting volatility for the last year or so because they have been running out of tools at their disposal to mute the market uncertainty.

Year-to-date the increased volatility in the markets and the increased volatility we think going forward actually helps our stock selection process quite a bit. A disciplined quantitative stock selection process with good portfolio construction, in an increased volatility environment, does a good job of adding excess returns to any portfolio.