Halloween is just around the corner and investors may be wondering
about the witching hour spooking the markets. For sure they've been on a roll (though the stronger Canadian dollar has offset much of that). But what's next?
Though comparison's have been made between President Trump and an Ogre or Goblin or any number of other scary Halloween figures, our view is that the Markets are more likely to give investors a Treat rather than a Trick, whatever Trump's next move may be. This view is predicated on a strong global economy that is broad-based both geographically and across economic sectors. This reality is supportive of risk assets with equities being the most attractive asset class.
The risk-free return on government bonds held in mutual funds is low, with a return expectation of 1%-2%. Corporate bond funds offer somewhat more, depending on whether they are investment or non-investment grade. A 3%-4% target return is reasonable here, though simple math means that a blend of the two asset classes would at most produce a 3% return for investors. So this leaves equities to generate returns that bring overall portfolio returns to a pension-like 5% to 6% return net of fees.
So what's the bottom line? Simply that we are
revisiting our more defensive allocation thesis and will be talking to you about the need to increase equity exposure to achieve higher investment returns. This must be done within investor's individual Risk Profiles of course, but growth is expected to come from equities not bonds for the foreseeable future. I look forward to discussing the role equities should play in your retirement savings and in the meantime, Happy Halloween!