In the years that followed the sub prime crisis and Great Recession, the TSX Venture Exchange was the best-performing exchange throughout the world. It sounds almost funny to say, but it’s true. We wrote about this back then as the exchange soared to new highs month after month.
Since January, 2016, the Venture has reclaimed this title as it rallies to new highs in the face of a resilient bull market in gold and silver. Before comparing the two time periods and deciding whether or not to bust out the champagne, let’s take a look at how we got here.
The world’s junior resource exchange hit rock bottom in March of 2009; at the same time, other North American indices put in their lows. After more than tripling in value from the 689 range to approximately 2400 in April of 2011, one of the worst bear markets in Canadian history began. Seven years later (from the low of 2009), investors should be wondering if the exchange put in a similar bottom in January of this year, when it touched 466. While the exchange fell with other indices in 2009, it was all alone at the bottom of the barrel in January of 2016.
TSX Venture Bull Market Comparison
The current bull market in the TSX Venture has been more pronounced thus far in comparison to the TSX.
TSX Venture vs. TSX – 1 Year Chart
Venture Volatility proves fruitful in 2016
The Venture always overreacts – it has had more than a 40% turnaround in just the first 7 months of the year. With less liquidity (buyers and sellers) in its market, when either side of the trade steps aside, huge price moves ensue. With the risk trade back on for commodities, the Venture is now trading higher week after week.
One reason the Venture may have much further to run is due to the prolonged nature of the recent bear market in commodities. Check out how it fared against the TSX (a much more liquid and balanced exchange) over the past 5 years.
TSX vs. TSX Venture – 5 Year Chart
As can be seen from the chart above, the TSX has hugely outperformed the TSX Venture over the past 5 years.
Looking back to the collapse of 2008 and the recovery which began in March of 2009, the Venture underperformed the TSX on the way down, but then hugely outperformed the TSX on the way up. With exchanges such as the TSX, NASDAQ and S&P 500 at or near all-time highs, the Venture could be positioned to do some serious catching up over the next few years. Investors long the TSX Venture when has moved in the right direction have done exceptionally well…
In 2012 we looked at the TSX Venture’s historical averages:
- Average loss (in percentage terms) during a correction (peak-to-trough): -36.25%
- Average duration of a bear market in the TSX Venture: 5.78 months
- Average gain after a correction (trough-to-peak): 98.08%
- Average duration of a bull market in TSX Venture: 11.83 months
Click here to read TSX Venture Exchange… Buy or Sell? from April of 2012.
The bear market of 2011 to 2016 was the longest ever. It has dragged up the average duration. The impact of this is being seen right now as pent-up buying floods into depressed juniors pushing their share prices higher.
Keys to remember:
The new bull market that began in January is only 6 months old.
From trough (466) to peak (768) the TSX Venture has rallied 64.8% – still more than 30% below the historic average gain of 98.08%.
In my mind, one thing is for sure; the last bear market was anything but average and with only 6 months gone in this bull market, the party’s climax may be a ways out yet…
Enjoy the ride and the inevitable volatility which will be sure to make things interesting,
Alex
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
