With uncertainty regarding the pandemic and the U. One of the big overhangs for the U. For those looking to diversify away from that risk, Andrew considers international equities a good option, because you can find attractive valuations without any election risk. For those who think things will return to normal sooner, international value or international dividend ETFs might be good to consider.
ETFs are trending because of their low fees, tradability and ability to provide specific factor exposure. In Canada, ETFs have experienced the highest inflows on record on a year-to-date basis. Generally, investors like to leave U. In mid-June, this flipped, and now we are seeing tremendous inflows back into unhedged assets — coming out of Canadian-hedged investment assets — as people realize that the U.
Don notes that many companies paying dividends are more mature and further along in their life cycle. He notes that many tech companies are benefiting from the demand from mature companies that are seeking to digitize their operations. Don believes the worst — and most — of the dividend cutting has already happened, and that the government stimulus was crucial in providing liquidity to the market and creating tremendous access to capital.
Sectors that have been stable in the past may not be as stable in the future, and Don has been pleased that the Fund has been able to avoid major pitfalls in the market. His portfolio has heavy exposure to the Canadian and U. Regarding absolute returns, Don focuses on portfolio return over time. Don describes himself as sector-agnostic; he will invest where he thinks the opportunities are. Jurrien believes we are in a secular bull market. Cyclical downturns during secular bull markets are fast and furious and tend to recover just as quickly; they still have shocks and do not prevent recessions.
We have seen a rally that has been missed by many investors, and we have seen the day-trading phenomenon increase and become more dominant over the past few months. Jurrien believes there is more room to run, which could be a theme leading into His question is whether relief will come soon enough to prevent large-scale bankruptcies, because layoff announcements by various companies have continued. Jurrien has been bullish on emerging markets, and specifically Asia, which is his favourite non-U.
He continues to approach investing using a barbell strategy, wanting to have U. He also likes precious metals, TIPs and some long-term bonds, which all contribute to what he considers an all-weather portfolio. Jurrien has studied seasonality: all else being equal, it does seem to matter, but it is never the main focus. Seasonally, September and October are periods of higher volatility, and this year the period coincides with the U.
However, while seasonality makes a difference, Jurrien believes the economic cycle and valuations are what will drive the markets. The Federal Reserve the Fed is doing average inflation targeting, something that was expected a year ago. Jurrien thinks the Fed would like to see long rates go up; this would create a positive yield curve and be beneficial for banks.
The key thing to measure is not nominal rates but real rates. Looking at them, Jurrien is not too worried right now. Fixed income portfolio manager Sri Tella discusses the policy changes at the Bank of Canada and the Federal Reserve the Fed he has been observing, considers how these changes will affect the Canadian bond landscape as the economy reopens and suggests where he sees opportunities for Canadian investors in the bond market.
Sri believes the government is trying to provide more transparency regarding central bank and monetary policy, including measuring inflation and the ideal inflation rate. The average person is considering what he or she is spending money on — such as food — and Sri believes prices will go up. However, inflation appears to be either in decline or stagnant.
The big question is whether the Bank of Canada is measuring inflation appropriately, given the changes to consumption habits — which the Consumer Price Index is supposed to reflect. Longer-term growth and interest rates have both come down considerably. Canada has been closer to reaching its inflation targets, but the U. The Fed needs to show people what policies will be put in place to see inflation run above target. It allows the Fed to start implementing policies, such as forward guidance and quantitative easing.
He believes rates are going to stay low for an extended period, however, implying that we could see a steeper yield curve. This makes the outlook for the economy unclear: turmoil due to virus, elections and geopolitical factors all create uncertainty about valuations. The numbers from July show that the debt was larger than expected. There are two things to consider:. Sri and the team have been looking at energy-focused provinces, such as Alberta and Saskatchewan, which are trading at historically low valuations, given the amount of stress they are seeing.
Another area the team likes is inflation protection. Outside of the investment-grade space, high-yield valuations have done extremely well, given the low rates and short durations. Sri believes high yield will outperform government bonds. Sri is focusing on sectors that have lagged in the recovery but could prove to be long-term winners. REITs have rent collections coming in higher than expected, considering valuations.
He thinks asset-backed securities will have some defaults, but there is a big cushion, given current valuations. Infrastructure, such as toll roads, are key assets he thinks will be fine in the long term. Portfolio manager David Tulk discusses the market implications and impact of the U. The decision reinforces the fact that interest rates will remain very low for quite some time.
Fed Chair Jerome Powell has indicated that further policy support will be needed, in combination with fiscal spending. David believes this may be cause for concern, given the current complications in U. The debt burden around the world has been building since the s and has only been magnified by the pandemic. To help protect the portfolio against inflation, David notes that on the fixed income side, the team is investing in real return bonds in Canada and TIPs in the U.
Diversification among different asset classes and geographic areas is also important. David uses a barbell philosophy, combining elements that are pro-cyclical, such as high yield and emerging markets, with defensive elements, such as inflation-protected debt and gold. He is also allocating less than the benchmark to the Canadian dollar, as another source of defensiveness. David believe that exports will need to rise for Canada to recover, but this could be challenging due to trade tensions, deglobalization and supply shock.
Institutional portfolio manager Scott Mensi discusses his two-year approach to investing in high-yield loans, with a focus on companies with strong liquidity profiles. Scott has been looking at a variety of industries, and in particular, gaming and telecom companies that have done very well due to COVID Scott believes we are likely to see defaults go up over the next 12 months.
Holders can no longer trigger a restructuring and force a company to increase its coupon, and the companies have a lot more flexibility within their capital structures. Based on demographic trends and current rates, Scott does not expect the loan or high-yield market to shrink any time soon. We no longer have third- and fourth-tier players issuing loans in high-yield bonds, and we have much bigger companies using these markets for financing purposes. Scott assumes that the coronavirus will be behind us two years from now.
Certain industries have benefited in the meantime: in both the high-yield and loan market, these include cable companies that provide Internet service. Telecom, utilities and health care are also relatively stable businesses.
Other areas that were hit harder are where the opportunities are now, such as energy, gaming and leisure. Joe notes that in early , we were late in the economic cycle; valuations were high, and there were debates about how long the cycle could continue. Monetary and fiscal policy efforts came quickly, and the market priced in that it was not a typical recession.
Reetu says industrial real estate as the secular winner as companies moved to just-in-case inventory, to avoid supply chain disruptions. The low cost of debt is a catalyst for home-buying, and if interest rates stay low and economic growth accelerates, this area is positioned to grow. Nicolas believes large banks will continue to pay dividends, but having central bank take control of the yield curve could see growth for banks facing heavy headwinds. Joe notes that renewable energy is beginning to exhibit a lower cost structure, becoming competitive with oil and gas in many countries.
He considers lumber to be the most attractive commodity currently, followed by copper and, further down the road, oil and gas. Joe reminds us that the price of gold is not based on supply and demand, but is driven by negative real rates. Bobby notes that entering the year, there was more concern about the Canadian consumer than the U. Spending appears to be back to pre-pandemic levels, and home improvement and leisure sports sales are reaping the benefits.
He also shares his thoughts on emerging markets, commodities and oil performance, and what share buybacks may look like in the months ahead. Jurrien notes that this can be largely attributed to the FAANG stocks and a few other top performers we have seen during this recovery. There is much uncertainty around whether we are at the top and speculation that current market conditions are not a typical recovery from market pullbacks. Jurrien believes that broader market participation and breadth would be better indications of a true market top.
The commodities index is one of the strongest charts right now, driven particularly by precious metals. Commodities and precious metals are being boosted by a weakened U. The weaker U. Jurrien is long on other currencies, because he thinks the dollar will continue to come down. Jurrien is bullish on emerging markets, and Asia in particular. Jurrien has been watching buybacks very closely. Jurrien believes that this looks bad on surface, because the payout ratio will go way down, and the present value of future cash flows to shareholders could be compromised.
Matt Siddle, portfolio manager of Fidelity Europe Fund , discusses what a resurgence of COVID cases in parts of Europe could mean for their economic rebound, and which countries and sectors investors are turning to for relative safety and growth potential.
Cases are rising in some parts of Europe, particularly Spain and France, in the last few weeks, but the cases have been very localized. There has been little change in the number of coronavirus cases in the U. Governments of the affected areas are taking more localized containment measures this time, rather than placing entire countries on lockdown.
Matt notes that Europe is the most global of the stock markets, and lots of global businesses are headquartered there. Consumer goods have shown to be good opportunities, as well as some software companies, such as SAP and ASML, despite Europe not being known for information technology.
Matt believes European companies can move their supply chains to eastern Europe without very much difficulty, and industrial automation can help create capacity. At the regional and central level, government took thorough control of movement and demonstrated a very coordinated and consistent approach in how much money it invested in the economy to help recovery and in its positioning coming out of lockdown. China is looking to take the lead in the electric vehicle market, leaping over the traditional western auto market and focusing on electric options.
Bruce notes that eastern economies took a different approach than the west. Bruce hopes that the upcoming U. He believes the biggest challenge right now is where the U. Meanwhile, China is focusing on trying to completely domesticate its supply chain, alleviating any dependency it has on other countries. Countries that had a good reaction to the first wave and locked down are seeing cases start to pop up again.
No one wants to go back to a total lockdown, and some countries are implementing stricter policies to avoid this. Bruce notes that many countries are adjusting their stimulus programs this time around to target specific parts of the economy, instead of individuals. In an environment of record stimulus and low interest rates, large companies are benefiting, and portfolio manager Steve DuFour believes large-cap stocks are looking attractive to many investors.
His fund was already invested in themes that have been exaggerated and accelerated by the coronavirus pandemic. In the market, there was a rally among companies with bad balance sheets. He believes the coronavirus so wholly determines the economy that other issues, such as the election and U. Steve believes there is a lot of opportunity in health care tele-medicine and health insurers and in 5G that is being accelerated by the work-from-home trend.
He is also seeing opportunity in big tech, particularly among payment companies, due to the growing demand for e-commerce. Steve notes that supply-demand industries are hard to invest in right now, due to the demand shock the coronavirus created, but a number of companies that are not in demand-driven industries could see sharp upswings once the economy picks up again.
ESG is currently seeing a supercharge and has been maintaining momentum through the pandemic. The ESG mandate is about aligning your capital with your values and getting downside protection and risk management through your investments while generating alpha. Nicole is investing in companies that are focused on making the transition to a lower carbon footprint. She notes there have been a lot of catalysts for environmental investing, and the E.
One theme she believes to be up and coming is renewable hydrogen; she is focusing on this trend through wind energy companies. Amid the pandemic, racial tensions have been at an all-time high in the U. She believes investors are also considering whether they are putting their money behind the changes they want to see in the world. Nicole notes that a few companies seem to be doing particularly well with ESG. More companies are claiming to be focused on ESG, but it is important to question how committed company leaders are to implementing change and maintaining it in the long term.
Small-cap companies have less resources than large caps, and Fidelity takes this into consideration when allocating ESG ratings. Jurrien notes that markets typically start paying attention to elections after Labour Day. With Joe Biden now confirmed as the Democratic presidential nominee, the market is probably taking some comfort regarding regulatory and taxation risks, because Biden can be considered a mainstream ticket.
No one would have predicted back in March and April that this recovery could happen so quickly, but the economy has resiliency, and the market has proven correct in pricing in the rise in April and May. He also notes we are on track to a recovery like the one in Jurrien notes that there are strong positive flows into equity mutual funds and ETFs. We have seen some outflows from money market funds, but nothing comparable to the inflows we saw on the way down.
Robinhood investors continue to affect the market, but they are young, performance-chasing investors. Jurrien believes there are benefits to allocating more than the benchmark to non-U. He is taking a larger-than-benchmark position on gold, credit, TIPS and emerging market equities, all of which are part of reflation trade. He thinks that the Federal Reserve might take a more social activist role with monetary policy; investing in reflationary trade is a great way to capitalize on this.
Portfolio manager Michael Plage discusses opportunities for fixed income at this stage of the pandemic. We are in a low-rate environment, which Michael believes makes it a great time for active management, especially in fixed income, because delivering diversification and yield has become challenging. Currently his portfolios have very low sensitivity to changes in rates. He considers specific pockets of the credit markets to be areas of opportunity to generate returns, and many BBB-rated corporations have room to run.
Michael notes that he and his team are not positioning portfolios for a specific U. Michael has reduced his exposure to energy, and particularly fossil fuels. Exposure to exploration and production energy companies has come way down, although he still has some exposure to pipeline companies.
Michael is currently allocating less than the benchmark to this sector. However, if he finds an attractive opportunity, he plans to take advantage of it. Michael still believes financials offer great exposure for fixed income mandates. Michael thinks bank securities are still attractive, because they are low risk and low volatility and generate income. The development of a vaccine will lead to opening the economy, which in turn should help value.
However, we are gradually managing the virus better, which could potentially prompt a change in leadership even before a vaccine becomes available. On a micro level, the markets have almost recovered to all-time highs, but additional stimulus could be needed to avoid a contraction.
He notes that he was able to purchase several financial companies through the trough at a great discount. Some investors are concerned, but there was no inflation in the years following the global financial crisis. However, the recovery could look different this time, because the stimulus is going directly to consumers.
Naveed is interested in utilities right now: they are trading at a discount, because interest rates are falling. He is currently allocating less than the benchmark to information technology, being mindful of high valuations in the sector. He is also finding Japan to be an area of opportunity. Minister Navdeep Bains notes that there are three considerations that will affect decision-making regarding the treatment of COVID Domestic treatment: The government is trying to identify promising Canadian vaccines and therapeutic initiatives, and has seen a promising case in B.
Logistics: Does Canada have the capacity and production facilities to mass produce treatments or vaccines? Canada has invested significantly in science and innovation since , and the development of the Ebola vaccine placed us on a global platform. Currently, the government is funding national research and development for a vaccine against COVID However, the government will need to do its due diligence to ensure the Canadian public is confident in the distribution and use of the treatment.
Most of the money that is donated is used to retain talent, which is the biggest challenge that small, innovative Canadian companies face. The Canadian government is targeting net-zero emissions by and pushing the transition to a low carbon economy by investing in clean technologies and creating frameworks to reach these targets.
The government is currently working with regions, sectors and companies to review a range of issues and to start implementing policies to reach their goals. The minister believes that tariffs between the U. Jeremy notes that this year has seen a huge polarization in performance between value and growth, but he believes there are still two ways in which value can outperform:. Jeremy aims to keep a balanced, risk-controlled fund.
He is currently allocating more than the benchmark to the information technology and health care sectors, and avoiding consumer staples. Jeremy places less emphasis on emerging markets, and is finding Japan to be an appealing and relatively inexpensive market. He also thinks Europe was left behind in the rally, which could present opportunities. Jeremy notes that this plan has been an important milestone in connecting European countries, and Europe is leading the way in the position it has taken on ESG.
Jurrien Timmer, Director of Global Macro, joined FidelityConnects to give his weekly insights on where he believes the markets are headed. Jurrien points out that the position the Fed is in is not a new one. In the s, when the U. Jurrien thinks that this time around the Fed has done a great job, using quantitative manipulation and forward guidance to help the market retrace its steps, which has led to an orchestrated rebound.
We are now seeing rising inflation expectations, which is a positive, because it shows investors have confidence that the markets will get better. Jurrien continues to believe in a good barbell strategy having both value and growth in your portfolio , and in capitalizing on U.
Currently, Jurrien believes that the bottom has been reached, and what is most important is the slope of the recovery. Aneta Wynimko, portfolio manager of Fidelity Global Consumer Industries Fund , discusses consumer spending habits amidst the pandemic, and the areas she thinks may do well thanks to new behaviours.
The U. Before the pandemic, half of the consumption of food was happening out of home, but it has now been brought back inside. Aneta notes that the Fund has a lot of exposure to wellness and other trends that consumers like. Skin care and self-care have been strong areas, and have also become a market for men. E-commerce continues to be positive; Aneta has been investing in this area for a long time.
However, her preference right now is for brands and companies that are building intellectual property, such as Adidas and Nike, both of which are in the portfolio. Aneta was watching the outbreak early on and made sure to reduce her exposure to China. She spent a lot of time looking at a U. The flattening of the curve in China has been relatively successful, and while there have been flare-ups, they have been well contained.
Catherine notes that from an economic recovery perspective, there have been better-than-expected GDP numbers. PMIs are going up, and utilization rates are going back to normal. However, when looking at exports, there are still a lot of question marks. Policy-wise, compared to , China is being cautious.
Once China has that, it will need to make sure it has an adequate supply chain, given the rising geopolitical tensions we are seeing. Over the short term, Catherine believes, we will likely see an escalation of negative rhetoric about China. This may cause increased volatility, although the markets have been relatively robust. If you move away from trade discussions, many companies that were previously listed in the U. Catherine believes that if central banks stop pumping liquidity into the market, that could create a tipping point.
There was cyclical recovery in July, underpinned by bank and government policies, but it has stopped to some extent. Fidelity Hong Kong follows the three key considerations mentioned above, but is also working closely with companies and making sure not to fall into any value traps.
Many industrial companies, for instance, have beaten expectations and delivered attractive dividend yields, but their share prices rarely move compared to the hot growth stocks. Catherine believes that from a corporate perspective, companies need to have free cash flow and to understand the challenges we are living in, because it is a period of declining revenues.
She believes that from a policy perspective, China needs to focus on infrastructure, such as 5G, digital currency and the Chinese equivalent to GPS. In the coming months, Catherine thinks there will be periods of volatility, but the key risk is geopolitical issues, because China and the U. Darren Lekkerkerker, portfolio manager for Fidelity North American Equity Class , is positive on the market and the positioning of his funds and stocks he owns.
The Class has a large position in Microsoft, and he thinks the purchase of TikTok could be a win for Microsoft. Darren is bullish on gold and thinks it is doing very well in the current environment. He is also more bullish on materials than on energy, considering silver, copper and lumber to have good potential as investments. He is specifically looking at renewable power, green hydrogen and solar power.
While Darren believes geopolitical tension between U. Darren believes it could be good to own positions in the retail and restaurant spaces, especially take-out—oriented businesses with good online platforms. He considers banks to be decent investments in the short term, but is more excited about payment networks and fin-tech; he believes these companies have the potential to be long-term structural winners.
Darren follows a strategy of looking for high-quality companies that he believes can provide a sustainable advantage. When making an investment, he adopts an ownership mindset and thinks of it as buying a minority interest in a company. Darren is the largest shareholder of his fund. Since the lows in March, we have seen some variation in market leadership.
FAANGs have been leading, with power to move the market, but the rally off the lows has actually been quite broad. There was a massive speculative retail bubble toward the end of the secular bull market of the late s. After that bubble burst, the market was dominated by institutions. Jurrien notes that it is interesting to see what the top 25 names were for each period. Jurrien believes that speculative fever can continue indefinitely unless fundamentals change.
Ultimately, he thinks that what we are seeing today is driven by stimulus cheques and lots of small accounts. The question this prompts is what it all tells us about a bubble. The true test is what is going on relative to valuation. Jurrien thinks it could be a different environment if valuations get to extremes or there is a change in fundamentals. Jurrien notes that the flattening of the earnings estimate progression chart has been unusual.
Companies tend to lower expectations going into earnings season and then beat them. The numbers being flat implies that nobody knows what earnings could be. Jurrien thinks there is a good change the U. Senate will flip to a Democrat majority. If Joe Biden wins, we can expect corporate taxes to go up, which is negative for earnings: for every percentage point taxes go up, earnings go down by around 2. If labour is favored over capital, we could see more regulation and less financial engineering share buybacks.
However, the U. This is a pivotal election, because there is lots at stake. However, history shows that as much as an election can change the return profile over the first two years, over the full four-year term those differences, on average, go away. Normally, when nominal rates go up or down, inflation expectations go in the same direction.
However, we are seeing a growing divergence right now that could be a warning sign that we are getting into a stagflation environment. He believes that is why gold has been running hard — because real rates are becoming more negative. Since no one can time the market, Michelle suggests that instead of investing a lump sum, there is the strategy of dollar-cost averaging in pre-retirement years, to slowly build investment positions by investing a fixed dollar amount at consistent intervals.
In retirement, a systematic withdrawal plan SWP applies the same principles of the accumulation strategy, but in reverse, by selling fixed amounts of investments over equal periods of time. This strategy is essentially the reverse of dollar-cost averaging. Michelle notes that corporations with non-registered investments can use the charitable gifting strategy.
T-SWP can be used to provide a steady cash flow to the corporation, to be used towards expenses or other business purposes. Instead of a non-refundable tax credit, businesses can then claim a deduction for the donation, thereby eliminating the gain on the securities. The non-taxable portion of the capital gain can be added to the capital dividend account, which can be paid to shareholders tax-free.
When it comes to estate planning, investors can state in their wills that right before they die, they wish to donate or gift their securities, reducing capital gains on death, as well as making it possible to claim the donation tax credit on their terminal return. Portfolio manager Dan Kelley has been observing how innovators in tech and beyond are countering the coronavirus. Dan is less worried about growth vs.
He does believe some companies are overpriced at this time, and he is avoiding them. Good stock picking will be very important in this sector. Portfolio manager Harley Lank believes high yield is a great portfolio diversifier, as well as one of the most attractive asset classes over time. Harley thinks inflation expectations are being hyped in a muted demand environment. He also believes the market has a renewed sense of confidence, because the Federal Reserve and U. Harley thinks energy is a tricky sector, but he has a few positions in some stressed names that have embedded value.
However, he is extremely selective and disciplined in his investments in the sector. Fidelity American High Yield Fund. The Fund is positioned slightly more defensively than the broad market, allocating less than the benchmark to energy and more than the benchmark to information technology. Harley is staying disciplined in his approach and looking for opportunities that offer less fundamental risk, but still offer potential for yield.
Jurrien Timmer, Director of Global Macro, continues to express a positive outlook on earnings, despite projections flatlining because companies are unable to make accurate predictions. If we continue to experience waves of the virus, then it is possible the recovery will not rebound to its full potential.
Jurrien believes the Federal Reserve has learned from the past. The nominal ten-year yield in the U. He notes that real yields are falling, which he is bullish on. It appears that investors like what they see in terms of nominal policy response. That is the opposite of what happened in the early 30s. Jurrien refers to the weak U. He likes how orderly the advance has been for gold, but notes that looking at sentiment, gold is becoming a bit too well recognized. The risk right now is that companies may not being able to recover to pre—COVID levels, and that this may cause insolvency issues.
On a relative return basis, these super-growers are at all-time highs, but their growth still seems to be justified by their earnings. Tom Stevenson, Investment Director at Fidelity International, discusses geopolitical changes and what recovery looks like from across the pond. A massive recovery fund has been signed by the E. Goldman Sachs reported that they believe the Euro can move to 1. This increases the attractiveness of holding European assets, but hurts exports. Tom notes that pre-pandemic, there was a focus on trade and interest rates.
Right now, the pandemic has redirected focus and accelerated other trends we were beginning to see, for example, WFH and a shift in retail from brick-and-mortar to online. However, he thinks in a post-pandemic world, the focus could return to where it was before. Tom has found the continued trend in ESG to be fascinating; he expected the issue may take a backseat amidst the pandemic, but we are seeing the reverse with investors becoming even more focused on ESG.
He notes he has seen a shift, however, away from the E environmental towards the S and G social and governance. Tom feels positively about European assets is because Europe is a hub for ESG, and where digital and tech trends have favoured the U. Andrea notes the review is long overdue as the last one was conducted 17 years ago, though it should take place every four years.
An interim report has been released containing 47 provisions. Andrea notes that a main focus of this review was to level the playing field for independents and smaller firms. These client-focused reforms will increase competition and provide investors with more options and transparency around products. Through the use of legislation, the goal is to adjust and broaden the OSC mandate. The task force wants to foster capital formation and competition in the mandate.
With respect to digitization, the task force wants to move towards an access and equal distribution model. The task force is working to create a single sub-regulatory group who will oversee all advisor functions and market surveillance. Their goal is to remove bias when it comes to product approval and recommendations. Sector Strategist Denise Chisholm thinks we may be nearing the end of this recession. She calls it atypical, noting that most recessions feel like a rollercoaster but this one feels more like an elevator that got stuck midway up, forcing us to take the stairs.
In most recessions the market begins to outpace the economy. Denise notes we should be looking at what the market has discounted, specifically the valuation spreads. Financials have delivered on earnings and growth so far, but this is likely due to the low interest rate environment.
Kyle is a growth investor who deeply believes in value. As a result, the composition of the Fund today is similar to what it was going into the crisis. Kyle notes that the Fund owns e-commerce plays beyond Amazon, such as Wayfair. These names experienced great dislocation in their stock prices but an acceleration in their prospects. With Amazon focused on delivering essentials, and brick-and-mortar stores closed, Wayfair took a tremendous amount of market share in the home furnishings business.
This is a strong theme, and Kyle is looking for new ideas, but he notes that it is usually easier to identify a secular theme than it is to find the businesses that may benefit from it. As 5G implementation rolls out, Kyle believes Marvell is one of the most direct plays, because of its positioning in stations that network equipment makers are rolling out to 5G carriers.
However, finding the unrecognized beneficiaries of the broader 5G theme could potentially be more profitable than focusing on the most direct plays. Kyle believes we could see a shift, with most cars on the road moving to electric in the next few decades. However, it is a long-term secular trend that will take time to play out. This is a multi-trillion-dollar space, and he is looking for the right businesses in this area. With regard to political developments, Kyle tries to own businesses that he believes will remain strong no matter who is in office.
Kyle is finding biotech to be an interesting space right now. The success of businesses in the field reflects the success they have in improving outcomes for people. Jurrien Timmer, Director of Global Macro, notes that we saw the spread between the best and worst sectors widen last week; it is now wider than it was at the March bottom. Jurrien believes that the combination of monetary and fiscal stimulus has put a floor under the market.
Historically, banks like steep yield curves, to help net interest margins. Right now, we have low interest rates, which will make it difficult to offset loan losses. The personal savings rate has increased, because people have fewer places to spend money. Jurrien believes, however, that consumers are well equipped to re-enter the economy through retail spending and through travelling, once it is allowed.
Last week saw notable outflows from money markets for the first time in four months, and equity flows are at the same negative levels as seen in Jurrien believes that the global earnings cycle has shown signs of bottoming, with the second quarter being the worst quarter, although the third quarter is still being projected as negative on a growth rate basis.
He notes that he would like to see the dollar go down as evidence that the world is getting enough dollar liquidity. Gold tends to get more support when the U. Earnings estimates continue to be quite flat, which could potentially be a concern. Jurrien believes the market has priced in news of a vaccine, and companies further down the supply chain are already preparing for the production and distribution of one. Paul is focusing on strategic secular long-term horizons rather than tactical short-term issues, which he thinks matter less to portfolio construction.
Data from the U. This suggests we should be looking at factors that tend to work well through the early recovery cycle, such as value and small cap. Paul believes recessions are the best time to consider buying stocks. Strategically speaking, over a long-term horizon, demographics matter, because they can affect GDP growth.
Paul believes if a labour force is shrinking due to an aging population, GDP growth over the long term will fall; Japan and Europe both have large aging populations. He continues to see growth in ESG investing. North America had been significantly lagging behind Europe on ESG investing, but is now catching up quickly, particularly in Canada.
Paul notes that equities in international markets are currently more attractive, because they have better control over the coronavirus than the U. Latin America, along with Russia and Eastern Europe, have yet to manage containing the virus. Paul notes that the timing of a vaccine is an important consideration in which stocks to buy now. With a cure, GDP could rise, which could lend itself to cheaper value names. If a vaccine is too far off, investors might want to stick with large-cap growth names.
Andrew says that the biggest concern for asset allocation right now is in the fixed income portfolio. This pushes them up the risk spectrum. Gold acts defensively, hedging against inflation, deflation, political risk and other events that make people uncertain. David and the GAA team establish holdings that aim to provide a balance of returns and defence. Instead, they are focusing on other currencies e.
Accordingly, they have been adding to these positions. David is considering what he thinks a post-pandemic economy will look like and what investment themes the team would want to see in that scenario. The portfolio has allocated less than the benchmark to Canadian equities, Canadian investment-grade debt and short-term debt, and more than the benchmark to emerging markets, commodity producers and inflation-protected debt. The team has been looking at mobility and credit card trends, which have shown a decline as restrictions are reinstated to combat new spikes in COVID numbers.
David thinks global trade may struggle in a post-pandemic world. The GAA team also has concerns that Canada may be adversely impacted, having come into this crisis with high levels of household debt. The slowdown in immigration could also mean a lower growth rate for Canada over the next ten years.
To counter this uncertainty, the GAA team has been adding to gold exposure an out-of-benchmark allocation , because they believe it will help hedge against near-term uncertainty. The mayor is proud of how Toronto has managed the pandemic so far and is confident its economy is resilient enough to rebound to where it was before the pandemic.
He thinks that Toronto will attract visitors by incrementally building their confidence that the city is a safe place to be. He is looking forward to the reopening of immigration to accelerate the real estate market, and is bullish on the Toronto housing market overall. Services offered by the city are vital for everyone. One of the biggest areas of focus in the future will be more affordable housing for all income levels.
The mayor also emphasizes the need for operational support stimulus from the government, in order to avoid having to use the capital budget. Value has underperformed growth over the past few months and years. Andrew wonders if we will see a change in leadership, but believes that the trend might only reverse with the arrival of a vaccine or treatment for COVID, allowing society to go back to normal, without restrictions, and making way for value to make a comeback.
Andrew notes that the market is looking forward to and earnings, and it is paying particularly close attention to. What will this do to valuations? Andrew believes we could see some interesting opportunities unveil themselves, and while there may not be the large dislocations we saw in March, the dislocations we do see will likely be caused by earnings results and estimates.
He also notes that while secular growers may not look as cheap as they did in March, their earnings potential can be large. He manages his portfolios with a focus on finding companies with high ROC and strong balance sheets, at a great price, and places a larger emphasis on price than on market leadership. Andrew notes that what often tends to happen as a result of monumental events is the emergence of various secular trends with a few massive winners — such as big tech, in the case of COVID Strong companies can get bigger and stronger as their competition fails to keep up and eventually dies off.
Otherwise, a large divergence can occur, which in the past has marked the end of market upswings. If we are in the cyclical bull market Jurrien thinks it is, market participation is one of the most important aspects. It could be telling to see what banks say this week when they announce earnings and their intentions regarding dividends, because Jurrien believes the average investor buys banks for their dividend yield.
Regardless of who wins the upcoming U. If Joe Biden wins as the numbers currently suggest , we could see a more socially activist monetary and fiscal policy from the Federal Reserve. Emerging markets have performed better than U. Jurrien believes that performance will continue, because he thinks the U.
Eileen is maintaining a low-turnover, long-term strategy in her portfolios. Going into the pandemic, the portfolios were positioned to hold more stable companies in industries with positive trends. She is looking for opportunities in areas that have been harder hit and monitoring holdings that she believes will be great over the long term. Regional trading has seen an increase due to the deglobalization trend brought on by COVID and the pre-existing trade tensions.
Throughout COVID, Asian leadership has been extremely positive, but not all emerging markets have responded as well. Many countries in Asia already had plans in place to deal with an outbreak, because they had dealt with SARS and other viruses in the past. The coronavirus was relatively controlled in Southeast Asia, which has had a positive impact on manufacturing in this region.
One area that did see some demand shock was the automotive industry, due to the decreased need for transportation. Eileen believes geopolitical relationships are the biggest risk for China right now. Many of her holdings in both Funds score high in ESG ratings. Supply chains are extremely important to companies across Asia, and ESG plays a huge role in their success.
Having a strong ESG focus helps to develop countries and reduce costs. India has lagged in infrastructure capabilities in the past, but if stimulus could be aimed toward infrastructure, the country could see great long-term benefits. Japan has taken an interesting stimulus approach, with government funding directed toward businesses and keeping workers employed, instead of toward support for the unemployed. He notes that it has been interesting to look for businesses that have seen their growth accelerated by the virus.
The last time this high a level of deficit was seen was in the s; Max believes most countries around the world will also be facing these high levels. Like his peers, Max believes that if the Democrats win, there is a possibility tax rates might increase for corporations, which could derail their recovery and cause growth rates and earnings to suffer in the following year. Max is currently allocating less than the benchmark to Canadian financials.
His concern about this sector is that Canadian banks did not make the same provisions as U. Max notes that the strong housing market over the past few years was partially driven by immigration, and that has slowed due to the coronavirus. While there could be pent-up demand, he questions whether consumers will be willing to make large purchases in the current economy. Over the past couple of months, he has been gradually selling off his defensive positions and adding to holdings in names that could benefit from the recovery.
Portfolio manager Ramona Persaud likes to think with a long-term investment horizon five to 15 years , and believes that being extremely tactical today can create a lot of value for investors in the long term. Liquidity has been strong relative to the weak fundamentals that were created by the coronavirus, with central banks playing a meaningful role. This means that value-oriented stocks may not do as well as growth-oriented ones.
Many areas that are most affected by the virus such as financials and consumer discretionary still face dislocations. For this reason, she owns both quality companies and those which are exhibiting dislocated value. Ramona sees buybacks and dividends as interesting areas of capital allocation. The ability for companies to make buybacks could be constrained, given that we may be in a stop-start economy.
With a lot of debt on balance sheets, it could also be tougher to use leverage to drive earnings growth. She believes the same is true for dividends. Ramona is focusing on the extent this is being implied in valuations. She has also bought airports in New Zealand and China that were priced cheaply. Mike attributes the year-to-date performance of the Class to the high-quality secular growers they owned before the market crash.
The portfolio managers have held their tech stocks for several years. He believes big tech will continue to drive the market, due to its size and scale. Mike also notes that we are in the early stages of an industrial revolution cloud, massive data centres, machine learning, etc. With aging demographic trends around the world, and governments embracing corporate health care to help in the fight against COVID, Mike and Will see this as an attractive sector in which they will continue to add to holdings.
He sees financials that are not levered to interest rates as more attractive. Energy: This sector is capital-intensive, low-growth and not scalable, and tends to be less attractive over long time periods. Mike views China as a proxy for trends in the U. In his weekly update, Jurrien Timmer, Director of Global Macro, discusses where the markets are going as we enter earnings season, noting that the earnings estimate curve has flattened against an uncertain future.
Jurrien thinks earnings estimates may be too low, and that a positive earnings season will provide more fuel for gains in the market. At a sector level, technology, health care and consumer discretionary have been the front-runners. Jurrien believes a regime shift is likely, based on the data coming from polls and senate betting numbers. Jurrien also believes the Chinese government is hinting at providing additional stimulus.
Until it is proven otherwise, he believes we could be starting another secular bull market, propelled by a need for cash, because of aging demographics, that will drive investors to the cash-yielding equities that have been the market leaders over the past ten years. As Ontario enters Phase 2 of reopening, Ontario Finance Minister Rod Phillips joins FidelityConnects to discuss the reopening strategy and where the opportunities are for the economy moving forward.
The finance minister notes that the planned budget that was supposed to be set at the end of March looked different than the budget today. Rod believes this is a very interesting time from a trade perspective, and we appear to be on the cusp of an exciting east-west trade discussion as trade ministers look at tackling some of the trade barriers currently in place.
A lot of these discussions have come as a result of COVID and the need to make trade as efficient as possible. Relationships between provinces have also strengthened during this time, thanks to premiers collaborating closely to manage the containment of the virus. At this time, most of the data are just models; however, one strategic move the province made was to keep a lot of construction going, including multi-residential construction. Thirty percent of the cranes in North America are operating in the GTA, which is a great sign of continued growth.
Jurrien believes the Robinhood day traders may have been a part of that short-term peak. Gold and FAANG have consistently been top of the leaderboard, while value and small caps are on the bottom. According to the AAII investor sentiment survey, millennials — such as the Robinhood traders — are investing, but the older demographic is where most of the money is. Jurrien believes that older retail investors are still very concerned about the market which correlates to the mountain of cash in the money market.
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