Adjusting To Constructive Change

All-time high equity markets, rising commodity prices, lower bond yields, monetary and fiscal stimulus, and ongoing COVID-19 vaccine rollouts.

08.03.2021 - Scott Guitard, Vice President, Portfolio Manager

In the second quarter, investors set aside concerns about rising inflation and instead focused on the positives, pushing global equity markets to all-time highs, driving bond yields lower, and boosting commodity prices. Global economies benefited from the COVID-19 vaccine rollout and easing restrictions, paired with ongoing monetary and fiscal stimulus. Here are our thoughts on the global economy reopening and some potential effects on portfolios.

Money Market/Cash Equivalents

During the second quarter, money market yields remained anchored to central banks’ extremely low policy rates. Although North American policymakers have expressed some surprise regarding recent inflation prints, we expect they will continue operating as though transitory factors are primarily driving currently higher inflation rates. We remain neutral on this asset class.

Fixed Income

Bond yields reversed their rising trend in the second quarter, which led to strong performance. Inflation concerns appeared to lessen, and central banks remained committed to bond purchasing programs and low policy rates. Longer-term bonds outperformed comparable short-term bonds. We expect investors will grapple with inflationary forces and the ensuing impact on policy rates in coming quarters as re-openings, supply chain disruptions, and massive government stimulus run their course.


Despite fixed income’s healthy second quarter performance, equities still strongly outperformed. Within equity markets, “growth" stocks regained their leadership position, benefiting from lower bond yields. Our overweight commitment to equities remains; however, we adjusted its composition in the second quarter. We opted to take profits in US equities and redeploy funds to Canadian and International markets, which we believe have greater upside (and less downside) at this stage.

Fixed Income Sectors

Canadian Investment Grade Corporate Bonds

The overweight to high-quality Canadian investment grade corporate bonds added value in the second quarter as corporate fundamentals improved. Energy sector bonds performed well as West Texas Intermediate crude oil prices rose by over 25% in the quarter. We are continuing our overweight position in this asset class.

Government Bonds
During the second quarter, government bonds benefited from shifting interest rate expectations. We continue to see this subset of bonds as an attractive hedge for balanced portfolios, but also believe absolute returns will be constrained given how low government bond yields are these days. As a result, we remain underweight in this asset class.

Equity Markets

Canadian Equities

Looking at second quarter absolute returns, Canadian equities benefited greatly from rising commodity prices, which proved to be a real positive for our economy and underlying stock markets. From a relative return perspective, being underweight technology stocks weighed heavily. During the period, we increased our exposure to the Canadian market, increasing our commitment to “neutral.” We think Canadian equities will continue to thrive in this environment.

US Equities

Large US technology companies experienced strong returns in the second quarter. This can be attributed to declining bond yields. This theme weighed slightly on relative returns as we are more comfortable having an underweight position in the Technology sector, given its significant size in absolute terms. We reduced our overweight to US equities in the quarter since we are finding more attractive relative stock valuations elsewhere.

International Equities

In the second quarter, Europe’s COVID-19 vaccine rollouts accelerated, boosting the region’s economies and equity markets. Conversely, Emerging Markets continued to experience delays with their vaccine distribution. Nonetheless, these equity markets performed admirably. We see more upside in International markets moving forward, as we believe the reopening trade is at a much earlier stage than in the United States and progress is less incorporated into current equity prices.

Asset Allocation Process

Asset allocation decisions result from ongoing discussions within our Private Client Investment Strategy Committee. We begin by making strategic investment decisions against an internal benchmark—for example, the Balanced Growth Benchmark Portfolio—that is based on a neutral asset mix and stable market conditions[1]. The difference between our investment strategy and the benchmark portfolio reflects our active commitment to effectively managing risk and delivering on our long-term return objectives. In updating our investment strategy, we review our investment portfolio and benchmark, and complete any required trades.




1. The Balanced Growth Benchmark Portfolio is comprised of 40% fixed income assets and 60% equity assets.



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