The Italian Scare

Last update on June 4, 2018.

Image Credit: Trybex / Shutterstock.com

 

At the beginning of every month, I brief members on how MoneyGeek's Regular portfolios have performed and comment on the state of the financial markets. In this update, I’ll also talk about how the Italian political situation has caused some concern among investors.

 

May Performance of Regular Portfolios

The performance of MoneyGeek's Regular portfolios for the month of May 2018 were as follows:

 

Last Month

Last 12 Months

Since Apr 2013

Aggressive

+0.6%

+9.2%

+99.9%

Growth

+0.5%

+7.9%

+82.8%

Balanced

+0.4%

+6.6%

+66.7%

Conservative

+0.4%

+5.4%

+51.8%

Very Conservative

+0.3%

+4.1%

+37.9%

I've chosen to list below the performance of some of our competitors. For the sake of brevity, I've decided to show only those portfolios that have a similar risk profile to MoneyGeek's Regular Aggressive portfolio.

 

Last Month

Last 12 Months

Since Apr 2013

RBC Select Aggressive Growth

+2.1%

+5.2%

+40.4%

TD Comfort Aggressive Growth

+1.6%

+2.8%

+45.9%

CIBC Managed Aggressive Growth

+1.5%

-0.1%

+15.5%

Canadian Couch Potato Aggressive

+1.9%

+5.8%

N/A

In contrast to our competitors, MoneyGeek’s Regular portfolios employ stocks/ETFs that follow the value investing strategy (QVAL, IVAL and BRK-B), and also allocate a larger percentage of the portfolios toward Canadian oil and gas stocks (XEG.TO) and gold (CGL-C.TO). If you would like to take a look at our portfolios, I invite you to sign up for our free membership.

In May, Regular portfolios underperformed our competitors. Although QVAL did well relative to the US stock market, BRK-B, IVAL and CGL-C.TO did not. Since its introduction into MoneyGeek’s portfolios early last year, CGL-C.TO (i.e. gold) has lost value. But this is not necessarily a bad thing.

As I explained when I first introduced gold into the portfolios, gold acts like an insurance against financial crises. Although the world has since then gone through several developments that could have ended up in crisis, these developments have fortunately  stopped short of fully developing into one. We should be happy that our house hasn’t burned down, even if we took out insurance against it.

Still, the world keeps producing more potentially worrisome developments. The latest development concerns the Italian elections, whereby parties that resent the European Union have secured victory and have tried to install a finance minister who appears to want to abandon the euro currency.

One significant proposal put forward by the winning coalition is the creation of the “mini-BOT”.  Mini-BOTs are non-interesting paying notes with which the Italian government could pay its expenses, instead of with euros. Likewise, holders of mini-BOTs would be able to pay the Italian government for taxes owed, or goods and services purchased.

Economists view the mini-BOT as a de facto new currency and its issuance as the first step towards Italy’s break from the euro. If Italy really does break away from the euro, investors fear that Italian government bonds will be worth a lot less than they are today, and so they sold off the bonds when it appeared more likely that Italy was trying to break from the euro. Many people believe that such fears also sent the global stock markets down towards the end of May.

However, it appears that the potential crisis has been defused for now. The new Italian coalition has backed down on their plans to install the anti-euro finance minister, and investors responded by buying back the Italian bonds. No one believes this is the end of Italy’s attempt to abandon the euro, but the can may have been kicked sufficiently far down the road to relieve investors’ anxiety for now.

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