LISTEN TO ARTICLE 4:43 SHARE THIS ARTICLE Share Tweet Post Email

Photographer: Pawel Dwulit/Bloomberg Photographer: Pawel Dwulit/Bloomberg

How badly have Canadian stocks underperformed this decade? Here’s the sobering answer: An investor would have done just as well avoiding all the risk and volatility of equities and buying an index of plain vanilla, guaranteed government bonds.

A mix of Canadian federal, municipal and provincial government debt returned 94% in the decade following the great financial crisis, as central banks around the world primed the economic pump with lower interest rates. That led to outsized gains for government debt, whose prices rise as rates fall.

The return for Canada’s main equity gauge was remarkably similar, gaining 95% since the end of 2009. That’s less than half the 255% return for the S&P 500 index in the U.S., as Canadian stocks were weighed down by mining and energy companies like EnCana Corp.

That doesn’t mean there weren’t some off-the-charts stock winners: Boyd Group Income Fund, the auto-repair shop owner from Winnipeg, Manitoba, returned a whopping 4,300% in the decade, including dividends. Not far behind was perennial gainer Constellation Software Inc., up 4,200%. Air Canada was third at about 3,700%.

Here are some other highlights from the decade, which is set to end with equities at a record high and corporate bonds on pace for their best annual performance in a decade.

Roaring Stocks

Canada’s stock market hit some milestones this decade as it blasted through several all-time highs, gaining more than $660 billion in value and surpassing $2 trillion in market cap. While Canada’s largest companies have been around for decades, the country has established a reputation for attracting the flashier investment trends -- cryptocurrency miners and marijuana firms are the most recent.

While this has sparked some early-stage winners, many of these fledgling firms have failed -- a year after the legalization of weed, cannabis stocks are down by about two-thirds and capital markets have largely frozen for all but the strongest companies.

Natural resource companies -- stalwarts of the benchmark index -- have also suffered. The energy sector has been flailing as foreign companies pull investment from oil sands projects amid a slump in Canadian crude versus the U.S. benchmark due to pipeline bottlenecks. Both sectors were the worst performers on the S&P/TSX Index over the decade. Consumer staples like Dollarama Inc. were much better bets.

Even with the surge in listings of pot stocks, there are fewer options for Canadian investors. The S&P/TSX Composite has lost 22 members since its peak in 2011.

Fewer Companies The number of firms listed on Canada's benchmark has dropped Source: Bloomberg

There are some bright spots, especially in the technology space. BlackBerry Ltd. has never regained its former glory but Shopify Inc. has surged more than 1,200% since it went public four years ago, and Lightspeed POS Inc. has rallied more than 60% since its IPO earlier this year.

Loonie’s Wild Ride

While the Federal Reserve led the charge in easing monetary policy in the wake of the Great Recession, the Bank of Canada started raising rates well ahead of the Fed in 2010. That divergence helped the Canadian dollar return to parity against the greenback.

But the tide quickly turned and the loonie lost 19% in 2015 as a slump in crude prices weighed on economic growth, forcing the BOC to resume interest-rate cuts.

This year, the Canadian currency has come out on top relative to its Group-of-10 peers, thanks to a population boom that’s spurred growth and kept the central bank on hold.

Bipan Rai at Canadian Imperial Bank of Commerce, the top forecaster of the loonie in the third quarter, sees the currency weakening next year.

Read more: Swagger Seeps Out of Loonie as Canada Growth Concerns Intensify

“We envisage the domestic demand slowing down by enough to poke the BOC to ease rates by mid year,” said Rai, North American head of FX strategy at the bank.

Bonds

Yield-hungry investors pushed returns on Canadian corporate bonds in 2019 to the best performance in over a decade, but they’ve lagged their global peers.

“Canada under-performance is justified as it’s a smaller market, so there’s less diversification of sectors,” Avi Hooper, a portfolio manager at Invesco, which has $1.2 trillion under management, said in an interview.

Still, investors who locked their money away in government bonds over the past decade wouldn’t have missed the party.

The central bank rate cuts in the wake of the recession sent 10-year bond yields down by more than half to 1.66% from 3.6% at the end of 2009. That’s roughly in line with the evolution of U.S. Treasury yields, which moved from 3.83% to 1.93%.

It would take a courageous investor to make that bet on government bonds again for the next decade.

— With assistance by Doug Alexander, and Esteban Duarte