Senior managers from CI Multi-Asset Management recently conducted a webinar to explain how they are handling their current investment positions. Following are the main points that were discussed.
CI manages six CDSPI Managed Risk Portfolios as well as our Corporate Class Funds.
- Overall, Asia appears to be past the worst point of COVID-19. Europe, including even Italy and Spain, has turned the corner in terms of new infections and deaths and it looks like the continent overall is beginning to gain control over the virus. Outside of the United States, new infections as well as hospitalizations seem to be stabilizing globally.
- While we are seeing some signs of second waves in Asia, generally these seem modest. However, this serves as an important reminder to not become complacent and to stay vigilant until we are confident that we are on the downside of the COVID curve.
- Until early April, the trajectory was very troubling. However, governments’ massive interventions rapidly averted a liquidity crisis as well as a balance sheet problem.
- Until we have a remedy to deal with COVID-19, the world is not going to be the same. However, it appears the virus is expected to have a temporary economic impact.
- The service sector is being disproportionately impacted. Manufacturing is somewhat less affected because of automation and in some cases longer lead times. Services purchasing manager indexes are at their lowest level in 20 years, after an extremely fast drop.
- China is the first economy to be unlocked and has seen a rebound in its services PMI. This is a positive sign for developed economies.
- Despite the intense volatility, we have remained within our risk budget in our balanced portfolios, which is a range of annual rolling returns from 30% to -18% during any 12-month period in order to generate a 6% annualized return over an eight-year period. Of course, we are mindful of short-term volatility, but we remain focused on our long-term objectives.
- The portfolios entered 2020 strategically overweight in equities and cash. We felt that equities were reasonably valued, particularly compared to fixed-income securities that are providing little to no income. Our equity position is now slightly overweight. We were underweighted in high-yield bonds, as there was minimal return opportunity due to tight credit spreads.
- Positions in foreign currencies were added, notably the Japanese yen. We anticipated central banks would cut interest rates in response to the unfolding crisis, but Japan already had done so, and our U.S.-dollar hedge has been increased.
- We also added gold to the portfolio. Gold is typically a hedge when there is a flight to safety, but it also is more attractive when fixed-income yields are low or even negative. While there is a cost to owning gold, the tradeoff is worthwhile given current interest-rate conditions. Moreover, gold has a lot of upside potential and diversification attributes.
- Within equities, it has been a challenging period for security selection, particularly for portfolios with a value or small-cap bias. Our positions in low-volatility, factor-focused international and global ETFs aided our performance.
- In addition, we have exposure to real assets such as real estate and infrastructure, which has helped offset overall portfolio volatility. With interest rates unlikely to go back up until 2021 or 2022, this will help real-property companies generate cash flow, income and yields that are particularly attractive in a low-rate environment.
The CDSPI Income/Equity Managed Risk Portfolios have weathered the coronavirus storm well, relative to their peers,~ due to the incisive investment decisions of CI asset managers. If you would like to learn more please contact an Investment Planning Advisor* at 1.800.561.9401 or email us at email@example.com.
- We raised cash to 20% in January and we were underweight across all asset classes in the fund, based on our concerns about the coronavirus outbreak.
- This fund had low downside capture due to its large cash weight; but volatility was still unusually high. We also own non-traditional assets such as gold bullion and yen to add downside protection.
- The massive stimulus programs have motivated us to favour assets that are backed by governments, such as Treasury bonds and credit. As the U.S. Federal Reserve has flooded the market with U.S. dollar supply, we have been reducing U.S. dollar exposure through hedging.
- We deployed cash in the last week of March, bringing the level to 7% of fund assets. We favoured corporate credit, because it is now effectively backed by governments as they are a buyer in the market. We consider the fund fully invested as cash is invested in foreign currencies.
- We anticipate earnings may return to 2019 levels in approximately three years’ time. We are reluctant to add equity exposure given this fund is managed conservatively for investors with short investment horizons.
Stephen Lingard | Senior Portfolio Manager and Head of Investment Research
Marchello Holditch CFA, CAIA | Vice-President and Portfolio Manager
Alfred Lam | Senior Vice-President and Chief Investment Officer
~Based on analysis by Morningstar Inc., of CDSPI funds, as of March 31, 2020, with performance records of three years or more. Past performance is not necessarily indicative of future results. For more details on the calculation of Morningstar quartile rankings, please see morningstar.ca.
*Investment advisory services are provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions may apply to advisory services in certain jurisdictions.
This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or an offer or a solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document.
The opinions expressed in the communication are solely those of the authors and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed.