December 2014 Commentary (FULL VERSION)

Well, 2014 turned out to be quite the year – oil got smoked, gold was flat, utility stocks and long term government bonds were among the best performing assets in North America and, once again, no Canadian team made it to the Stanley Cup finals! Going into 2014, consensus thinking had interest rates rising, the yield curve steepening and the market being geared for stock pickers, thanks to falling correlations between stocks. Stock correlations fell to less than 10% amongst the S&P 500 components by late 2014, the lowest level since January 2001, but correlations typically drop when volatility (lowest since 2006) is almost non-existent, since nothing moves. That fact along with being on the wrong side of the interest rate call explains why most fund managers picked the wrong stocks and underperformed their benchmarks this year...