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In 2023, central banks across the globe instituted a series of interest rate hikes in an effort to curb inflation. Given its susceptibility to high interest rates, these measures had a negative impact on real estate as an asset class. Consequently, real estate investors in both private markets as well as the public markets largely through Real Estate Investment Trusts (REITs) have experienced meaningful drops in the market value of such assets, ranging from a decline of 30% to 50%. Many overleveraged entities turned into financial hardships that led to bankruptcy because of increasing mortgage expenses.

Share buyback or share repurchase is one of the key options in capital allocation that a company can choose to allocate cash flow in addition to paying dividends, implementing acquisitions, or paying down debt.

In a share buyback, the issuing company repurchases its shares on the open market from any investor interested in selling, which reduces the amount of shares available, and increases the value of remaining shares.

2024 was a strong year for the U.S. equities market in general, given the tailwinds from declining inflation and a new cycle of easing interest rates.

That being said, not all sectors performed. The Energy sector overall was up slightly, around 2% (dividend included) for the year, while the S&P 500 and Nasdaq have provided returns of approximately 25% and 32%, respectively. The drastic underperformance made energy relatively attractive compared to the overall market which is trading at premium valuations compared to historical averages.

Historically, the U.S. healthcare industry has been considered a “defensive sector” as it is one of the U.S. economy’s most predictable and resilient sectors. The reasons are quite simple: people need medicines and proper medical treatment whether the economy is prospering or in a recession. Unlike the Canadian healthcare sector, where there are not many publicly traded healthcare companies, the U.S. market is highly dynamic; the industry has created some of the best performers in terms of value creation for shareholders over the years.

Growth Exchange-Traded Funds (ETFs) can be a popular choice for investors seeking long-term capital appreciation through a diversified portfolio of stocks and bonds. These ETFs provide an 80% allocation to a diversified set of equities (including geographic, sector, and industry diversification) and a 20% allocation to a diversified set of bonds (diversification is across both geography and length of the bonds).

The investment community tends to evaluate a company’s quarterly earnings based on the Earnings per Share (EPS) metrics. Companies that miss earnings expectations are usually punished hard, as investors tend to sell off the company’s share price materially.

Over the past few years, there have been challenging macro issues on many different fronts, from the black swan events of the pandemic to high inflation and large financial market drawdowns that result from rapidly rising interest rates. Canada’s Consumer Price Index (CPI), the key indicator of inflation, showed a meaningful slowdown in recent months in the wake of inflationary pressure. To prevent the risk of over-correcting the economy to moderate inflation, the Bank of Canada has recently begun cutting its key policy rate, and this move will potentially have a positive impact on risky assets.