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Recession fears remain elevated in North America and other developed countries, with central banks prioritizing inflation control over economic growth.
Although markets appear to have priced in at least some of this risk, some investors say it’s not until central banks signal a relaxation in interest rate hikes that the market will begin to rally.
Globe Advisor recently spoke with Kevin McCreadie, CEO and Chief Investment Officer at AGF Management Ltd. in Toronto, his views on the markets over the next few months and how he is positioning the portfolios.
What is your view on what is happening in the markets?
Markets are looking to the future and will anticipate the recession before it happens. When central banks recognize that they may need to slow the pace of these interest rate hikes, it will be a sign that things are calming down on the inflation front and growth is slowing. It will be a catalyst for stock markets.
There are signs that inflation may be starting to peak, which means central banks will continue to tighten, but at a less aggressive pace.
While we could have another market pullback of around 5% ahead, we think the market is starting to turn the page, although it will remain volatile.
How are you positioning your portfolios for the future?
A year ago, we were overweight equities and underweight bonds, while our cash position was around 8-11%. More recently, we have reduced our overweight in equities due to the July rally.
We also closed the gap to the underweight in fixed income, given the increased appeal of certain sectors such as emerging market debt and high yield debt. Overall, we continue to be overweight equities and underweight bonds. Our cash position is also lower than it was a year ago, at around 5%.
What is your use of alternatives in this environment?
We have three different alternative strategies that we use to hedge market volatility.
On the equity side, we use an anti-beta exchange-traded fund (ETF) that rises when markets fall. On the fixed income side, we use private credit, which is more attractive than it has been for a long time. We also have a fund that invests in real assets, including energy, gold and physical real estate, for example, which works well as an inflation hedge.
What advice do you have for advisors trying to figure out how to invest in this market?
A fair amount of damage has been assessed so far this year. It’s hard for anyone to hit the bottom and sitting on high levels of cash – given the high levels of inflation today – may not be a good idea.
Having a little discipline and handing over the money to work is probably warranted. You can start choosing your spots. If you’re in the equity market, think about quality, which for us is companies with good balance sheets and good cash flow.
– This interview has been edited and condensed.
– Brenda Bouw, Globe and Mail Special
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If clients plan to leave a large inheritance for their children, they could be doing a disservice to both the child and their money. Not only does letting children struggle financially while waiting for their parents to die creates an uncomfortable family dynamic at holiday dinners, it also robs clients’ wealth of its best application: to make their lives and their children’s lives more comfortable. Bridget Casey explains why giving children cash gifts in early adulthood to set them up financially early in life is a better option.
– Globe Advisor Staff