The last three months have seen the continuing trend of gradually rising interest rates in both Canada and the US. In this quarter’s letter we will elaborate on Avenue’s bond portfolio strategy where the majority of our investments are in shorter maturity Canadian corporate bonds.

In investing it is important to directly address the challenging and ever-changing economic environment head on. It was only last quarter when there was a real fear of inflation and surging interest rates. Now escalating trade wars are threatening a global recession. In this quarter’s letter we will discuss how we see these challenges playing out and what we are doing about it within Avenue’s fixed income and equity portfolios.

In the first quarter, Avenue’s Equity Portfolio experienced its first decline since January of 2016. The Avenue bond portfolio’s performance also had a small decline. Both portfolios were affected by the market’s reaction to rising inflation expectations as interest rates rose and the added new risk of a global trade war reduced the outlook for corporate profits. We were conservatively positioned ahead of this market move and we argue that a significant amount of the correction has already taken place.

2017 was a challenging year for bond investors as interest rates rose in Canada. That challenge contrasted with what was a decent year for Avenue’s equity portfolio where the return was roughly in line with our expectations. However, within the portfolio there were certainly plenty of variables which we will discuss in this quarter’s letter. Also, we would like to reaffirm how Avenue’s portfolio strategy is always looking to lower risk given our view that there are now parts of the stock market that we would describe as overvalued.