We all had the pleasure of witnessing a market crash earlier this year. It wasn’t the biggest crash but everything did drop 30-40%. It wasn’t sustained and the market has mostly recovered, but some sectors have lagged behind, including some that I’ve recommended on this blog. Let’s take a look at a few.
Everyone started working from home and shopping online. Thus we had small business closing and larger companies leaving behind office space. The real estate sector saw this change in demand and investors fled in droves.
Let’s look at the largest REIT index funds in Canada to see how they’re doing:
- REI-UN – Retail
- D-UN – Office
- XRE – Balanced
As you can see they’ve dropped 25-40% and haven’t recovered. Retail dropped the most with office being second, but even the balanced REIT hasn’t seen much of a recovery.
The reason? They’ve cut their dividends. People stopped paying rent, and the current dividend payout wasn’t possible. As society restarts these REITs should recover, but on the other hand many companies have realized they can function with remote employees. And many people are getting used to buying stuff online instead of in a store.
The quintessential blue chip stocks for Canadians are the big five banks. Reliable growth and generous dividend payouts for decades attracted many investors. But here we are with weak recoveries:
In the past year the losses have ranged from -6% for CIBC to -24% for Scotiabank. Why haven’t they recovered? A weak economy and low interest rates mostly. Less income from loans and continuing economic uncertainty.
Will they recover? Probably. They haven’t cut any dividends, although Scotiabank hasn’t increased their dividend this year compared to their annual increase in past years.
BROAD INDEX FUNDS
At last we get to the most boring, and most reliable sector:
As you can see the S&P 500 ETF VFV was the champion with one year gains of +14% through the pandemic. VCN, the Canadian market ETF, is lagging behind along with the Canadian economy at -1.5%. And my darling VGRO, the perfectly balanced ETF, has gained about 6%.
The March lows are forgotten for these index funds. I’ve said before and I’ll say it again, index funds are the best way to protect your investment. It’s just too bad they’re so boring. Unfortunately I’m not immune to the seducing draw of stock picking. I study this stuff all the time of course I can pick stocks!
I’m going to follow my own advice more from now on. It’s fine to pick a couple stocks, but I’m going to aim for 80% of my portfolio in index funds no exceptions. These broad market funds just can’t be beat by us normals.Spam your friends: