The first half of the year was very positive for the markets, but since then, we’ve experienced a shift in sentiment that has now put the equity markets in ‘correction’ territory. The markets continue to grapple with the idea of a prolonged high interest rate environment in the face of a tight labour market and healthy consumer appetite.
The US and Canada just released their 3rd quarter GDP data, and they are telling different stories. On one hand, US came out with a much hotter than expected GDP for the 3rd quarter while Canada has experienced a flatline. Some argue that with Canada’s new migrants, the real GDP may be on a decline year-over-year. This isn’t surprising given the financial pinch felt by both consumers and businesses. The US, however, seems to be less impacted by higher rates. This may be because the average term of a mortgage in the US is 30 years, and for that reason, fewer Americans have felt the impact of higher interest rates.
We remain confident that we will eventually find ourselves in a situation where inflation is at an appropriate level, forcing interest rates back down to modest levels. Until then, there is a good chance we will experience volatility and instability in the markets and asset prices.
In addition to these uncertainties, the conflict in the Middle East is a cause for concern. Potential escalation of violence in the region could be a major blow and set back globally impacting everything from trade to commodity prices. We hope these issues are resolved quickly!
For the reasons mentioned above, we have systematically divested away from the stock allocations to our managed portfolios, and ultimately, a decision was made to sell ALL stocks, excluding Bank Notes and Mortgage Investments. Nearly all these trades have resulted in profit taking and the funds will be sidelined in our High Interest Savings Accounts (HISA) that currently offer a 5% return as well as daily liquidity. The HISA offers a reasonable interest rate and allows us to exercise patience while we await the right re-entry point into the markets. We hope some of the current issues are resolved quickly so we can invest your capital with confidence.
It’s important to note that we are not liquidating all the positions in your portfolios.”. We still find great value in both our Bank Notes and our Mortgage holdings. In both situations, we have terms and mechanisms in place that are designed to protect your funds from capital erosion while providing a high level of return in the process.
- With Bank Notes, we rely on two factors: the strength of the underlying asset class, and the capital protection with the latter being an important contributor to our position. In all cases, our bank notes offer a substantial protection against unfavorable markets. The combination of safety and return makes these investments highly attractive in these market conditions.
- With Private Mortgages, the focus should be on the security of collateral. For that reason, we have carefully curated a portfolio of mortgages that offer an extremely attractive proposition in both their consistent return and underlying collateral. Our Mortgages Portfolio is consistently paying a high yield with a substantial level of collateral.
While the future remains uncertain, we are resolute in our commitment to making informed decisions that provide your portfolio with the best opportunity for success, regardless of the prevailing market conditions. Our goal is to get back in the stock market as soon as the risk-reward metrics tilt the scale in your favor. This could happen in a few weeks or a few months. Until then, we’ll make sure the funds are protected and generating a reasonable return while we look for the right entry point and at the right time.
We sincerely appreciate your continued trust in Caerus. We firmly believe in keeping you informed about our strategy’s evolution. We encourage you to reach out to us to schedule a conversation should you have any questions or concerns. We are here to provide you with the answers, guidance and support you deserve.
This information has been prepared by Kian Ghanei and Terry Fay who are Portfolio Managers for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The [Investment Advisor/Portfolio Manager] can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.