In the quickest meltdown in financial history, global equities experienced their worst quarterly performance since the 2008-09 financial crisis. While the Canadian stock market declined almost 24%, U.S. stock markets dropped 16% in Canadian dollar terms.
Many investors initially believed the coronavirus pandemic would primarily affect China. As it quickly spread, governments in most developed countries responded by shutting down major parts of their economies and issuing stay-at-home orders. Ultimately, these government actions delivered an unprecedented shock to global financial markets.
Hemisphere Capital Management (HCM) has recently completed a comprehensive audit of our entire client investment returns history. Utilizing a U.S. based CPA firm that specializes in auditing investment returns, HCM committed nearly eighteen months (and thousands of man hours) to completing this process. We’re proud of our extensive track record of providing trustworthy investment counsel and want our clients to know they can rely on the investment returns we report. As such, achieving this gold standard of reporting performance was well worth the significant time and expense.
This is audit verifies that HCM complies with the Global Investment Performance Standards (GIPS®) of the CFA Institute when reporting historic investment returns. Based in Virginia with offices spread across the globe, the CFA Institute is the world’s largest association of investment professionals. The CFA Institute created the GIPS® standards and encourages their adoption by investment firms worldwide. The CFA Institute has even created a professional designation, the Certificate in Investment Performance Measurement, which is largely based upon and requires extensive study of the GIPS® standards. The standards have become the worldwide benchmark for calculating and presenting investment returns in a complete and fair manner.
In January 2017, clients of Hemisphere Capital Management (HCM) will get their first taste of the Client Relationship Model, Phase 2 (known commonly as CRM2). CRM2 introduces standardized reporting requirements for regulated Canadian financial advisors. Not surprisingly, HCM already meets the bulk of CRM2’s reporting requirements. Although well-intentioned, CRM2 will likely create confusion for most HCM clients rather than improve reporting transparency.
CRM2 represents the second component of the Client Relationship Model (CRM) regulatory initiative. Originally called the Fair Dealing Model, CRM was proposed by the various Canadian Provincial securities regulators over a decade ago. After a number of regulatory amendments, the first phase of CRM (CRM1) was introduced in 2012. CRM1 formalized industry best practices for financial advisors related to reporting on new client account types, services and costs, standards for investor suitability and risk levels and comprehensive conflict of interest disclosure.
Following four decades of excessive credit expansion, the U.S. experienced a bursting credit bubble in mid-2008. In the aftermath, North American stock markets declined almost 50% by early 2009. Fast forward to the summer of 2012 and North American stock markets, exhibiting strong resilience, have now recovered to their pre-bubble highs.
Over the past four years it is mainly perceptions, rather than actual economic fundamentals, that have changed. There is little doubt that the global economy has stabilized as a result of the actions of many of the world’s central bankers, however, much of the fallout from the excessive credit expansion remains. Central bankers have set interest rates at artificially low levels to save overindebted consumers and governments – at the expense of pension funds and individual savers. The consequences of these actions are unknown as central banks have never operated in this manner before. At a minimum, the developed world will confront a very lengthy period of deleveraging.
From a financial perspective, the first decade of the 21st century consisted of a bubble of bubbles. First of these was the technology or dot-com boom that began in the late 1990’s and eventually burst in mid 2000. Responding to this collapse, the U.S. Federal Reserve (the central bank of the United States) aggressively cut short-term rates from 6% down to the 1.5% range in 2002 and held short rates at this level for over three years.