Uncertainty seems to be the word of the year. It’s ubiquitous, popping up whenever the topic of investment markets arises, and it has been disconcerting for both investors and their financial advisors. However, there’s opportunity in uncertainty if you know where to look, says John Bai, Chief Investment Officer and a Senior Vice-president with NEI Investments.

“The first half of 2025 has been anything but predictable for Canadian financial advisors. From political upheaval to shifting economic tides, advisors have had to recalibrate strategies, reassure clients, and stay nimble in the face of volatility,” Bai says. “Yet, amid the noise, many have found opportunity — not just in markets, but in the strength of their client relationships and the clarity of their long-term visions.”

Still, he says, it has been a stressful environment, as lofty expectations at the start of the year collided with a far more challenging reality.

A tale of two quarters: from tariff turbulence to market recovery

The first half of 2025 has presented investors with a rapidly shifting landscape shaped by macroeconomic uncertainty and geopolitical developments. Equity markets began the year under pressure as concerns over renewed tariffs dampened investor sentiment, triggering broad-based declines in the first quarter.

However, sentiment turned sharply in the second quarter after the U.S. administration announced a 90-day tariff pause on April 9. That day, the S&P 500 surged 9.5% — its best single-day performance since 2008.

The dramatic turnaround in equities between the first and second quarters, says Bai, is a vivid reminder markets can rebound swiftly, often motivated by a single headline. The April 9 rally can serve as a lesson to investors, since those who moved to the sidelines during the Q1 downturn missed a substantial portion of the year’s gains.

Diverging market signals call for caution

While equity markets have recovered much of their early-year losses, the bond market has continued to face headwinds. This disconnect is primarily driven by differing investor expectations and reactions to economic indicators.

The stock market appears optimistic, almost pricing in a soft landing, with strong earnings, moderate inflation, and low recession risk. In contrast, the bond market is signaling something very different. Yields on U.S. treasuries have risen substantially since the start of the year, reflecting investor concerns about persistent inflation and the growing cost of servicing U.S. national debt. Bai sees several implications.

First, higher treasury yields increase the government’s borrowing costs, which raises long-term concerns about the sustainability of U.S. fiscal policy. This adds a structural layer of risk to the economic outlook.

Second, high yields often reflect pessimism in the bond market regarding growth and inflation. They also tend to draw capital away from risk assets such as equities, which can tighten financial conditions.

Finally, higher yields may attract foreign capital and strengthen the U.S. dollar. While this may sound positive, it can also make U.S. exports less competitive and widen the trade deficit.

The long-term yield increases are not uniquely a U.S. phenomenon. Bai points out we’re seeing this globally, with other major economies experiencing similar yield pressures for different reasons, such as higher import costs from tariffs.

Keeping a close watch on regions

In the near term, the U.S. looks solid, Bai adds. GDP growth has been stronger than expected, corporate earnings are robust (with S&P 500 data suggesting about 9% earnings growth over the next 12 months), and the job market continues to perform well. However, longer-term risks remain. Tariffs and elevated interest rates could begin to weigh on investment and productivity. And, with forward price-to-earnings ratios sitting near all-time highs, much of the good news may already be priced into the market.

Canada stands out positively. The Bank of Canada has taken an easing stance, which is helping to stimulate growth and inflation. Canadian equity valuations are more reasonable than U.S. equity valuations, and earnings growth is expected to be strong — around 6.2% for 2025 and 11.5% for 2026.

Across Europe, the U.K., and Japan, valuations are generally lower than in the U.S., making those markets relatively more attractive. While earnings growth expectations are more modest outside North America, these regions present a cushion against downside risk due to their lower entry prices. Recent economic data has also shown positive momentum in the European Union, with upside surprises in growth indicators. Meanwhile, the U.S. and Canadian economies are showing more subdued activity, reinforcing the value of geographic diversification.

Strategies for advisors to consider

The biggest takeaway from the first six months of the year, and the message that should inform investors through the rest of 2025, is that it continues to be critical to diversify. In an environment of still-strong fundamentals and earnings power, Bai also believes it’s vital to remain invested.

“We expect volatility to continue for the rest of the year,” says Bai. “Within equities, we favour areas with less downside risk.”

He notes that up-and-down markets provide opportunities for active managers who can go long and go short to produce certain outperformance.

As advisors position portfolios to navigate an investment climate characterized by uncertainty, Bai recommends they inform clients about the strategies they’ve put in place to help protect assets.

“Client communication should emphasize resilience strategies, such as focusing on quality assets, dividend payers, and global diversification,” he says.

When clients understand the efforts advisors are making to give them the steadiest ride possible, they’ll be better equipped to handle whatever surprises the rest of 2025 throws our way. Knowing their portfolios are well positioned for uncertainty can give clients the confidence and discipline in the face of negative and positive news — both essential so they don’t react emotionally and derail their long-term plans.

Bai will share more detailed information at NEI Investments’ Mid-year outlook webcast on July 24, 2025, at 1 p.m. EST. Advisors will get important context for client conversations by exploring key developments affecting the investment markets. They’ll also be able to ask questions and have them answered live.

This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable, but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

Aviso is the sole limited partner of the NEI LP. Aviso Correspondent Partners operates as a separate business unit of Aviso Financial Inc., which is a wholly owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five provincial Credit Union Centrals and The CUMIS Group Limited. Aviso is a registered mark owned by Aviso Wealth Inc.

Bonds have traditionally played the diversifier role within portfolios, offsetting the historically greater volatility of stocks. That worked well as long as bond and stock performance was poorly correlated. But recently, there have been periods of time in which bonds and stocks moved in sync, which raises questions about how bonds can best serve investors in today’s market environment.

Reine Bitar, a Senior Portfolio Manager with Amundi in London, England, continues to believe in the diversification benefits of holding bonds. She watched closely as fiscal outlook came back into focus for fixed income markets, following an unexpected German fiscal package earlier this year and ongoing U.S. tax-cut discussions.

“This sort of shock raises risk premium in the long end of the curve, resulting in steeper curves. It also weakens the safe haven [role] of bonds…as a hedge against stocks,” she says. “However, we think this is nothing new. The market focus on fiscal does go through waves, and we believe bonds still offer value, particularly in a risk-off environment.”

Bonds are currently characterized by very attractive yields, she adds, and she sees an opportunity to add value through diversification by geography and sector. In April, for example, German bonds played the safe haven role as investors moved money away from U.S. bonds and Treasury bills. This suggests that carefully chosen bonds can still fulfill their traditional role in a portfolio.

Finding opportunities in volatility

Bitar is a lead manager of the NEI Global Total Return Bond Fund , which follows a “discretionary global macro investment approach” that starts with an assessment of global growth, inflation, and financial conditions. The portfolio is then filled with liquid, diversified government and corporate bonds based on medium-term views around duration, credit, and currencies. Most of the corporate bonds are investment grade, but there is also a small allocation to high-yield and emerging market bonds.

Importantly, this is an actively managed fund — something that has proven its merit in recent turbulent months. As volatility shakes up markets and reveals opportunities, the team have flexibility to deviate from the benchmark and capture value wherever it appears. Active management has also been critically important to manage risk through the ups and downs.

“Our strategic investment approach has not changed this year,” says Bitar. “What has changed is our shorter-term management approach, which has been much more focused on diversification, risk management, and options overlays.”

Following U.S. President Donald Trump’s election, the Amundi team decided it wouldn’t help to try to time or predict what he might do or say. Rather, they remained focused on their conviction views, and managed risk around them.

“Back in January, we started buying U.S. duration and selling the U.S. dollar in an options format, as we thought that the U.S. exceptionalism theme…was looking vulnerable to reversal,” she says. “We hedged our positions, and we ended up being right on the hedges and benefited a lot from the options positions.”

At the same time, the fund leaned into diversification, buying duration across developed and emerging markets, including Brazil, Mexico, and Poland.

Volatility in response to on-again, off-again tariffs has opened up value in corporate bonds, and the fund responded by increasing its exposure to corporates. It also selectively took profits on U.S. dollar shorts in response to the U.S. dollar sell-off in the spring, while tactically buying the U.S. dollar at a lower price. One of the fund’s biggest overweight positions is in UK government bonds, where premium has built up on the back of fiscal scares and sticky wage inflation. Bitar says UK government bond yields look particularly attractive at their current levels.

“We continue to be overweight duration on the fund overall, and we favour international diversification into both developed and high-quality emerging market bonds,” she continues. “The beauty of the flexibility of the NEI Global Total Return Bond Fund is that we remain very nimble and very quick to take profit.”

She says that, despite shadows on the horizon looking ahead to the summer and the rest of the year, “volatility creates opportunity, [and] we look forward to hopefully being able to benefit from opportunities that will come…because we still have a lot of room to manoeuvre in the fund.”

Want to learn more about the Global Return Bond Fund? Dive into the full article on the NEI website to see more of the Fund’s advantages including its flexible and active approach, and to learn how it’s achieved over a decade of positive total returns.

This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable, but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

Aviso is the sole limited partner of the NEI LP. Aviso Correspondent Partners operates as a separate business unit of Aviso Financial Inc., which is a wholly owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five provincial Credit Union Centrals and The CUMIS Group Limited. Aviso is a registered mark owned by Aviso Wealth Inc.

With U.S. tariffs reshaping the global trade and economic landscape, many portfolio managers, financial advisors, and investors are focused on finding the least damaging way to react to the barrage of policy changes. John Bai, Chief Investment Officer and Senior Vice-President with NEI Investments, has taken a different approach, moving beyond reacting to anticipating long-term opportunities for Canada and Canadian investors.

“Why waste this global crisis?” he asks. “Let’s focus not on what the U.S. can do for Canada, but what we can do for ourselves.”

Bai points out that Canada was not thriving in the pre-tariff environment. In fact, Canada consistently lags its G7 peers in productivity and GDP per capita, with a stock market that has historically underperformed the U.S. by a wide margin. That, despite the fact Canada has the most educated workforce in the G7, with abundant resources, energy, and critical minerals — and a stable political environment.

Now, in the context of a post-tariff shake-up, there may be more willingness to listen to fresh ideas, and Bai sees the potential for policies that play to Canada’s strengths and provide long-term benefits to the country and Canadian investors.

“Productivity growth leads to wage growth. Wage growth leads to better earnings. Better earnings lead to more prosperity,” says Bai. “And that happens on the stock market as well: the higher the productivity of Canadian companies, the higher the earnings growth of Canadian companies, and the higher the stock price appreciation of Canadian companies.”

Bai believes policies aimed at enhancing productivity can significantly impact Canada’s economic trajectory. Canada is aiming to remove interprovincial trade barriers by July 1, and Canadian government research suggests this would add $200 billion to our economy — a number that exceeds the projected impact of the U.S. tariff drags.

Three pressures may be motivating U.S. policy

At the same time, the U.S. is facing at least three enormous challenges that may be playing into its policy decisions, Bai explains.

First, U.S. public debt has reached a critical level, exceeding 100 percent of GDP, at about US$36 trillion. Comparable debt levels in Portugal, Greece, and Italy during the global financial crisis resulted in painful austerity measures. While the U.S. has the protection of serving as the global currency reserve — which gives the country access to capital markets — its public debt is, without question, high.

Second, U.S. budget deficits exceed those of any other G7 country, at about 7 percent of GDP. Between October 2024 and March 2025, the deficit reached US$1.3 trillion. All that red ink means the U.S. is growing its public debt at a rate of US$1 trillion approximately every 100 days — an unsustainable pace.

Third, interest payments on U.S. public debt are over US$1 trillion a year. That exceeds military spending — and, over the past few centuries, interest payments higher than military spending signalled the downfall of several nations, including Spain, France, and the U.K.

“The U.S. faces huge challenges,” says Bai. “But we shouldn’t focus on what they’re doing. Instead, we should focus on what we can do.”

Finding new paths to performance while managing risk

Bai is optimistic about the opportunities available to investors as interprovincial trade barriers ease and Canadian companies pursue their ambitions nationally and globally. He envisions strategic investments to position Canada as a leader in areas such as STEM research, AI, and engineering.

“A lot of these trends are going to take a while before they start to hit investors, but we’re focused on helping advisors capitalize on the shifting markets and a changing world.”

For instance, at beginning of the year, the NEI team anticipated a more volatile market environment in 2025. So, in their annual strategic asset allocation re-optimization, they increased allocations to lower-volatility equity strategies, alternative investments such as a long-short strategy, and higher-income securities. This is just one example of what the team focuses on as they look beyond current market conditions for unseen opportunities and trends.

Looking ahead, Bai recommends that investors avoid over-allocating to the U.S. and seek better valuations with similar growth rates elsewhere. Increasingly, that opportunity can come from Canadian companies.

Learn more by visiting the NEI website  or speak to your NEI wholesaler today.

This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable, but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

Aviso is the sole limited partner of the NEI LP. Aviso Correspondent Partners operates as a separate business unit of Aviso Financial Inc., which is a wholly owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five provincial Credit Union Centrals and The CUMIS Group Limited. Aviso is a registered mark owned by Aviso Wealth Inc.

It’s always critical for investors and their advisors to understand the material risks that may affect the companies they hold in their portfolios. But in times of uncertainty and greater volatility, it’s absolutely critical. Material risks include financial risks, but they also encompass the environmental, social, and governance (ESG) risks that fall under the umbrella of responsible investing.

Investors are increasingly aware of this, with responsible investing funds reaching a new high of more than $56 billion according to Morningstar’s Canada Sustainable Funds Landscape 2024 in Review. Additionally, the Responsible Investment Association’s 2024 Canadian Responsible Investment Trends Report lists that asset managers’ top reasons for considering responsible investing factors are the two that are likely most important to retail investors: to minimize risk over time (77 percent) and to improve returns over time (63 percent).

At NEI Investments, where responsible investing has been an integral part of the investment process for decades, Adelaide Chiu, Vice-president and Head of Responsible Investing, says that although 2024 global flows into sustainable funds were down by about 50 percent compared to 2023 figures, the last quarter of the year saw a recovery, and full-year asset levels were positive.

“That, to me, indicates the interest in responsible investing in the fund landscape itself, and from an NEI perspective — with most of our funds following a responsible approach to investing — we’re still growing year after year,” she says. “What we differentiate with is the responsible investing lens, and we’re continuing to grow — especially in this turbulent market — so it’s positive.”

Chiu points out that the exponential growth in responsible and sustainable investment funds experienced five years ago has moderated — something that’s typical whenever there’s a proliferation of products in a specific area — but that doesn’t mean it’s fading away. A similar exuberance followed by moderation happened with exchange-traded funds in the past, and they remain important building blocks within retail and institutional portfolios.

Responsible investing, she says, has proven its worth, and asset levels are settling into a baseline. As that happens, investors will likely become more discriminating about what they want from responsible investments. They’ll seek out experienced investment teams with the ability to parse qualitative, non-financial data, to see through volatility and market noise, and to reliably assess the risks that may affect a holding.

Standing out with a proven, differentiated process

At NEI, responsible investing includes exclusionary screens, ESG evaluation, proxy voting and corporate engagement. These approaches are included in the firm’s investment decisions and contribute to a track record of repeatable, consistent results.

NEI’s 2024 Responsible Investment Report highlights the hundreds of company evaluations conducted annually, with almost 12,000 proxy items voted, 210 companies engaged, 100 hours of due diligence meetings with 20 subadvisors, and four impact mandates launched within one year.

Meanwhile, the firm prides itself on transparency. For example, NEI was one of the first Canadian asset managers to make its proxy voting guideline public. Chiu says that influenced peers to become more transparent as well. Regulators have joined the push for transparency, requiring firms to provide their proxy voting guidelines to any investors who request them.

As part of its commitment to getting to know holdings at a deeper level, the NEI team makes a point of establishing long-term relationships with executive management teams.

“We have engagements with them on a one-on-one basis to talk about sensitive topics, such as how companies can improve their strategies, what opportunities lie out there that maybe their competitors aren’t aware of, and the best practices for companies that want to…aim to be a leader within that space because they know incorporating these positive attributes can benefit their business,” she says.

Chiu offers, as an example, NEI’s engagement with Amazon Web Services. Recognizing the tremendous resources required to power AI, alongside its promise, NEI has been speaking with senior management about water usage in particular.

“If they don’t have the adequate resources, if they don’t have access to water, or if they’re not thinking about the future costs of having access to water, it will impact their future growth,” Chiu says. “They may not be thinking about the longer term viability of future cashflows, but we do.”

Telling different stories can give advisors an edge

A “differentiated view” with “differentiated products,” as Chiu puts it, allows advisors to tell clients different stories that they can relate to and that therefore strengthen relationships. Many more of these stories are contained in NEI’s annual Focus List, recently released for 2025.

“A lot of those companies will resonate with advisors. They’ll probably hold them in their portfolios. And with the Focus List, they’ll be able to understand other issues that perhaps investors are not focused on. It gives them an advantage,” she says.

“Even in the face of market volatility, advisors can offer their clients comfort that they continue to move forward on their responsible investment objectives.”

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

U.S. equities drove stock market returns in 2024, with the effect amplified for Canadian investors as the loonie weakened against the U.S. dollar. But lift the hood and it quickly becomes apparent that a handful of stocks — the Magnificent Seven — had an outsized effect on U.S. equity performance. That overconcentration poses risks for investors in 2025, as do stocks priced to perfection and geopolitical risks that could negatively affect investor sentiment.

In a potentially volatile environment, advisors know that optimizing diversification is more important than ever to minimize concentration risk and maximize returns. But what’s the best way to go about achieving that when even broad market indexes are disproportionately affected by the rise or fall of just a few companies? To achieve consistently good performance, it’s critical to go beyond regular rebalancing and look for different, deeper ways to achieve diversification.

At NEI Investments, Judith Chan and her team have developed a multi-step, multi-layered approach to diversification that regularly refreshes market assumptions and return expectations to assess which areas of the market are most attractive in future risk-adjusted returns. Chan, NEI Investments’ Vice-president and Head of Asset Allocation describes what she does, on a regular basis, as “re-optimization.”

Unlike regular rebalancing, re-optimization is a process to re-constitute the portfolio using the most updated market assumptions, aiming to identify and include the most attractive opportunities in the portfolios, while paying close attention to risks that can undermine the team’s efforts.

“Even the stock-bond correlation can change quickly, and that would give us a different mindset or a different opportunity in a multi-asset setup,” says Chan. “For us, it’s the relationship and the relative attractiveness between asset classes that impact us most.”

Finding the right balance for uncertain times

Investors need to be prepared for the possibility that markets will experience volatility in the coming months, Chan says. With U.S. equities in particular trading at high prices, and starting valuation being a very strong indicator of future total returns, it’s critical to be mindful of risk.

“We want to be a little bit more conservative and more defensive. We’re looking for opportunities to be able to capitalize on the downside. If we get market volatility, we want instruments or building blocks where we can build in that offset, to provide downside protection more than ever.”

In this context, Chan suggests that portfolios may benefit from holding alternatives, derivatives, real assets, and instruments with built-in downside hedging. At the same time, she emphasizes, it’s important not to be “too fearful” and pay too high an opportunity cost.

Finding the right balance in any market environment is what optimized diversification is all about — and, again, Chan believes it’s essential to continuously monitor and fine-tune that balance as conditions, and market environment changes quickly. There’s a need to cultivate agility — an ability to anticipate changes and promptly make appropriate adjustments.

“Even though we assess our long-term assumptions on an annual basis, we also have tactical shorter-term signals that give us a more agile look at the market. If the assumptions are changing, or if market dislocation gets extreme, we can make changes in our portfolios with more conviction,” she says.

In the face of current pressures on markets, Chan emphasizes it’s vital for advisors to look for ways to neutralize unintended tilts to ensure the portfolios their clients hold can continue to perform whatever surprises markets throw our way. One way NEI manages this challenge is to make use of a wide range of building blocks within portfolios. Recently, the team has broadened the building blocks at its disposal – for example, by adding more exchange-traded funds and a long-short equity fund to the menu.

The NEI team has also invested in human expertise and added technological tools, including leveraging predictive market modelling using AI technology such as machine learning to enhance the portfolio construction process, in order to position portfolios for the next 10 years. People and technology working together enables a new level of precision – what Chan calls having “fingertips on the pulse of the markets and our funds” – and generate fresh insights into the makeup of each portfolio.

Accessing predictive models that respond to real-time analytics can help advisors steer clients through inevitable ups and downs over the next decade and more. To learn more about how NEI’s investment team identifies, capitalizes on and monitors underestimated investment opportunities using a rigorous investment process, reach out to the NEI Sales team today or visit their website for more information.

This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable, but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations.

Do not place undue reliance on forward-looking information. 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.   NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”). 

In 2024, the Magnificent Seven contributed about 50 percent of the S&P 500 Index’s return and accounted for about 75 percent of earnings growth. However, this group of stocks — comprising Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — may not sustain that level of dominance through 2025 and beyond. That’s a risk to investors without broadened equity market exposure. “This whole Magnificent Seven theme — we’re all just waiting for it to fade,” says John Bai, Senior Vice-president and Chief Investment Officer with NEI Investments, who points out that the U.S. market hasn’t seen this degree of concentration since the 1960s.

“It’s more concentrated than the dot-com bubble in 2000. It’s more concentrated than the Nifty Fifty back in the early 1970s. And when markets get this concentrated and they have these bubbles, they only do one thing: pop. And that’s never good for investors.”

Importantly, however, Bai doesn’t expect the aftermath of this period of overconcentration to look like the ones investors have experienced in the past.

“We’re not saying, like other bubble periods, that the bubbly part of the market is going to collapse and the rest of the market is going to outperform. We think [the Magnificent Seven] will continue to be steady, buoyed by their earnings growth rates. But the rest of the market is just going to catch up — and, when you have the highest-weighted stocks going sideways and the rest of the S&P 500 going up, it’s actually a pretty positive environment,” he says.

After all, the Magnificent Seven’s returns are justified to some extent by their strong earnings growth. The difficulty is that they are also expensive, trading at a 50 percent premium compared to the other 493 stocks in the S&P 500. Plus, the rate of change between Magnificent Seven earnings growth rates and the rest of the market’s is starting to narrow.

For example, Bai points out, quarter-over-quarter earnings growth rates in the fourth quarter of 2023 were 60 percent for the Magnificent Seven and negative for the rest of the index. On the other hand, projections for the first quarter of 2025 are for quarter-over-quarter earnings growth rates of less than 20 percent for the Magnificent Seven and more than 10 percent for the rest of the index.

Opportunity to buy cheaper stocks with solid growth potential

Clearly, 20 percent is still a healthy earnings growth rate, but there is an opportunity for investors to capitalize on a broader range of stocks’ 10 percent earnings growth rate at far lower valuations. Sectors that are well positioned for positive earnings momentum at reasonable prices include financials, healthcare, and energy, says Bai. He adds that cuts to interest rates by the U.S. Federal Reserve — which happened three times in 2024 — tend to result in outperformance by the equal-weighted index compared to the market cap-weighted index.

Bai anticipates that broad U.S. market performance will be supported by the new Trump administration’s pro-business policy tilt. An already strong U.S. economy is likely to benefit from tax cuts and deregulation — though tariffs, if imposed to the extent initially promised, will put upward pressure on inflation. There is also the potential for Trump’s policies to worsen deficits, increasing U.S. federal debt and keeping interest rates high. And, a combination of high inflation and high interest rates may push the U.S. into recession.

Still, Bai has a positive outlook for the broad U.S. equity market. “It’s a great environment for earnings and for investor optimism, so we think that provides a good backdrop.”

Time for active management to shine

“With the markets broadening now, we think investors will be well served by active management,” Bai emphasizes, pointing to the NEI Select RS Portfolios as simple, all-in-one active management solutions. “When markets are very concentrated in a few high market-cap securities, it’s very hard to beat the index. But when the economy starts to broaden, when earnings start to broaden, when the stock market starts to broaden, that’s when you see active management really shining.”

Whatever the economic and market environment, Bai says NEI Investments makes sure its portfolios don’t drift toward accidental overconcentration by taking an “X-ray” view of every fund to identify “unintended tilts.” In any mix of funds, there may be an unintentional overweight or underweight toward or away from a geographic region, capitalization size, or management style, for example. The key word there is unintentional. Those tilts are corrected so they don’t distort the intentional positioning of a portfolio.

Bai describes his team’s asset allocation approach as “re-optimization” rather than rebalancing. The process involves revisiting capital market assumptions on a regular basis to ensure portfolio allocations are optimized for long-term returns, expected earnings growth, valuation rates, and a multitude of other metrics that feed into capital market assumptions and portfolio construction. The long-term focus is important because it aligns with many investors’ time horizons, with the goal of capitalizing on areas with the highest probability of delivering the returns those investors need to accomplish their goals.

“We’re never going to be at neutral. We’re always going to have an active view on which factors we want to overweight or underweight, but we want to make sure the bets we’re making are intentional and aren’t too extreme,” says Bai.

This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. The views expressed herein are subject to change without notice as markets change over time. Information herein is believed to be reliable, but NEI does not warrant its completeness or accuracy. Views expressed regarding a particular security, industry or market sector should not be considered an indication of trading intent of any funds managed by NEI Investments. Forward-looking statements are not guaranteed of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Do not place undue reliance on forward-looking information.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

Aviso is the sole limited partner of the NEI LP. Aviso Correspondent Partners operates as a separate business unit of Aviso Financial Inc., which is a wholly owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five provincial Credit Union Centrals and The CUMIS Group Limited. Aviso is a registered mark owned by Aviso Wealth Inc.

To live to their full potential, people need access to products and services that meet their basic needs. They also need additional support, like education and technology, that enables them to pursue their ambitions. Once people have a foundation of nutrition, community infrastructure, and essential services, plus access to career-building resources, they can participate to a greater extent in the economy. At the same time, the companies engaged in providing all of this grow, too — benefiting investors.

“If you look back to the 1850s up until the 1950s, there were so many huge innovations that greatly improved productivity and people’s quality of life — things like indoor plumbing, lighting, automobiles, locomotives, and even the personal computer,” says Amber Fairbanks, Portfolio Manager with Impax Asset Management and of the new NEI Global Corporate Leaders Fund. 

“[More recently], there haven’t been those huge jumps with regard to innovation, so the world is a little bit starved for growth right now. And I think improving people’s socioeconomic standing and providing opportunities for the bottom billions will provide for economic growth and stability going forward.”

Overcoming barriers to opportunity by investing in companies that meet basic needs and open doors toward a better future is part of a cycle that will lead to innovations of the future, she adds. That cycle is supported by long-term secular trends such as growing populations and expanded potential for economic advancement in emerging markets in particular. 

At the same time, technology is playing a significant role in driving forward people’s progress by democratizing connectivity and e-commerce platforms. Today, individuals and small businesses can set up an online storefront to sell their wares on global websites such as Amazon or eBay, taking advantage of robust infrastructure and ready-made audiences of millions of potential customers.  

“We’re thinking all the time about technological transitions and how they can be democratized. Companies that [embrace] that have a huge opportunity for revenue growth over time.” 

How fund holdings meet basic needs and build skills for the future

Fairbanks offers up French multinational Danone as an example of a company that’s providing affordable access to nutritious essentials without exploiting the environment or labour. The company’s mission is “to bring health through food to as many people as possible,” and, by volume, 89.2% of Danone’s sales of dairy, plant-based, and water products have a Health Star Rating of 3.5 or more. More than 80% of Danone’s business is B Corp Certified in recognition of its environmentally friendly practices, inclusive workforce, accountable governance, value provided to customers, and generosity in the community.¹ 

Another supplier of basic needs with significant exposure to growing demand in emerging markets is U.S. giant Colgate-Palmolive. It produces a wide range of accessible and affordable products, with some (including toothpaste and soap) helping with hygiene and health. Colgate-Palmolive was recognized in  2023 for the 13^th year running as a U.S. EPA ENERGY STAR Partner of the Year. In 2024, Ethisphere named it one of the World’s Most Ethical Companies, and JUST Capital named it one of America’s Most JUST Companies. The company’s Bright Smiles, Bright Futures program has reached 1.7 billion children since 1991.²

A career-building company that broadens people’s opportunities is Wolters Kluwer, headquartered in the Netherlands. It’s a global provider of information, software, and services across multiple sectors, including healthcare, tax and accounting, financial and corporate compliance, legal and regulatory, and corporate performance and ESG. It enables career progression by offering on-the-job training that might, for example, educate health professionals about clinical trial results or legal professionals about precedent-setting cases. With customers in more than 180 countries, Wolters Kluwer recognizes that “their future is also the story of the future of society at large.”³

In emerging markets, however, career advancement may depend on learning English. A company like U.S.-based Duolingo has gamified language learning and made it accessible through mobile devices, and it offers a freemium model so global citizens can learn free of charge or choose to pay extra for additional features. Duolingo recently added music and math to its lesson lineup, further expanding opportunities for education. Its mission is “to develop the best education in the world and make it universally available,” and it’s positioning itself to capitalize on the two billion people currently applying themselves to learning a foreign language.⁴

A new path to performance

Society is changing and so are the investment opportunities. Investors can capitalize on this with the expertise of a specialist investment manager and the NEI Global Corporate Leaders Fund. 

For more information about the NEI Global Corporate Leaders Fund, please visit neiinvestments.com.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. 

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

¹  www.danone.com/content/dam/corp/global/danonecom/investors/en-all-publications/2023/integratedreports/integratedannualreport2023.pdf 

²  www.colgatepalmolive.com/content/dam/cp-sites/corporate/corporate/common/pdf/sustainability/colgate-palmolive-sustainability-and-social-impact-final-report-2023.pdf

³  www.wolterskluwer.com/en/about-us/strategy

⁴  http://investors.duolingo.com

As people live longer — thanks to better medical care and living conditions — and as the middle class grows in emerging economies leaving more people with disposable income, many are looking for ways to improve their health and well-being. As a result, a growing number of individuals around the world are seeking out products and services that enhance physical and mental health. 

This represents an opportunity for companies that are innovating in areas such as personal care solutions, self-care remedies, fitness services, and even health-protecting sectors such as automotive safety systems. Investors, too, can capitalize on this long-term secular trend.

Amber Fairbanks, Portfolio Manager with Impax Asset Management and of the new NEI Global Corporate Leaders Fund, says companies that are active in parts of the economy that promote well-being have a clear trajectory for growth. 

“The investment opportunity comes from demand. We’re seeing increasing demand for [solutions that contribute to] well-being as people live longer and demographics shift toward millennials and gen Z, with their focus on well-being through sustainable products as well as better nutrition,” she explains. 

“We’re really looking at what’s going to be driving people, going forward, with regard to improving their well-being. We translate that into what types of industries might be interesting within this secular trend. Then we look at the individual companies and really try to identify those companies that are best placed to grow from these trends.”

At an industry level, some have a very direct impact on health and well-being. Consider, for example, the companies that provide toothpaste and other oral care products, over-the-counter medications, vitamin supplements, monitoring devices, hearing aids, and cataract surgeries. 

Others have a looser connection but may still be well positioned to benefit from this trend. After all, quality of life improves — just as fintech makes banking more accessible and saving easier, utilities deliver cleaner water and cleaner energy, or technology (in any industry) improves productivity and efficiency. 

“Technology is really woven throughout everything we’re doing, because it’s going to drive growth going forward, [and] it’s going to drive health, happiness, and prosperity,” Fairbanks adds. 

How fund holdings are changing lives for the better

One company held within the NEI Global Corporate Leaders Fund that’s directly enhancing well-being is Intuitive Surgical, Inc. It’s a U.S. medical device company that delivers minimally invasive surgery through robotics, and its da Vinci system is used in more than 70 countries, with a surgeon starting a procedure that uses it every 13.79 seconds. 

Minimally invasive surgery results in patients experiencing shorter recovery periods and providers being able to deliver care at a lower cost. Intuitive is also good to its employees, having been recognized as a 2023 best place to work for disability inclusion (Disability:IN), a 2024 best company to work for in healthcare (U.S. News & World Report), and a 2024 best place to work (Built In for Employers).¹

Staying safe is also a big component of well-being, and the fund invests in automotive safety supplier Autoliv. Headquartered in Sweden and operating in 25 countries, Autoliv designs, develops, and manufactures passive safety systems for all leading car manufacturers, dominating a field with high barriers to entry. 

Autoliv is also innovating to protect riders of two- and three-wheel vehicles, for example, by working to create airbags for motorcycles and scooters. Its partnership with the United Nations Road Safety Fund is supporting the UN’s goal of reducing traffic fatalities and Autoliv’s goal of saving 100,000 lives every year. In 2023, the company says its products saved 35,000 lives and mitigated 450,000 injuries.²

Also addressing safety is Mobileye, headquartered in Jerusalem, Israel, which is developing autonomous driving solutions. It’s solidly positioned to capitalize on the fact that automotive safety features that were once revolutionary are becoming standard. For example, its advanced driver-assistance systems are currently deployed in millions of vehicles globally. 

At the same time, Mobileye is at the forefront of development of hands-off/eyes-off solutions for consumer vehicles, as well as robotaxis, public transport, and goods delivery. It was recognized among Newsweek’s World’s Most Trustworthy Companies in 2023 and has committed itself to equal opportunity for employees, including occupational integration initiatives for people with disabilities.³

A new path to performance

Society is changing and so are the investment opportunities. Investors can capitalize on this with the expertise of a specialist investment manager and the NEI Global Corporate Leaders Fund. 

For more information about NEI Global Corporate Leaders Fund, please visit neiinvestments.com.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. 

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. Northwest & Ethical Investments Inc., is a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”). Aviso is a wholly-owned subsidiary of Aviso Wealth Limited Partnership (“Aviso Wealth LP”), which in turn is owned 50% by Desjardins Financial Holdings Inc. (“Desjardins”) and 50% by a limited partnership owned by the five Provincial Credit Union Centrals (the “Centrals”) and The CUMIS Group Limited..

¹  www.intuitive.com/en-us/-/media/ISI/Intuitive/Pdf/2023-Intuitive-ESG-Report.pdf/

² ; www.autoliv.com/investors/annual-and-sustainability-report

³ www.mobileye.com/about/esg/

When more people participate in the economy, societies are better positioned to thrive. Investors can contribute to this positive trend by seeking out companies that are improving access to finance, education, internet, and more. At the same time, these investors have the potential to capture returns associated with both economic growth driven by greater participation and social stability made more likely thanks to upward mobility. 

“Inclusive growth can help reduce extreme poverty and share prosperity, and that reduces risks around disempowerment, unrest, and instability,” says Amber Fairbanks, Portfolio Manager with Impax Asset Management and of the new NEI Global Corporate Leaders Fund. “There are huge benefits in terms of positive societal impact … as well as for the end investor in terms of being able to create value over time.” 

Impax Asset Management is recognized for its global expertise in understanding powerful long-term socioeconomic trends and corporate culture factors, both of which are potential drivers of strong financial performance. The NEI Global Corporate Leaders Fund is among the first in Canada to showcase this dual focus.

“What we’re looking at is investing in companies really improving the economic standing of people and the economic growth opportunities [associated with that],” says Fairbanks. “That’s going to provide economic tailwinds for those companies positively exposed.” 

Her team’s conviction is that long-term secular trends that are shaping society should drive strong performance for companies that are addressing them – but that the market often underestimates growth coming from these trends. One of the best assets a company can have, she adds, is a strong culture that supports motivated and productive employees, lower turnover, better decision-making capabilities, and more diverse influences on decision-making.  

Identifying long-term secular trends and analyzing corporate culture indicators allows Fairbanks to capitalize on market inefficiencies, with the goal of achieving long-term outperformance. The team uses a proprietary tool to quantify and score corporate culture by examining factors such as the percentage of women in management, workplace equity and inclusive business practices, and turnover. 

Ultimately, by investing in companies that can demonstrate social and governance progress, as well as strong balance sheets, they’re helping to break down barriers to economic participation.  

Here’s what investing in socioeconomic trends looks like

One of the biggest obstacles standing in the way of a more inclusive economy is access to financial platforms and financial security. 

“There are a tremendous number of people who are either unbanked or underbanked, particularly in emerging markets,” Fairbanks says. “Fintech is doing a great job in terms of making that more accessible [through] affordable and scalable platforms.”

The NEI Global Corporate Leaders Fund holds MercadoLibre, Inc., which operates online marketplaces with a mission “to democratize commerce and financial services to transform the lives of millions of people in Latin America.” The company’s Mercado Libre e-commerce and MercadoPago fintech businesses together have more than 100 million active users in 18 countries. 

Founded in 1999, MercadoLibre has grown to become a top five global e-commerce company named among Fortune magazine’s Future 50 in 2023 as one of the world’s highest-growth companies¹.

Another significant obstacle is access to education and jobs. This can be facilitated by companies specializing in recruitment, employment, education, and publishing. 

Fairbanks points to a company like Recruit Holdings Co., Ltd., headquartered in Japan, which opens doors to job seekers in more than 60 countries through platforms such as Indeed and Glassdoor. Recruit also supports matching platforms and SaaS (software as a service) solutions in Japan and temporary staffing services in Japan, Europe, the United States, and Australia. 

This firm is committed to achieving two social impact goals: halving the time it takes to get hired between 2021 and 2030, and helping 30 million job seekers who face barriers such as lack of education, criminal records, disability, and military experiences get hired².

“Recruit uses data analytics and artificial intelligence to make sure there’s a strong match between the employee and the potential employer. That not only shortens the time for people to get hired, but also ensures a better match so people end up staying in their jobs and there’s lower turnover,” says Fairbanks.

A new path to performance

Society is changing and so are the investment opportunities. Investors can capitalize on this with the expertise of a specialist investment manager and the NEI Global Corporate Leaders Fund. 

For more information about NEI Global Corporate Leaders Fund, please visit neiinvestments.com.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or Fund Facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. 

NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. (“NEI LP”). Northwest & Ethical Investments Inc. is the general partner of NEI LP and a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

¹ https://investor.mercadolibre.com/about-us/ and https://investor.mercadolibre.com/investor-presentation/

² https://recruit-holdings.com/en/ and https://recruit-holdings.com/en/sustainability/social-impact/