In the month of March, Canadian investors funneled $11.8 billion into U.S. Equities. These strong flows followed $12.3 billion of U.S. equity purchases in February[1]. Canadian investors have long-appreciated the U.S. equity market for a multitude of reasons; the depth and breadth of the market, diversification benefits, and geographically reducing the age-old ‘home-bias’. As we continue to march toward the end of COVID-19 as we know it, there is another factor making the US market very attractive to Canadian investors – currency.
Since its most recent high in March 2020, the USD has depreciated approximately 17% against the CAD. As movement in foreign exchange rates is a complex matter, we will focus on the key takeaway: the Canadian dollar is currently strong relative to its US counterpart, which we believe presents a great opportunity to go shopping for high quality US companies.
As we progress through COVID-19 as a society and come out on the other end of the resulting recession, we are beginning to see signs of a strengthening US economy. During periods of economic strength, interest rates tend to rise as money supply tightens. All else being equal, this can result in the USD marching higher.
In the chart below we have highlighted the currency movements of USD/CAD through the great financial crisis and the subsequent recovery.
Investors with Canadian Dollars can view this as a very attractive opportunity to purchase US securities, which are denominated in USD. With a stronger purchasing power in CAD, investors would not only gain access to the deepest and most liquid market, but they also can benefit from a strengthening USD as we return to a ‘pre-pandemic’ state.
Reference Dates and USD/CAD Prices: yahoo finance
$1.2895 – March 11, 2009
$.9432 – July 27, 2011
$1.4578 – January 18, 2016
$1.45 – March 20, 2020
$1.20 – May 25, 2021
[1] Source: https://www.investmentexecutive.com/news/research-and-markets/canadian-investors-continue-u-s-stock-buying-binge-statscan/
Important Disclosures
There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.
This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.
A Note About Forward-Looking Statements
This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.
These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.