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Investors can often get emotional when markets drop and panic sell – or they can buy stocks during periods of volatility that may not fit their investment goals.Courtney Crow/The Associated Press

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Advisors are managing growing concerns among clients that another recession may be around the corner – an event that could erode the value of their portfolios and potentially delay some retirement dreams.

A recent Nanos Research survey conducted in late April and early May shows that four in five Canadians were concerned or somewhat concerned about the possibility of a recession, particularly as interest rates rise rapidly to curb surging inflation. The poll, commissioned by The Globe and Mail, highlights that most Canadians worry that tightening monetary policy may not create a “soft landing” for the economy.

We asked three experts from The Globe and Mail and SHOOK Research’s inaugural ranking of Canada’s Top Wealth Advisors on what they’re telling clients about the threat of another recession and how they’re rejigging portfolios to try to lessen the blow.

An-Lap Vo-Dignard, senior wealth advisor and portfolio manager with the Vo-Dignard Provost Wealth Management Group at National Bank Financial Wealth Management in Montreal, says how he manages clients’ investments during a market downturn “largely depends on their risk tolerance and cash flow needs relative to their overall wealth, which sometimes is linked to their age and stage in life.”

He says someone who has to withdraw larger percentages of money in the next few years – if they’re retiring for example – will require a different approach than someone who’s younger and has more years to build wealth and will be adding money to their investment portfolio.

“If you have a long time horizon … [and] the stock market is bad for the next few months or years, maybe it’s a good idea to be buying stocks, and when they rebound, you have more money working for you,” he says, adding that stock market pullbacks can be healthy for longer-term investors.

While “a big correction is never fun,” he says it’s a time when advisors create the most value for clients by keeping them on track with their financial plans.

Investors can often get emotional when markets drop and panic sell – or they can buy stocks during periods of volatility that may not fit their investment goals.

“We have a tailored approach with clients that’s based on their financial needs and objectives and their risk tolerance,” he says.

Mr. Vo-Dignard looks to buy and hold high-quality companies with strong brands and balance sheets with steady free cash flow and a solid management team for his clients. He says companies with these characteristics tend to weather market storms best.

His firm also uses different types of structured products for a portion of its investments, providing investors with attractive returns and giving them extra protection during a market downturn.

“We have been using structured notes for several years, and they have been a key in our outperformance,” he says.

Mr. Vo-Dignard’s team also tries to avoid buying companies with lesser-known brands and limited pricing power that can lose sales more easily in a recession.

“Be careful of putting too much money in highly leveraged and speculative companies,” he says. “They are riskier and in a prolonged tougher environment, some could possibly go bankrupt.”

Reduce fixed income, tech exposure

Jennifer Tozser, senior wealth advisor and portfolio manager at National Bank Financial Wealth Management in Calgary, says investors are nervous about inflation, rising interest rates and the potential for the pandemic and its economic fallout to drag on even longer, especially given the latest lockdowns in China.

“People’s nerves show up in short-term market movements,” she says.

At the same time, she adds that markets are undergoing a huge transition away from rock-bottom interest rates to rapid increases over a short period.

“What that means is there’s a pivot in people’s portfolios. … What’s worked for the past decade or so isn’t going to work as easily today,” she says, adding that even seemingly safe investments such as bonds are also being hit in the current market environment.

Her strategy, which started to shift late last year, has been to reduce the amount of fixed income in client portfolios and cut her exposure to high-growth technology names. Instead, she added more structured products and increased her weighting in industrials and commodities such as oil and gas and gold, in anticipation of rising rates.

Ms. Tozser says the transition to a low-carbon economy and away from fossil fuels such as oil isn’t happening as quickly as some investors expected, particularly now as the war in Ukraine and bans on Russian oil impact global supply.

“The problem we have is that everyone is pretending we don’t need oil and that we can have renewables instead. It’s a transition risk,” she says. “You can’t just assume you can flip a switch and it’s gone.”

The case for the mining sector

Cam Currie, a senior investment advisor at Canaccord Genuity Wealth Management in Vancouver, says his team has been forecasting “an asset bubble” for rate-sensitive sectors such as technology and real estate since at least last year.

He thinks investors should look to the long-ignored mining sector for returns instead, as both an inflation hedge and a provider of commodities needed to build out the low-carbon economy in the longer term.

Mr. Currie, who specializes in mining and metals stocks, says investors should have about a 10-per-cent weighting in mining equities in the current market environment. He favours gold, in particular, as “an insurance policy” during market volatility.

“My message to people is, ‘You need an allocation in precious metals and base metals as a hedge against inflation and hedge against financial risk, especially with gold,’” Mr. Currie says.

“Fundamentally, the value proposition in precious and base metal stocks have never been this compelling.”

He says he learned a long time ago that opportunities come along that are “so low risk and so high reward.”

“Yet nobody is paying attention. That’s the metals market today,” he adds.

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