Market Commentary – Q1 2023

The waiting game is an apt description of markets lately.  Many investors (and rightfully so) are choosing to defer investment decisions both from a new dollar investment perspective and a re-allocation perspective until additional information surrounding the economy and markets become more clear.  I count myself in this group. 

I’ve been telling clients that I think the next couple of months will help to provide some clarity as to how the rest of 2023 will play out.  I still believe that we will have a good year this year, the question is; what will the road look like getting there?

Even with markets as they are today, there are sectors that look more attractive than others, in spite of playing the waiting game.  For example, there is consensus that Canadian financials are attractive, as well as real estate in the US, followed by healthcare and staples.  Of course, let’s not forget that the infrastructure space can be a safe harbour when markets call for a more defensive strategy.  Infrastructure is also very sensitive to government spending. Finally, with interest rates at or near their peak in this cycle, longer term bonds are also a favourite for investors, in anticipation of interest rate decreases, which may come in Canada and the US, according to some analysts and economists, in late-2023 or 2024. 

Regardless of what sector(s) look attractive today or, more attractive in the future as this economic and market cycle progresses; long term investors will benefit from short-term market and economic uncertainty.  Uncertainty and market volatility provide long term investors with opportunities to pick up good quality investments “on sale”.  We are playing the waiting game, but we don’t want to be too cautious.  Markets never offer us “the perfect time to invest”.  Rather, we use common sense and probabilities when we look at allocating new funds to markets or, re-allocating existing investments based on the current environment. 

So, looking out; which investments might we look to take positions in, or, add to existing positions:

• Canadian Financials – This could be investing directly in common stock or preferred shares of Canadian banks or insurance companies, such as Manulife, an ETF specifically focused on Canadian financials such as BMO’s Covered Call Canadian Banks, or a broad-based Canadian equity fund, such as RBC Canadian Equity Income
• Real Estate Income Trusts (REITs) – This could be done by owning individual REITs or, a more efficient way would be to own pools of REITs through CI Global REIT or Dimensional Fund Advisors (DFA) Global Real Estate
• Large Cap US such as healthcare and staples – This could be achieved investing in the RBC North American Value or the CI US Equity, both top performers in a very crowded, competitive field
• Longer duration bonds – This could be achieved by investing in any of RBC’s bond pools or with DFA in their Investment Grade Fixed Income Pool
• Infrastructure – This could be achieved by investing in a fund that has a specific Infrastructure Mandate, such as CI Global Infrastructure

As long-term investors, the best approach for continued successful investing is to try to ignore the day-to-day headlines and machinations of the markets and instead, be somewhat contrarian…watch for opportunities to add to quality holdings that are “on sale”, buy when others are selling.  Buy income and growth-oriented investments so we are paid to wait for future growth by way of dividends and distributions and to re-allocate our holdings from a position of strength, when markets have delivered positive returns and everyone is bullish! 

Regards,

Cory Hill, CFP CIM
Financial Advisor & Associate Portfolio Manager

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