The Big Chill – Financial Crisis and Investor Anxiety

The after-effects of the crisis – low interest rates, unemployment and undervalued assets – have been a dominant influence on the markets since then.

2013 was a welcome change for investors, with its more positive outlook for economic growth and robust stock market returns, especially in the U.S. 2014, however, has had a mixed start to the year with many people having reservations that the good times were too good to be true. New political worries have surfaced in the emerging markets in general and in the Ukraine in particular.

There have also been softer than expected economic reports – slack sales, weak employment data and poor industrial output. Apparently, we can blame this on the weather. According to reports from official government agencies, private surveys and corporations, it has been the colder-than-normal weather and heavy snowfall across large sections of the U.S. (and Canada) that have been responsible for this economic news. A big chill indeed!

With every chill comes investor anxiety. While there will be a thaw in the weather for sure, investor anxiety isn’t as easily alleviated. The best way to combat anxiety and stay invested despite troubling news is to find the right investment approach that works in good times and bad. You have heard us say many times that timing the market and trying to predict short-term market movements is a ‘mug’s game’. It is our belief that the best approach for investors is to stick to a long-term discipline and avoid the temptation of market timing. Nexus’s disciplined investment approach seeks to achieve the “Holy Grail” of investing. This being lower-than-market volatility, outperformance in down markets (capital preservation), and superior long-term returns.

In November of last year, we hosted our annual client event and presented on this very topic. Our clients always ask interesting questions at this event. In this issue of Nexus Notes we have included two questions that were asked by our clients: Is it a good idea to use ETFs? and What is Nexus’s most aggressive holding?

One of the signs of the times is how much cash investors have on hand. When investors are anxious, they will hold cash despite the fact that it earns next to nothing. Our new investment analyst, Devin Crago, has penned an article on what it means for an investor to be sitting on the sidelines holding cash. Cash can be useful to fund short-term spending needs, but cash alone will not fund your retirement. The Nexus North American Income Fund (NNAIF) provides one way to step carefully off the sidelines without having to plunge headlong into the stock market.

Here’s hoping that Spring and the “big thaw” are just around the corner!