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Quarterly Investment Review Letter 2015 Q4

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As the oil and gas sector continues to struggle with low commodity prices, the economies of Alberta's two largest cities have dropped from first to near bottom in terms of Gross Domestic Product (GDP) growth. The province is facing a slow road to recovery through 2016 as the price of oil and gas continues to be a drag and any strengthening is still far off on the horizon.

The current exercise underway with “Big Oil” and many Large Cap Industrial names is called deleveraging. The purpose of deleveraging is most often to reduce risk. 

To understand the mechanics of deleveraging, you need to understand that assets on a balance sheet must be funded by something. That something is growth. Expansion is then funded by growth in the economy, i.e. GDP. Without growth, expansion slows – as in the current cycle.

Deleveraging essentially comes down to reducing the relative percentage, or the absolute dollar amount of a balance sheet funded by debt. The Manulife Monthly High Income fund (MHI) returns now reflect this cycle of the deleveraging process. 

The research is underway to shift the current equity component and add an expanded fixed income component into the old MHI mix. Let's call it the Strategic Dividend Bundle. RMFP has chosen to adopt such a solution offered by Manulife. We will continue to explore and expand this Strategic Dividend Bundle as it benefits each portfolio.