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The U.S. election will likely a major source of volatility as investors fret over its outcome and implications.ANGELA WEISS/Getty Images

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Investor optimism is riding high heading into 2024. After a largely disappointing run for investors in 2023, the last few weeks of the year were marked by enthusiasm as markets anticipated that interest rate hikes were finally over and a mild recession or soft landing was likely in the first half of 2024.

Will this prediction come true, prompting central banks to cut interest rates in the second half of the year – serving as a tailwind for bond and equity markets?

Here’s how four Canadian portfolio managers see the year ahead and how they’re positioning client portfolios.

Francis Sabourin, portfolio manager and investment advisor with Francis Sourin Wealth Management at Richardson Wealth Ltd. in Montreal

Mr. Sabourin is keeping tabs on four trends likely to drive markets – elections for 4.1 billion people around the world, defence sector growth, artificial intelligence (AI) and the labour market.

The U.S. election will be among the most pivotal – likely a major source of volatility as investors fret over its outcome and implications for everything from Canada-U.S. relations to Ukraine and Taiwan.

A major U.S. ally, Taiwan, which also has elections this coming year, is continually under threat of invasion by China, while producing 90 per cent of the world’s advanced semiconductors, which are critical to AI.

Given the overreliance on Taiwan for semiconductors, the U.S. will continue its strategy to build up domestic chip manufacturing capacity, Mr. Sabourin adds. That shift could be a boost for companies such as Netherlands-based ASML Holdings NV ASML-Q, providing technology and expertise to build semiconductor factories.

Higher defence spending is also likely to continue no matter the election outcomes because of the ongoing Ukraine war.

As a responsible investment (RI) advisor, Mr. Sabourin notes his client portfolios don’t hold arms manufacturers but have exposure to the industry through CAE Inc. CAE-T, a Montreal-based maker of simulators for military training.

Higher defence spending should also fuel the U.S. labour market, though growing AI use among major businesses could mute job growth. Mr. Sabourin points to JP Morgan Chase & Co. JPM-N as an example. It is investing heavily in AI.

Patti Dolan, senior wealth advisor and portfolio manager with Wagner Investment Management Team at Wellington-Altus Private Wealth Inc. in Calgary

Ms. Dolan says client portfolios have more exposure to the U.S. as “there are more opportunities because Canada is fairly restricted for choices in health care and technology.” These sectors have strong long-term growth prospects, she adds.

Technology, of course, is of increasing importance to every aspect of the economy, including health care. In addition, developed economies’ populations are aging while developing economies have fast-growing middle classes – both of which should fuel health care spending in 2024 and for decades to come.

Ms. Dolan, also an RI-focused advisor, notes that exchange-traded funds (ETFs) with an environmental, social and governance (ESG) mandate offer low-cost, diversified exposure to the U.S. Among the many choices is iShares ESG Aware MSCI USA ETF ESGU-Q, which holds more than 600 top-rated ESG U.S. companies.

Ms. Dolan predicts ESG will be more important than ever to financial performance in 2024 as regulations and disclosure become more formalized. One example is Europe, where companies must apply the new Corporate Sustainability Reporting Directive rules starting in March.

“Many North American companies look at what’s happening there and start preparing for those rules coming here eventually,” Ms. Dolan notes.

In turn, client portfolios hold firms that are sustainability leaders. That includes Canadian firms such as TransAlta Corp. TA-T, which “brought back into the fold its renewable energy business this fall” after spinning out those assets into a separate company a decade ago, and Montreal-based WSP Global Inc. WSP-T, an engineering firm involved in climate mitigation infrastructure projects, she says.

Hardev Bains, president and chief investment officer at Lionridge Capital Management Inc. in Winnipeg

Overall, markets appear pricey as investors “have been fairly exuberant,” says Mr. Bains, a value investor.

“So, we’re not seeing any screaming bargains out there” like in 2022, when shares of Meta Platforms Inc. META-Q, Inc. AMZN-Q and Alphabet Inc. GOOGL-Q reached “firesale prices.”

Should higher-than-normal inflation persist, leading to higher interest rates, big tech shares might be on sale again. Indeed, these firms have strong, long-term fundamentals, driven in large part by e-commerce’s continuing growth, he adds.

Yet, Lionridge portfolios also include many defensive names such as Johnson & Johnson JNJ-N as the products it manufactures are typically evergreen, he adds. Once a consumer staples stock, Johnson & Johnson is “primarily a medical technology, medical devices and pharma company,” benefiting from a growing global population that’s aging increasingly.

Benoit Poliquin, president and portfolio manager at Exponent Investment Management in Ottawa

Mr. Poliquin is taking an all-weather approach to 2024, including preparing for inflation running hotter and interest rates moving higher than expected.

“It’s important to have an investment exit plan” outlier probabilities, he adds.

One scenario involves U.S. states facing challenges with bond raises that could force higher rates, resulting in higher than anticipated market volatility, he adds. In turn, having “cash at hand” may prove very beneficial as it can be quickly allocated to arising opportunities should markets fall.

At the same time, consumer staple stocks such as PepsiCo Inc. PEP-Q should continue generating profits. It was profitable in 2022 and 2023 and aims to increase prices in 2024 amid expected high demand for soft drinks and snacks such as Lay’s potato chips.

“Businesses like that are pretty much unassailable,” Mr. Poliquin notes.

Of course, markets might be spot on about a soft landing, and one name that could benefit is Pool Corp. POOL-Q, the world’s largest wholesale distributor of swimming pools and related products.

“The premise here is that with U.S. homeowners locked into 30-year mortgages at low rates, rather than move, they will put more money into their properties.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
Asml Holdings NY Reg ADR
Cae Inc
JP Morgan Chase & Company
USA ESG Optimized Ishares MSCI ETF
Transalta Corp
WSP Global Inc
Meta Platforms Inc
Alphabet Cl A
Johnson & Johnson
Pepsico Inc
Pool Corp

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