The best & the worst investments of 2016

WITH THE S&P/TSX COMPOSITE INDEX UP ROUGHLY 18 PER CENT, THE S&P/TSX VENTURE UP 44 PER CENT AND THE MAJOR U.S. INDICES ALL HITTING RECORD HIGHS, YOU HAD TO HAVE A REALLY GOOD YEAR IN 2016 TO STAND OUT FROM THE PACK. AND, FROM THE RUSSIAN RUBLE TO THE MIGH

WINNERS RUSSIA

In 2016, investors put the R back in “BRIC”. Russia had fallen off the investor radar but this year both its currency and markets soared alongside rising oil prices. The ruble was the second best spot price performer against the Canadian dollar, up more than 18.64 per cent (just behind the Brazilian Real which rose 18.81 per cent). Meanwhile, Moscow's large-cap MICEX index has risen roughly 25 per cent yearto-date. A recent production deal between OPEC and nonOPEC members could drive oil prices, and in turn Russia's economy, even further. U.S. president-elect Donald Trump's praise of Vladimir Putin and his choice of oil executive Rex Tillerson, who has done extensive business in Russia, as his Secretary of State also bode well for the country in 2017.

TECK RESOURCES LTD.

Coal prices surged in 2016, blindsiding the market and sending the stocks of downbeaten miners soaring, none more so than Teck Resources Ltd. The Vancouver-based base-metals miner — which credited steel-making coal for 34 per cent of its gross profit last year — was the top performer on the S&P/ TSX Composite index this year, up more than 403 per cent. Had you invested at the January low of $3.80, you would have made a return of more than 607 per cent. Not bad for a commodity that had been vilified by governments across North America. The rebound came after Beijing implemented a new policy restricting the number of days worked in mines, which sent China's output of the commodity plunging, and prices soaring. While forecasts for 2017 are mixed, coal has at least one new ally on the political front, as Trump has vowed to revive the U.S. coal mining industry.

ETFS

It was a milestone year for exchange-traded funds, with assets under management in Canada surpassing the $100-billion mark for the first time in June. That's double what it was four years ago. ETFs have been the beneficiaries of increased scrutiny on investment product fees, while the $1.1 trillion mutual fund industry has struggled with outflows. And it is by no means just a Canadian story: Assets invested in exchange-traded products listed globally stood at a record US$3.4 trillion at the end of November, according to ETFGI, an independent research and consultancy firm. With increased regulatory requirements on fee transparency coming in Canada in 2017, the flow from active to passive funds such as ETFs is only likely to increase.

CANNABIS

Canadian marijuana stocks rode high in 2016 as the federal government outlined its plans to legalize and regulate the plant's recreational use. Since the beginning of the year, shares in Canopy Growth Corp. — the largest Canadian medical marijuana producer and a bellwether for the industry — have risen by more than 200 per cent. Prices were buoyed both by changes in Canada and the growing acceptance of the herb south of the border, where California, Nevada, Massachusetts and Maine voted to legalize recreational use in November. Those results helped propel Canopy to a billiondollar valuation. A report from Canada's federal pot task force that sketched out what a recreational marijuana market would look like only added more fuel to the story. That market is expected to be operational by 2018, and could be worth as much as $10-billion.

AIRLINES

Airlines took off in 2016 — thanks to more passengers and cheaper fuel — as record profits sent share prices soaring. When all is said and done, the global airline industry is expected to have recorded its highest absolute profit and the highest net profit margin in history, according to the International Air Transport Association (IATA), at US$35.6 billion and 5.1 per cent, respectively. And North American airlines flew higher than the rest. Shares of Air Canada Corp., which saw record profits in the third quarter, were up 33 per cent in 2016 to roughly $13.67. United Continental Holdings, meanwhile, saw its shares rise 28 per cent. Even Warren Buffett, who has shunned the industry for decades, changed his tone in November when he took stakes in United, American Airlines, Delta Air Lines and Southwest Airlines. While higher oil prices could be a headwind in 2017, the IATA is expecting a “soft landing in profitable territory,” citing the expected bump in global economic growth as an offset.

LOSERS

COCOA Despite a banner year for commodities, cocoa was a bitter pill for investors in 2016, as futures slipped about 32.5 per cent. Improved rainfall in West Africa — where two-thirds of the world's cocoa is grown — led to a new crop surplus of 220 kilotonnes, according to Citi. What's more, cocoa was piling up at ports and warehouses in the Ivory Coast, the world's biggest producer, after the price plunge prompted some exporters to suspend purchases, Bloomberg reported this month. Meanwhile, demand for chocolate — cocoa's primary destination — was pressured on two fronts: Consumers passed it up for healthier options, while confectioners facing high sugar, butter and milk prices took to reducing the size of their products to make ends meet. The future isn't looking any sweeter: Citi predicts cocoa output will rise nine per cent next year.

VALEANT

There was no cure for Valeant Pharmaceutical International Inc.'s financial woes in 2016. The Montreal-based company was once the largest on the TSX, its shares topping out at $346.32 in July 2015. Now, after a series of controversies including questionable drug price hikes and an alleged multimillion-dollar kickback scheme that has left a former executive facing charges, those shares have slumped to around $19.12. That plunge made it the worst performing stock on the S&P/TSX Composite Index in 2016, down more than 86 per cent. The company's imitators fared no better: Shares of fellow Canadian drugmaker Concordia International Corp., which openly emulated Valeant's tactics, lost 94.9 per cent of its value in 2016.

HEDGE FUNDS

Frustrated investors lost patience with hedge funds in a big way in 2016, pulling more than US$80 billion from the exclusive and costly money managers. And it wasn't just ultra-rich individuals who had had enough of their “two and twenty” fees and middling performances. Major university endowments, pension plans and insurance companies also got in on the act. In February, American International Group (AIG) said it was reallocating about half of its US$11-billion investment from the vehicle, while in November, it was Kentucky's state pension plan that decided it had seen enough. The funds didn't do themselves any favours: Bill Ackman's Pershing Square Capital Management, for example, had seen a gross return of -12.3 per cent (or -13.5 per cent, net of all fees) as of the end of November. And the Hedge Fund Research Inc.'s fund weighted composite index is up just 4.5 per cent so far in 2016, well behind the S&P500.

NEGATIVE-YIELD BONDS

Negative-yielding bonds were always going to lose money in the long run. It just wasn't supposed to happen this quickly. The bizarro products that crossed the interest rate zerobound took off in 2014, the “logical” extension of government efforts to stimulate their economies. But their values have plunged more than 23 per cent since the U.S. election, amid speculation that the president-elect will flood the market with new Treasuries and boost inflation. (The Fed rate hike didn't help either.) According to CIBC economist Benjamin Tal, the bonds, trillions of dollars of which were issued, may already be obsolete. “Even if (rates) overreact a little bit and go down a little bit, that will not bring the negative-yield story back in any significant way,” he said. “I really cannot see how those negative-yield bonds can do well in 2017.”

THE BRITISH POUND

Markets may have shaken off the Brexit vote, but the pound is still feeling the effects. The British currency was the secondworst performing major currency against the Canadian dollar in 2016 with spot returns down 18.75 per cent year-to-date. (That's just slightly ahead of the Mexican Peso and behind the Swedish Krona.) In that time, the pound has fallen from $2.0396 to $1.6565. And until the Brexit process is clear, it is expected to remain vulnerable. A Scotiabank analysis concluded that while the pound is already undervalued, it may put up little resistance if the U.S. dollar strengthens further.