Bull market – Over and Out?

Bull Market – Over and Out?

With Deutsche Bank recently clinching first place in the derby of forecasters suggesting we are in for a Recession, soon to be followed by Bank America/Merrill Lynch, inflation currently raging (8.5% most recent reading); Central bankers poised to raise rates faster and higher (if we are to believe them …) than at any point in time in the past what … 3 or 4 decades… the Question could be a valid one – is the Bull market over? Or do we wait for the confirmation that we have officially entered a recession, as well as a market taking further lumps before suggesting that this may well be the case?

Remember, Bull markets apparently don’t die of old age; and secular bulls can last a lot longer than we think they may … recall the TINA business? it isn’t exactly as if bond land for quite some time has provided returns sufficient to grow one’s capital.

Anyways, the point of it, as illustrated in the two following tables (top and bottom 10 performing ETFs, Vanguard Canada, as at March 31, 2022), is that returns look to be increasingly hard to come by … despite a market that has been in rotation, or correcting, probably for the better part of the last 6 to even 8 months …

March 2022: Top and bottom 10 performing ETFs, Vanguard Canada:

  • Canada leading the performance charts; Emerging Markets exposure bringing up the rear, with trailing 12 months returns at close to negative 10%, and YTD at -7.62%, reflecting several factors: exceedingly poor Chinese stocks performance; Russia being written down to … nothing (was it); and otherwise, presumably, fears that these markets don’t typically fare well when rates rise particularly in the US
  • Anybody looking for bonds to help offset market difficulties? well, that hasn’t happened of late, certainly not in march either (look at bottom 10 performers above …)

  • Canada dominating the performance charts YTD, led by VDY, which has a significant dose of Energy and may continue as long as Energy dominates, respectively will benefit when Canadian financials get back on track …
  • NOTE – interestingly, that it isn’t often that in a top and bottom 10 performing ETF tables such as this one, ONLY 4 are in positive territory (the 4th – Global Value Factor, only modestly at that …), bottom line, 6 of the top 10 “best” performing ETF at Vanguard YTD were also in negative territory for the quarter (despite March generally being a decent “bounce” as far as the overall market context.
  • For the rest, EM as noted in the red; Long bonds, Government bond; and Aggregate bond ETFs all making it in the bottom 10 performing ETFs YTD, and otherwise, several developed market ETFs (Europe; FTSE Developed ex North AM; US Total markets, etc all in the negative as well … Hence the question: have we had it as good as it gets as far as recovering from COVID-19, and is now recession risk essentially going to act as a meaningful headwind to performance this year?

In the meantime … Canadian investors and their Advisors making use of Vanguard’s ETFs offering continue to play the bullish angle, gauging from:

  • creations remain strong (see table):

  • Flows into the Equity; Growth; and Balanced “one ticket” solutions continue to significantly surpass those going into the more “conservative” category (conservative; income; Retirement Income). In fact Conservative had some modest outflows in March
  • Generally speaking, flows continue to go into all equity ETF solutions (S&P500; US Total market; Canadian High Dividend; etc

here is the list of all Vanguard ETFs whose AUM surpasses the $ 1 Bio mark, including their respective 12 months trailing TR, as well as the % change in terms of total AUM from a year ago:

Worth noting:

  • these 16 ETFs, out of the firm’s overall 37 ETFs, grew marginally faster than the overall AUM of all of the firm’s ETFs over the past 12 months (39%; versus 36.7%, respectively 33.2% – this last number stripping out the one ticket ETF solutions).
  • the 6 Allocation ETFs grew at a 55.4% pace in the past 12 months, as shown here:

In the overall, this is how the breakdown of exposure across the firm’s offering looks like as at March 31, 2022, respectively Mar 2021:

Will this continue?

  • Value factor continues to dominate both Min Volatility, as well as Momentum factor (VVL; VVO; VMO)
  • some may see this as counter-intuitive: all-in solutions of a conservative, income, respectively retirement nature underperformed balanced, which underperformed growth, which underperformed all equities …
  • notwithstanding the fact Canadian investors are generally well advised to diversify beyond their traditional home bias – Canadian exposure on the equity front is significantly outperforming … as noted, many other markets and jurisdictions are currently not performing as well. This gives us the luxury of deciding when to again consider adding to, or implementing US / International / Global exposure.

Be careful out there 🙂