By Ambrose O’Callaghan
Harvest ETFs in 2023: A Year in Review
The past year has been a hectic one for Canadian investors. However, despite the turbulence, the S&P/TSX Composite Index was still up 5.1% so far in 2023 as of close on Wednesday, December 13. Canadian equities have staged a comeback in November and early December after bottoming out in late October.
What has made this year hectic? What should investors expect ahead of 2024? How have Harvest ETFs navigated this challenging environment? Let’s jump in.
A Year of transition: How did we get here?
Inflation rates soared in the aftermath of the COVID-19 pandemic in late 2021 and early 2022. Indeed, the Consumer Price Index (CPI) rose 6.8% on an annual average basis in 2022. That followed inflation gains of 3.4% in 2021 and a much more modest 0.7% in 2020 as the pandemic shook the domestic and global economy. The inflation rate in 2022 represented a 40-year high. That was the largest increase since an annual average CPI of 10.9% was reported in 1982.
Investors in the developed world had grown used to historically low interest rates in the aftermath of the Great Recession of 2007-2009. That period, marked by low rates and radical quantitative easing programs, saw one of the longest bull markets in history. The seriousness of the COVID-19 pandemic became apparent in early 2020, spurring even more radical monetary and fiscal policies. While these measures prevented a deep recession, it also led to the high inflation we saw after the pandemic subsided.
High inflation led the United States Federal Reserve, the Bank of Canada (BoC), and many of their central bank peers in the developed world to pursue the most aggressive interest rate tightening policy in this new Millennium.
Those higher rates have been good for savers, who have enjoyed an attractive risk-free rate of return for the first time in roughly 15 years. However, other assets like equities and real estate have been throttled in this high interest rate environment.
How have stocks, bonds, and real estate performed in 2023?
North American stocks were hit with major turbulence for most of 2023. Bond prices also suffered as interest rates were on the rise. However, investors were able to take advantage of higher yields and higher savings rates in cash accounts.
The S&P/TSX Composite Index spent most of the year battling volatility. Canada’s top index plunged to a 52-week low in late October. Fortunately, it has come on strong into the midway point in December 2023. That may reflect the broader view that interest rates have peaked, and interest rate cuts will be on the docket for 2024.
What should investors expect as we look ahead to the New Year?
At Harvest, we believe we have seen the peak of the interest rate tightening cycle. This has been further illustrated in comments made by the United States Federal Reserve chairman Jerome Powell.
‘We are seeing strong growth that . . . appears to be moderating,’ Powell said after the Fed met on December 13, 2023. ‘We are seeing a labor market that is coming back into balance . . . We’re seeing inflation making real progress. These are the things we’ve been wanting to see . . . But of course, the question is; when will it be appropriate to begin dialing back?’
In December, the Federal Open Market Committee voted unanimously to maintain the benchmark overnight borrowing rate in a targeted range between 5.25% and 5.5%. Committee members also penciled in three rate cuts for 2024. Tiff Macklem, current Bank of Canada Governor, recently said that he also expects to start cutting interest rates by next year.
When they do arrive, declining interest rates could have a broad levitating effect on the economy and market. That is good news for Canadian investors.
Harvest ETFs that shined this year
Harvest ETFs had a big year in 2023. This year saw Harvest expand into Fixed Income with the launch of a brand new fund in the fall.
The Harvest Premium Yield Treasury ETF (HPYT:TSX) was launched on September 28, 2023. This fund is a portfolio of ETFs which hold longer dated US Treasury bonds that are secured by the full faith of the US government. Moreover, the ETF employs up to 100% covered call writing to generate and maximize monthly cash flow. Less than two months since its launch, HPYT had surged over $100 million in net assets under management (AUM). Moreover, it delivered a monthly distribution of $0.1500 per share in October and November.
Meanwhile, in November 2023, the Harvest Tech Achievers Growth & Income ETF (HTA:TSX) was awarded a Lipper Award for its Class U shares for the second consecutive year. Units of the HTA ETF have delivered an annualized performance of 14% since its inception on April 27, 2015. Better yet, the HTA ETF has increased its distribution for three years in a row. It last paid out a monthly distribution of $0.1200 per unit. That represents a current yield of 9.11% at January 5, 2024.
Regardless of the market conditions in 2023 or the year ahead, Harvest ETFs has a tried-and-true investment philosophy that has yielded success since 2009.
That investment philosophy involves taking long equity positions in high quality businesses. Moreover, Harvest ETFs has been able to generate additional income through covered call writing. The commitment to sound principles has helped Harvest ETFs win recognition as one of the top growing companies in Canada from the Globe and Mail.
As Warren Buffett once said; “The stock market is much clearer in the rear-view mirror than the windshield”. While investors should always educate themselves on the history of the market and the broader economy, past performance is not indicative of future results.
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated.