Week of March 16, 2015

FEATURED ARTICLES: “Ethical” investors use new approach MARKET STATISTICS: Weekly Change

ECONOMIC STATISTICS:

IMPORTANT NOTE: This edition has been disseminated by Ryan Volk, Chief Executive Officer. For any questions regarding this edition, please direct them to him, who will pass them on to Ronald Chow.

Canadian Employment Report – February The Canadian economy shed 1,000 positions last month as job losses in Alberta and Newfoundland were offset by gains in Quebec; it lost less positions than the consensus call of 5,000. The country’s jobless rate rose to 6.8% in February, as more people sought out work (participation rate rose slightly); a tick higher than a forecasted 6.7% unemployment rate.

Lower oil prices are having a clear impact on the labour market, as Canada’s natural resource sector shed 26,000 positions. Alberta’s unemployment rate has consequently jumped 5.3% in the past month, recording the leap since September 2011. Alberta shed 14,000 positions, Nova Scotia lost 4,400 positions and Newfoundland subtracted 3,000 while Quebec added 16,800 positions. However, all of the positions added in Quebec are part-time jobs. Additionally, across the country, public-sector workers grew 24,300 while the private sector moved downwards 29,000 positions.

The report was not as bad as projected, and signalizes some resilience in the economy from low oil prices.

Canadian Existing Home Sales – February The report paints a picture that the Canadian housing market is neither too hot nor too cold. Home sales were up one percent from January following three disappointing months, but the market was divided by sharp regional differences. Existing home sales increased by 1.0%, and up 2.7% from last year. However, the level remained 5% below the 1o-year average.

Average existing home price growth re-accelerated last month, rising 6.3% y/y from 3.1% y/y in January.

The quality adjusted price index remained stable at 5% y/y. There was a sharp divergence in regional markets: urban markets in British Colombia and Ontario accounted for the bulk of the increase while sales were down in the Atlantic provinces.

Canadian Housing Starts - February Canadian housing starts fell sharply to 156,700 annualized units in February. This report was well below expectations and down from 187,900 units in the prior month. Declines were broad based across the country, with the frigid weather playing a key role.

Both single and multi-units starts fell in February, with the former slowing to the weakest level since mid-2009 at 59.5k while the latter slumped to 86.2k. Regionally, Atlantic Canada was hardest hit, with housing starts plunging to 4.5l, the secondlowest monthly reading in the past 25 years. Quebec was also week in the month as multi-unit starts fell back. Alberta edged down to a still-healthy 44.4k, with the slide in oil prices yet to take a dramatic bite.

Looking past the February harsh weather, Canada homebuilding activity remains stable and in-line with fundamentals. The bigger picture since the recession is that homebuilding is consistent with demographic demand, aside from the brief period in 2012 when Toronto condo projects broke ground.

U.S. Retail Sales – February Retail sales fell for a third straight month in February as harsh weather likely kept consumers from automobile showrooms and shopping malls. The retail sales dropped 0.8% after dropping 0.6% in January.

The decline in sales was almost broad-based, suggesting that snowy and cold weather that blanked the country in the second half of February could have been a factor. Automobile sales fell 2.5%, sales at clothing stores were flat, receipts at building materials and garden equipment stores fell 2.3% and sales at restaurants and bars slipped 0.6%. There were also declines in furniture and electronic and appliances sales.

The core retail sales, excluding gasoline, automobiles, building materials and food services, declined 0.1% for another month, coming in below the consensus call of a 0.4% rise.

The third straight month of weakness suggests a marked slowdown in consumer spending in the first quarter following the fourth quarter surge.

In the early 1990s, some “ethical” investment funds would screen out the worst transgressors, such as the heaviest polluting companies. However, today, most investment funds have been part of a new approach.

Instead of analyzing which companies or whole industries to screen out, the idea is to compare and rank companies within those industries. Sustainalytic, a global research form which analyzes the environmental and social performance of companies, analyzes which companies have done better on a variety of environmental, social and governance issues.

This new approach has raised some very valuable questions: Is this best-of-sector analysis good enough?

Will some investors instead see it as picking “the last worst”, and not a path to halting poor environmental or social behaviour?

So, what’s the solution? The problem is that a small number of ethical investors sticking to their conscience really don’t have much of an impact. For example, if one wished to improve the environmental performance of energy companies, not investing in them doesn’t give you a voice. As well, not investing in offending firms doesn’t always work – for example, not purchasing oil stocks isn’t necessarily a complete divestiture, as owning bank stocks may likely result in an indirect investment into oil companies, as banks invest in oil companies.

However, the most important question would be: do ethics come at a price? Are investment returns lower?

Many studies have found that in the short term, over a year or two, they can outperform the markets.

However, in the long-run, ethical funds may not necessarily outperform the markets, but it has happened in the past where ethical funds have outperformed the markets.