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ANGELA WEISS/AFP/Getty Images
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This is the new Globe Advisor weekly newsletter for professional financial advisors, published every Friday. If someone has forwarded this newsletter to you via e-mail, or you’re reading this on the web, you can register for Globe Advisor, then sign up for this newsletter and others on our newsletter sign-up page.
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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.
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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.
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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.
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What’s your perspective on what’s playing out in the markets?
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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.
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There are signs that maybe inflation is starting to peak, which means central banks will continue to tighten, but at a less aggressive pace.
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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.
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How are you positioning your portfolios for what may come next?
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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.
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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.
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What is your use of alternatives in this environment?
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We have three different alternative strategies we use to hedge market volatility.
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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.
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What advice do you have for advisors trying to figure out how to invest in this market?
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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.
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More stories below advertisement
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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.
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- This interview has been edited and condensed.
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- Brenda Bouw, special to the Globe and Mail
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