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Recession fears remain high in North America and other developed nations as central banks prioritize getting inflation under control over economic growth.

While the markets appear to have priced in at least some of that risk, some investors say it’s not until central banks signal an easing of interest rate hikes that the market will start to recover.

Globe Advisor spoke recently with Kevin McCreadie, chief executive officer and chief investment officer at AGF Management Ltd. in Toronto, about his take on the markets in the coming months and how he’s positioning portfolios.

What’s your perspective on what’s playing out in the markets?

The markets are forward-looking and will price in the recession before it happens. When central banks acknowledge that they may have to lower the pace of these interest rate hikes, that’s going to be a sign that maybe things are cooling off on the inflation front and growth is slowing. That will be a catalyst for the equity markets.

There are signs that maybe inflation is 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 5 per cent or so ahead, we think that the market is starting to turn the corner – although it will remain volatile.

How are you positioning your portfolios for what may come next?

A year ago, we were overweight on equities and underweight on bonds, while our cash position was at about 8 to 11 per cent. More recently, we have reduced our overweight on equities due to the rally in July.

We also closed the gap of being underweight fixed income, given the higher attractiveness of certain areas such as emerging market debt and high-yield debt. We are still overweight equities and underweight bonds, overall. Our cash position is also lower than it was a year ago, at about 5 per cent.

What is your use of alternatives in this environment?

We have three different alternative strategies we use to hedge market volatility.

On the equity side, we use an anti-beta exchange-traded fund (ETF) that goes up when the markets go down. On the fixed income side, we use private credit, which has been more attractive than it has in a long time. We also have a fund that invests in real assets including energy, gold and physical real estate, for example, that’s done 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 priced in so far this year. It’s hard for anyone to pick the bottom and sitting on high levels of cash – given the high levels of inflation today – may not be a great idea.

Having a little bit of discipline and putting some cash back to work is probably warranted. You can start to pick 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, special to the Globe and Mail

Must-reads from Globe Advisor this week

How to budget for that long-awaited summer vacation

With destinations now open as pandemic-related restrictions ease, many Canadians are ramping up their vacation planning and spending this year after a long hiatus. But with inflation and interest rates also on the rise, advisors are working to ensure clients approach their travel plans with clear budgets, realistic strategies for funding their trips and a few ideas on how to stretch their dollars. Helen Burnett-Nichols looks at what clients need to consider in addition to what a vacation will cost.

Navigating the emotional and financial toll of divorce

Unlike buying a house, going to school or even death, divorce is not often something people broach with their financial advisors until the event is already taking place. Yet, advisors have a critical role to play in helping clients prepare a plan when dealing with these cases. That’s because clients need to know what their finances look like today, the potential cost of the proceedings, and what kind of budget they will need to have to afford their lifestyle after the divorce. Daina Lawrence reports on why it makes good financial sense for clients to know one another’s assets when entering a relationship.

Is the market downturn having an impact on recruiting for advisors?

The economic slowdown hasn’t stopped many wealth management firms from trying to find new talent, with some even stepping up their efforts despite the drawn-out market downturn. It’s not just increased demand for advice that’s driving the talent hunt but also demographics, say experts. Brenda Bouw looks at why some advisors are making the move now and looking for a new place to be when the markets eventually recover.

Why younger people don’t understand the consequences of dying without a will

No one likes talking about death, but avoiding the conversation with clients, especially young ones, means there’s a demographic that’s being underserved. There’s a lack of education and guidance on why it’s a good idea for a young person to have a will, say experts. And a recent poll shows Canadians haven’t been in any rush to create a will despite the pandemic. Leah Golob reports on how advisors can simplify the process of creating wills for young people.

Also see:

Why having enough money is just one piece of the retirement puzzle

How advisors can build a network to help with the complexities of RDSPs

Web3 funds open up as investor interest grows but ‘nascent’ risks loom

Investors sell stakes in buyout funds at a record pace

First single-bond ETFs look set to revolutionize access to U.S. Treasuries

What you and your clients need to know

Canadian ETFs add $1.6-billion despite a rare month of equity outflows

Equity ETFs suffered outflows in the month of July, while the ETF market as a whole rebounded from June with more than $1.6-billion of net inflows. The outflows from equities were dominated by the broad market Canadian equity category. The majority of new assets were committed to fixed income ETFs, with long-term government bonds and cash alternatives leading the pack. Ben Kleinberg of Inovestor breaks down how each category fared, along with launches and terminations.

Here’s the best-case scenario for stocks

The deniers are out in full force. Janet Yellen and U.S. President Joe Biden don’t want to use the word “recession” because it sounds so terrible. Like a contagious disease. So, instead they use the word “transition.” Oh, that sounds so much better, don’t you think? But will they tell us what exactly we are “transitioning” into? David Rosenberg looks at what lies ahead for the stock market given the economic indicators.

Why cash gifts in early adulthood are a smart move

If clients are planning on leaving their children a large inheritance, they might be doing both the child and their money a disservice. Not only does letting children struggle financially while they wait for parents to die create an uncomfortable family dynamic at holiday dinners, it also robs clients’ wealth of its best application: to make their life and their children’s more comfortable. Bridget Casey reports on why giving children cash gifts early in adulthood to set them up financially at the start of their life is a better option.

- Globe Advisor Staff