Alfred Lam March 31, 2021 Markets
Portfolio Construction: A New Season

A New Season

What Opportunities are Driving Renewed Investor Optimism?

Spring has sprung! While this spring may not have the usual fever, the potential for a normal summer or fall is improving as over 300 million vaccine doses have been administered globally. In terms of your investments, our portfolios have generally done well since investor confidence and markets rebounded quicker than expected. Our overweight equity positioning and underweight government bond exposure since the end of last year provided an additional boost. It appears we are following the same storyline as 2010 when interest rates were last dropped to zero and central banks expanded money supply. However, this current episode is unfolding much quicker as investors learned from the last one.

But, there are a few things that could be different this time around…

Wallets at the ready

We expect inflation to accelerate in the short term as consumers have held off their spending in the last twelve months. This reduced spending, in addition to government subsidies, has generally increased household savings and income. When the world reopens without lockdowns and climbing cases, consumers will pay and suppliers will have pricing power. Reduced inventory could turn into scarcity in the coming months, as we all want the same things at the same time. For me, at least, to travel and have sushi at a restaurant. We have already seen steep price increases in raw materials: cotton, copper, aluminum, oil, etc. Oil prices as measured by West Texas Intermediate, for example, have risen 48% since the first vaccine was announced on November 9, 2020. We have said numerous times, we need to protect our purchasing power since cash that generates no income is not offsetting inflation and government bonds are doing very little with floor-level yields.

The real estate dichotomy

Typically, demand for real estate rises after a recession. In our current scenario, this may be true for residential real estate as the large drop in interest rates has enhanced purchasing power. Both sales volume and prices have increased in most Canadian cities. However, we expect demand for commercial real estate to remain challenged for longer. The pandemic has potentially changed our lifestyle, permanently; we are more comfortable shopping from home, working from home, having meetings online, etc. This lifestyle change has implications on the demand for malls and office spaces. To account for this, the managers for our real estate portfolio are underweight malls and offices, and overweight self-storage, data centres and health care facilities.

Greener but shorter pastures?

While oil prices are rising, the prospect for the energy sector remains less clear. World leaders are calling to ban fuel-powered passenger vehicles by 2030. It is possible demand and supply will fall at the same time and maintain higher prices at lower volumes. We typically prefer investments that have more certainty over the long term and durability in profits. This time, our investment horizon in the energy sector may be much shorter.

Navigating the circuitboard

To say technology is changing our lifestyle is an understatement. Those of us who went through the boom and bust of the tech bubble in 2000 may be more hesitant to believe than those who didn’t. It’s not a bad thing, but today we are seeing both “profitable” and “unprofitable” tech in stock markets. Not all “profitable” tech are great investments as they could be expensive, and not all “unprofitable” tech are bad as their prospects could change. We delegate that responsibility to our underlying sector experts that not only follow these trends, but also identify the leaders. We recently hired a proven investment manager, Munro Partners, to run a portion of our portfolios, complementing our other U.S. equity thought leaders: Epoch Investment Partners, Wellington Management and State Street Global Advisors.

It’s important that our portfolios not only invest for value, they also need to remain relevant to changes in people’s lifestyle and habits. This is why we leverage the expertise of our underlying managers and integrate with our broader multi-asset investment philosophy, to ensure your clients’ portfolios are positioned for the best results in the future.

By Alfred Lam, CFA, Senior Vice-President and Chief Investment Officer
Marchello Holditch, CFA, CAIA, Vice-President and Portfolio Manager, CI GAM | Multi-Asset Management

Download Full Article Here

This document is intended solely for information purposes. It is not a sales prospectus, nor should it be construed as an offer or an invitation to take part in an offer. This report may contain forward-looking statements about one or more funds, future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. CI Assante Wealth Management and its dealer subsidiaries, Assante Capital Management Ltd. and Assante Financial Management Ltd. (collectively “Assante”) are affiliates of CI GAM | Multi-Asset Management, which is a division of CI Global Asset Management. Evolution Private Managed Accounts are managed by CI Global Asset Management under the United Financial brand and are available exclusively through your Assante advisor. Neither CI Global Asset Management nor its affiliates or their respective officers, directors, employees or advisors are responsible in any way for damages or losses of any kind whatsoever in respect of the use of this report. Commissions, trailing commissions, management fees and expenses may all be associated with investments in mutual funds and the use of the Asset Management Service. Any performance data shown assumes reinvestment of all distributions or dividends and does not take into account sales, redemption or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the fund prospectus and consult your advisor before investing. CI Assante Wealth Management is a registered business name of Assante Wealth Management (Canada) Ltd. CI Global Asset Management is a registered business name of CI Investments Inc. This report may not be reproduced, in whole or in part, in any manner whatsoever, without prior written permission of CI Assante Wealth Management. Copyright © 2021 CI Assante Wealth Management. All rights reserved.