theglobeandmail.com
Canadian Utility Stocks Outperform Market Over 25 Years
A 25-year backtest of Canadian utility stock portfolios reveals average annual returns ranging from 8.7 percent to 15.5 percent, exceeding the S&P/TSX Composite Index's 7 percent return, but also showing vulnerability to market downturns.
- What were the average annual returns of a Canadian utility stock portfolio compared to a broader Canadian market index over the past 25 years?
- Over 25 years, a Canadian utility stock portfolio, rebalanced monthly, achieved an average annual return of 8.7 percent, outperforming the S&P/TSX Composite Index's 7 percent. A refined portfolio of dividend-paying utilities yielded 11.9 percent annually. This suggests Canadian utility stocks offer relative stability and growth.
- Given the current geopolitical uncertainty, what are the potential risks and opportunities for investors in Canadian utility stocks in the coming years?
- Future performance is uncertain, particularly given the current geopolitical climate. While Canadian utility stocks historically demonstrated resilience, the potential for increased market volatility necessitates a cautious approach. Diversification and risk management strategies are crucial for investors.
- How did the performance of different Canadian utility stock portfolios (low volatility, low P/E ratio, high dividend yield) compare during market downturns like the 2008-2009 financial crisis and the COVID-19 pandemic?
- The study analyzed various utility stock portfolios based on different selection criteria (low volatility, low P/E ratio, high dividend yield). All outperformed the market benchmark, highlighting the potential benefits of specific portfolio strategies within the Canadian utility sector. However, these portfolios experienced declines during market downturns, indicating inherent risk.
Cognitive Concepts
Framing Bias
The framing consistently emphasizes the positive returns of the Canadian utility portfolios, particularly in comparison to the S&P/TSX Composite Index. The headline (while not explicitly provided) could further reinforce this positive bias. The article uses strong positive language to describe the performance of the portfolios, while the risks are downplayed or presented as relatively minor.
Language Bias
The language used to describe the utility portfolios is overwhelmingly positive ('lining the pockets of investors', 'strong long-term returns'). Conversely, the risks are minimized with phrases such as 'relatively well' or 'might do worse in the future'. More neutral language could be used such as 'consistent returns' or 'potential for future losses'.
Bias by Omission
The article focuses heavily on Canadian utilities as a safe investment during times of US market instability, potentially omitting other investment options or strategies that might be equally or more suitable for Canadian investors. It also doesn't discuss the potential risks associated with investing solely in utilities, such as sector-specific downturns or regulatory changes. The limitations of the backtested data are mentioned, but the broader economic and geopolitical context beyond US political instability could be further explored.
False Dichotomy
The article presents a false dichotomy by implying that Canadian utilities are the only or best safe haven for investors fleeing the US market. Other asset classes or diversification strategies are not adequately considered.
Sustainable Development Goals
The article highlights the strong performance of Canadian utility stocks, offering insights into investment strategies that have yielded significant returns over 25 years. This positive performance contributes to economic growth and potentially creates more decent work opportunities within the Canadian utility sector and related industries.