Today was another tough day in the markets.  The declines were broad based, although financial stocks of all stripes pulled down the indexes the most.  The U.S. market was the worst (-4.7%), while Europe and Asia were down 2.5% and 3.4%, respectively.  With golds up and energy showing some life, our market was down ‘just’ 2.9%.  With the crisis on Wall Street, financials everywhere were down significantly.  In Canada, the Royal Bank fared the best (-3.7%), while the CIBC was the hardest hit (-7.4%).

Our equity funds were down, but the declines were reasonable in light of the sell off.  Needless to say, there haven’t been any safe havens where our managers could retreat to. 

Where the hits weren’t as obvious to many investors was in the fixed income markets.  The ‘credit market’ (corporate bonds) basically closed for business today in face of Wall Street uncertainties.  With rumours swirling around about another big institution going down, the banks stopped trading with each other, which crippled the market. 

The Steadyhand Income Fund, which holds a combination of bonds and income equities, had the worst day in its short history.  It was down 1.23%.  While bonds were generally up, led by secure government issues, the financials were hit hard, which is a sector where our fund has significant exposure.  Most of that exposure comes from the stronger Canadian banks, TD being the most important, but the fund also has small positions in Goldman Sachs, Morgan Stanley and Royal Bank of Scotland, all of which were hit hard. 

Looking forward, the quality of the portfolio is still excellent (despite the noted outliers) and the yield (pre-fee) is in the neighbourhood of 6.5%.  As we are recommending with equity funds in general, investors are well advised to hang in there with the Income Fund, and other fixed income holdings like it.  There is no denying that there has been deterioration in the portfolio (some bonds or equities will not recover completely), but we are confident that the overall value and income-generation is still there and is not fully reflected in the unit price.

A quick note on our Savings Fund.  The fund is in good shape and does not own any paper that is in danger of being in default.  It is designed to be a secure place to park short-term money, not reach for extra yield.

As I’ve noted numerous times, changes of strategy at extreme times like this, whether it be by our clients or fund managers, invariably causes irreparable damage to long-term returns.