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Alternative investments, which are often RRSP-eligible, include music royalties like those in ICM Crescendo Music Royalty Fund, which acquires rights to music catalogues that generate royalty revenues from streaming platforms such as Spotify, YouTube and other sources. The fund owns music rights to artists such as Taylor Swift.ANGELA WEISS/AFP/Getty Images

Investors face heightened market uncertainty during this year’s registered retirement savings plan (RRSP) season, but there are different strategies they can take when putting new money to work.

Rising interest rates, soaring inflation, and the rapid spread of the Omicron variant of COVID-19 are headwinds causing stock market jitters. Technology stocks have already taken a beating recently amid fears that rising interest rates will reduce the value of future cash flows needed to support their high valuations.

We asked three financial experts from The Globe and Mail and SHOOK Research’s inaugural ranking of Canada’s Top Wealth Advisors to give their investment outlook and RRSP strategies as the March 1 contribution deadline looms.

Nicolas Schulman, investment advisor and portfolio manager, Schulman Group Family Wealth Management, National Bank Financial Wealth Management

North American stocks markets are poised for gains this year, but that will come with volatility in a rising interest rate environment, says Mr. Schulman in Montreal.

“We are optimistic that the S&P/TSX Composite will finish in positive territory, but we are a bit more bullish on the U.S. side right now,” he says. “We may see the S&P 500 over 5,000 [from the current 4,500-level].”

Despite the U.S. tech stock sell-off, he still likes and expects a rebound in mature, profitable, well-run companies such as Apple Inc. AAPL-Q, Microsoft Corp. MSFT-Q, and Nvidia Corp. NVDA-Q, as well as financial tech plays, such as PayPal Holdings Inc. PYPL-Q and Block Inc., formerly known as Square Inc. SQ-N.

In Canada, Mr. Schulman says he expects the banking, insurance, and commodity sectors to do well. Financials should get a tailwind from rising interest rates that improve profit margins, while commodity plays focused on copper, oil and gold typically benefit from inflation, he adds.

“We are more bullish on copper,” he says, because of its many uses ranging from electrical conductivity to transportation, including electric vehicles. Energy stocks should still climb after rallying last year on rising oil prices, but US$75 a barrel is probably “fair value” for the commodity [now at US$86].

For RRSPs, he’s looking at value-oriented, high-dividend stocks to replace the income that has come traditionally from bonds because these securities can get hurt in the short term when interest rates rise.

Mr. Schulman favours Canadian dividend names, such as Royal Bank of Canada RY-T, Manulife Financial Corp. MFC-T, and Toronto Dominion Bank TD-T. Among U.S. stocks, he likes Verizon Communications Inc. VZ-N, AT&T Inc. T-N, and Alliancebernstein Holding LP AB-N.

“The main goal in 2022 is to beat inflation,” he says. “We are putting more emphasis on mature companies that have positive balance sheets and pay dividends that are reasonably higher than the average dividend stock.”

Over the short term, he says his model client portfolios will have a bit more emphasis on equities. For a balanced portfolio, it will be closer to 60-40 in terms of equities versus fixed income.

“We want to make sure that we are not sitting with too much fixed income that could drag down our portfolios in 2022 and 2023,” he says.

Rob McClelland, senior financial advisor, The McClelland Financial Group, Assante Capital Management Ltd.

The Canadian market, which has underperformed its U.S. peer dramatically over the past decade, should do a bit better in the coming years, says Mr. McClelland in Thornhill, Ont. “At some point, it’s going to close the gap.”

Canada’s stock market has had an average annual rate of return in the 8 to 9 per cent range for the past 10 years, but typically tends to return to its long-term average of 9 to 10 per cent, he says. “It has closed the gap a bit over the past 18 months.”

Although Mr. McClelland is “more cautious” after last year’s strong markets, he isn’t a believer in being able to time the market successfully by raising cash. Markets go up two-thirds of the time, so “why wait for a pullback that may not happen,” he adds.

“My outlook is that stocks will outperform bonds, real estate investment trusts will outperform bonds, and bonds will probably outperform cash.”

Mr. McClelland is not concerned about interest rates rising sharply this year. They might go up a half to 1 percentage point, “which still puts [interest] rates at close to all-time lows,” he says. “If interest rates went up 3 or 4 [percentage points], that might be an issue.”

For RRSP and other accounts, he prefers global diversification mostly through low-fee mutual funds run by U.S.-based Dimensional Fund Advisors LP, which offers a hybrid between active and index funds.

DFA Canadian Core Equity, DFA US Core Equity, DFA International Core Equity, DFA Global Real Estate Securities and DFA Global Fixed Income Portfolio are Mr. McClelland’s main go-to funds.

His client portfolios tilt toward a value strategy, which has started to come back into favour, while the funds also have a 20- to 25-per-cent allocation to small-cap stocks.

“Value has outperformed growth over the long run and small caps have historically outperformed large caps over the long term,” Mr. McClelland notes.

In RRSPs, he often uses new cash to rebalance portfolios.

“Equities have had a good run, so there’s a pretty good chance the fixed-income allocation is low in portfolios,” he says. “This year’s contribution might be going into fixed income.”

Rob Tétrault, senior investment advisor and portfolio manager, Tétrault Wealth Advisory Group, Canaccord Genuity Wealth Management

Stock markets face potential hiccups this year, but any downturn won’t catch anyone by surprise because the market is already fearing it, says Mr. Tétrault in Winnipeg. “Typically, the downside is less when there is the expectation of a correction.”

Canaccord’s technical analysts are calling for a potential four-year stock cycle reset in the second half of 2022 in which there could be a 10-to 30-per-cent correction, he says. “I am cautious … but we are not as bearish as 30 per cent.”

If there is a sharp downturn, “we take a look at assets that have kept their value – typically alternative and part of the fixed-income investments – and depending on the client’s risk tolerance, we can reallocate some of that to stocks.”

The strategy worked in 2020. He had reduced stock holdings in portfolios in January and increased them after the stock market crash in March.

“We trimmed the alternative investments, mostly private real estate, and redeployed into equities.”

Generally, “we have already been more defensive,” Mr. Tétrault acknowledges. However, he says there might be a buying opportunity among tech stocks in names such as Alphabet Inc., parent of Google GOOGL-Q, and e-commerce company Shopify Inc. SHOP-T.

The commodity-heavy Canadian market could outperform its U.S. counterpart this year and even globally, he says.

“The energy sector still has legs. The re-opening [of the economy] is going to be good for oil demand.”

Still, Mr. Tétrault is now looking to add more exposure to alternative investments instead of fixed-income securities, such as government or investment-grade corporate bonds, or equities such as dividend stocks, to provide income and less volatility.

“If we get four, five or six interest rate hikes in the next couple of years, the bond portfolios are going to take a beating,” he says.

Alternative investments, which are often RRSP-eligible, range from music royalties to private real estate, private equity, private infrastructure, farmland, private debt, and private real estate investment trusts.

For example, he likes ICM Crescendo Music Royalty Fund, which acquires rights to music catalogues that generate royalty revenue from streaming platforms such as Spotify, YouTube, and other sources. The fund owns music rights to artists such as John Legend, Taylor Swift, and Lauren Daigle.

“It pays a monthly income and is based on an asset class that’s not tied to the market,” Mr. Tétrault says.

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