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Som Seif is the chief executive officer of Purpose Investments Inc.

Della Rollins/The Globe and Mail

For anyone bored with unusually calm markets that only seemed to edge higher day after day, the first quarter had it all – fear, panic, free fall, rebound, rate hikes, big macro risks, even the emergence of inflation.

That also made for a tricky backdrop for three investment professionals trying to raise money for children living with disabilities.

The three are participants in an investment challenge to raise money for the Holland Bloorview Kids Rehabilitation Hospital in Toronto – the largest facility of its kind in Canada. Its mission is to improve the lives of children living with anything from cerebral palsy to autism.

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Each of the fund managers started with $25,000 donated by their respective firms. And each is managing that money on behalf of Holland Bloorview over the course of the calendar year, with all capital and investment gains going to the hospital. Donations of cash or securities can be made to each manager’s Investor Challenge fund at hollandbloorview.ca/investorchallenge. Last year, the challenge raised $275,000.

Here is how each of this year’s participants fared in the first quarter.

The investor

Michael Simpson, senior vice-president and executive portfolio manager, Sentry Investments

The fund

Sentry Canadian Income Fund

You won’t find any Canadian banks among this fund’s top holdings.

Having turned bearish on Canadian banks a couple of years ago, Mr. Simpson maintains a weighting in the financial sector of just 8 per cent. By comparison, financials account for about 35 per cent of the S&P/TSX Composite Index.

What soured him on the big banks was the general level of indebtedness in Canada.

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“Canadian financials have had quite a run,” Mr. Simpson said. “Our concern is debt levels, both at the household and the corporate level in Canada. The banks are fine franchises but at a certain point, you can’t grow any more when you have this big albatross of the debt burden.”

The fund’s highest weightings are reserved for the industrial and energy sectors, both of which have been among the three best-performing Canadian sectors since the domestic market bottomed out in early February.

Still, the fund posted a first-quarter loss of 4.1 per cent.

The investor

Alfred Lam, chief investment officer of CI Investments’s multi-asset division

The fund

Select 80i20e Managed Portfolio

For years, a 3-per-cent yield on U.S. 10-year treasuries has been pegged as an important threshold for markets in general.

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“Since we got it, the bond market has been holding pretty steady,” Mr. Lam said.

With long-term government yields at their highest levels since 2011 in the United States, and 2014 in Canada, Mr. Lam is not reluctant to hold long-duration government bonds. Investors that have not owned government bonds in the last little while will have to reconsider at this level, he said.

Up to a U.S. 10-year yield of about 3.3 per cent, the higher income more than pays for the capital loss as a result of the bond’s prices falling – bond yields and prices move in opposite directions.

“I don’t think we’re going to be much higher than 3.3 per cent. So I don’t think there’s a lot of downside,” Mr. Lam said.

On the equity side, he said he’s started to increase exposure to the Canadian market. “If we have a bigger market correction, Canada will probably perform better than the rest of the world, just because it’s been under-bought for a long period of time.”

The investor

Som Seif, chief executive officer of Purpose Investments Inc.

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The fund

A custom portfolio from across the Purpose family of funds

In building a diversified portfolio specifically for the investment challenge, Mr. Seif took a pass on the fixed-income allocation traditionally thought of as a shock absorber in a standard portfolio.

“The bond market has delivered really wonderful returns in the past,” Mr. Seif said. “But I think we’re going into a period where bonds might start to be a really difficult headwind for everybody’s portfolio.”

Purpose recently launched a couple of actively managed income ETFs that are designed to perform well in a bear market for bonds.

“We need to be careful of the idea that bonds will protect us when equity markets fall,” Mr. Seif said. “We might go through a period when both are hurting you at the same time.”

On the equity side, one of the biggest challenges is managing investor expectations, he said. Last year’s market experience has the potential to draw investors into risky momentum names.

“You don’t want to get anxious and chase performance,” Mr. Seif said. “What most people need from a return perspective is 6 or 7 or 8 per cent. But when the markets are up 12 per cent, people wonder why they aren’t getting that.”

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