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Canadian Equities

The future is looking brighter

Canadian Equity outlook

Where commodities go, the S&P/TSX usually follows 

The S&P/TSX Composite Index has often been referred to as a commodity‑linked index given that two of its largest sectors are commodities and energy. As the global economy continues to recover from COVID‑19 and government‑forced lockdowns, the demand for commodities is expected to continue increasing. The increased demand should bode well for S&P/TSX returns. 

S&P/TSX Composite Index vs CRB Commodity Index 

2000 – current 

S&P/TSX Composite Index vs CRB Commodity Index 2000 – current

Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.

Improving oil prices should lead to a better earnings environment 

Historically, earnings for the TSX has correlated with the change in the price of crude YOY. We’ve seen a recovery in oil prices from US$37/bbl in April to US$48/bbl by the end of December. Using US$55/bbl as our target price for 2021, we believe the rapid reopening will lead to higher crude demand and prices, contributing to higher S&P/TSX earnings growth. 

Change in oil price (YOY) vs Change in S&P/TSX earnings per share lagged 3 months (YOY) 

1996 – current 

Change in oil price (YOY) vs Change in S&P/TSX earnings per share lagged 3 months (YOY) 1996 – current

Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.

Canadian equity valuation is attractive in key sectors 

Financials and energy are two sectors that are trading at attractive valuations relative to the last 15 years. A rapid reopening and a steeper yield curve would benefit each of these sectors, while valuation would suggest the risks lean to the upside. 

Graph: Financials and energy are two sectors that are trading at attractive valuations relative to the last 15 years. A rapid reopening and a steeper yield curve would benefit each of these sectors, while valuation would suggest the risks lean to the upside.

Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.

Dividend growers outperform 

Using Bloomberg, we screened the S&P/TSX Composite Index for companies with a five-year dividend growth rate of at least 10% and a payout ratio of no more than 70%. This screen was backtested and rebalanced on a quarterly basis, going back 10 years, to September 30, 2020. The model has a 10-year annualized performance of 7.65%, while the S&P/TSX Composite Index returned 4.92% over the same period. These results assume all dividends are paid out and not reinvested. 

Capital Markets Strategy dividend growth model vs S&P /TSX Composite Index 

Cumulative return (2010 – 2020) 

Capital Markets Strategy dividend growth model vs S&P /TSX Composite Index Cumulative return (2010 – 2020)

Source: Manulife Investment Management, Bloomberg, as of September 30, 2020.

Manulife Investment Management’s sample strategy

Manulife Investment Management’s sample strategy

Canadian equities

• Favour a selective approach to Canadian equities.

• Consider diversifying business risks, not just sectors.


US Equities

• Look for opportunities to take advantage of market dislocations.

• Consider dollar‑cost averaging into equities.

International developed market equities

• Consider less constrained strategies that can seek out opportunities wherever they may present themselves.

Emerging Market equities

Opportunities may exist within the emerging markets, specifically in the Asia ex‑Japan region.


Fixed Income
• Favour flexible strategies that can seize opportunities wherever they may be.

•Consider using different types of bonds for different objectives, whether it is downside protection or enhanced yield.

•Be mindful of the potential currency impact on global allocations.



Source: Manulife Investment Management as of December 31, 2020. For illustration purposes only. Performance histories are not indicative of future returns. The information in this document does not replace or supersede KYC (know your client) suitability, needs analysis or any other regulatory requirements. Clients should seek the advice of professionals before making any investment decisions.