Each year that I attend Toronto CFA Society’s Annual Forecast Dinner I’m amazed by the sheer size of the event. With over 1200 attendees from such diverse backgrounds as analysts, portfolio managers and other financial services professionals, it is billed as one of the largest gatherings of its type in North America. Regardless of the profession represented, the unifying theme for this year’s dinner was aptly stated by Toronto CFA Society President Nancy Hoi Bertrand, CFA as “Back to Fundamentals”.

The backdrop to this year’s event was the cautious sentiment felt by investors amidst the current global economic uncertainty. The past two years have been both frightful and exciting times for investors. Nevertheless, the professional body to which we belong is steadfast in its investment leadership, providing ethical and professional standards, continuing education and industry advocacy.

“Back to Fundamentals” means reinforcing the discipline of investing. Two highly regarded economists and strategists shone some guiding light on “fundamentals” and offered their views on the global economy, Canada’s prospects and the investing dilemma in the U.S. Patricia Croft, chief economist at RBC (now retired), and Bob Doll, CFA, vice-chairman and chief equity strategist at BlackRock, both forecasted higher stock market returns in the coming year along with higher interest rates. However, they had differing opinions on how we might get there.

Brave New World of Investing

Patricia Croft stated that we’ve entered a “Brave New World”, from the title of Aldous Huxley’s famous novel, and not merely a “New Normal” as others have recently named the current economic shift. (Huxley was a socialist satirist and his novel examined a futuristic stable global society brought about by government control and chemical docility). Patricia’s 30 years of experience on Bay St. has allowed her to live though several business cycles and “meet some large animals on Bay Street – bull and bears”. She disagrees with notable bear pundits, Nouriel Roubini, economics professor at New York University’s Stern School of Business and chairman of Roubini Global Economics and David Rosenberg, chief economist and strategist for Gluskin Sheff, in their estimation of a double dip recession. Croft states that the odds of this are very low. She believes that we are halfway through a secular bear market in stocks that will likely retest the highs and lows of the TSX Composite Index over the coming year. In this environment, she believes tactical asset allocation is preferable to a passive approach. Canada will benefit from a commodities recovery led by demand from the BRIC countries (Brazil, Russia, India and China). A year from now she sees the TSX at 13,500, the bank rate at 2.5% and the Canadian dollar at US$1.15.

Upbeat Forecast for the U.S.

Bob Doll has published his forecast for the next decade on his firm’s web site (BlackRock.com). He points to global and domestic trends for an upbeat equities picture and forecasts the S&P 500 Index will reach 1249 and the 10- year treasury yield will be at 3.49 percent next year. The economy will “muddle through” but overall “it’s not as bad as we think” as the U.S. goes through a slow, jobless recovery. But the real underpinning to Doll’s optimism for U.S. stocks is the relatively good health and strong cash flows of corporations, which he thinks could lead to increased dividends, share buy backs, merger and acquisition activity and/or reinvestments being made in the business. Surprisingly, U.S. consumers didn’t hoard cash for too long and went back to spending during the depths of the depression. Their hoarding only lasted for three months versus the two to three years that was forecasted. All of these factors, in addition to the economic strength of emerging countries, make the odds of experiencing a double dip recession very low at 10 to 20 percent, according to Doll. He notes that recessions have occurred only 20 times since 1910 with an average frequency of 3.8 years.

Canadian Strengths Will Continue

Both speakers see Canada as a continued winner on the global stage due to its stable banking, valuable resources, prudent fiscal responses, and a global economy that is getting even larger. Both also highlighted the importance of China, which will likely surpass Japan next year as the second largest economy in the world. The emerging markets already account for 86 percent of the world’s population, 50 percent of the world’s GDP but only 22 percent of the world’s equity market capitalization.

The evening concluded with Fred Pinto, CFA, vice president of Toronto CFA Society, presenting Karen Deschenes an award for winning the most accurate forecast from last year’s dinner. (On 27 August 2009 Karen accurately predicted the following statistics for the year ahead: TSX S&P Composite Index 11880, S&P500 Index 1055, 10 Year Government Bond Yield 2.9 percent, Oil $75.17 US, Gold $1237.90 US and the Canadian Dollar $0.95. Her forecast was the most accurate among attending analysts, portfolio managers, traders, academics and other investment industry professionals—an impressive feat!) By 8:30 pm, attendees adjourned to cocktails or their travels.

The event is a tradition that now boasts 53 consecutive years. We were privileged to have Patricia Croft and Bob Doll, CFA as key note speakers. Patricia Croft has since retired from RBC Asset Management, therefore, the timing of her speech makes it all the more special.

We look forward to seeing you at next year’s dinner.