Market Insights | Advisor.ca https://www.advisor.ca/investments/market-insights/ Investment, Canadian tax, insurance for advisors Tue, 12 Aug 2025 21:09:49 +0000 en-US hourly 1 https://media.advisor.ca/wp-content/uploads/2023/10/cropped-A-Favicon-32x32.png Market Insights | Advisor.ca https://www.advisor.ca/investments/market-insights/ 32 32 The yield-duration sweet spot https://www.advisor.ca/investments/market-insights/the-yield-duration-sweet-spot/ Tue, 12 Aug 2025 19:22:22 +0000 https://www.advisor.ca/?p=292582
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There’s a sweet spot along the yield curve for bonds, offering higher yield when adjusted for the risk of holding longer maturities. By identifying that yield-duration target and tilting their portfolios accordingly, ETF and mutual fund managers can materially enhance returns in their bond mandates.

Though it’s a moving target, the sweet spot can also serve as a guidepost for how advisors and their clients can effectively position fixed-income holdings.

“Yield per unit of risk is a good approach,’ said Ashish Dewan, senior investment strategist with Toronto-based Vanguard Investments Canada Inc. “This approach has provided a yield cushion that has helped steady returns against broad market volatility.”

A year and a half ago, when the yield curve was inverted, short-term maturities were the most attractive on a risk-adjusted basis, said Darcy Briggs, a senior vice-president and portfolio manager with the Canadian fixed-income team of Franklin Templeton Canada in Calgary.

But with the yield curve having reverted to a normal trajectory, Briggs added, the sweet spot is now in what bond managers call the “belly” of the curve, the middle ground between short- and long-term maturities.

“That sweet spot will move around,” said Briggs. “But on average, like over a full cycle, the belly of the yield curve offers some of the better risk-adjusted returns.”

One yield-curve measure employed by bond managers is the difference between the two-year yield and the normally higher 10-year yield. Recently, this gauge of steepness was about 73 basis points in favour of the longer end. Briggs said this falls within the 50 to 150 basis-point range of a normal yield curve, though currently less than the median level of 100.

There’s no specific range of maturities that constitutes the belly of the curve, but depending on the portfolio manager it’s generally considered to be anywhere from three to seven years.

For the fixed-income team at CI Global Asset Management, the best risk-return tradeoff is currently in that range. That provides a healthy stream of income while mitigating the price sensitivity of longer-dated bonds.

“The long end carries too much risk in this environment. The belly gives you more bang for your buck,” said portfolio manager Grant Connor, who has the lead role in domestic rate strategy for the CI GAM team.

Connor and his colleague Fernanda Fenton, who is responsible for managing rates exposure in developed and emerging markets, consider the five-year area of the curve to be the current sweet spot.

This part of the curve, they believe, offers enough duration to benefit from any central bank easing, while avoiding the elevated volatility and downside risk of the long end of the curve, which remains vulnerable to fiscal concerns, inflation persistence and geopolitics.

Bond yields are attractive

Regardless of the next move in interest rates by the U.S. Federal Reserve or the Bank of Canada, bond yields look attractive, bond watchers say. Vanguard’s Dewan noted that recent real, after-inflation yields have exceeded 2%, particularly at the 10-year level.

“That is something we haven’t seen in a while. So it increases the return potential,” he said. As well, Dewan added, higher quality bonds are well equipped to be portfolio hedges in the event of falling stock markets.

Citing factors such as tariff-related economic weakness and the plight of homeowners facing mortgage renewals at much higher rates than several years ago, the Franklin team believes that the Bank of Canada will be compelled to make more cuts in its trend-setting policy rate. For that reason, said Briggs, the yield on 10-year Government of Canada bonds, which was at 3.4% in early August, looks attractive.

If the Bank of Canada rate fell to 2%, 75 basis points lower than its current level, that would suggest a 10-year yield falling to 3%, according to Briggs. This would result in capital gains, since bond prices move in the opposite direction of market interest rates.

“That would represent a high, single-digit return on the Canada 10-year,” Briggs said.

Looking ahead over the next six to 12 months, the CI managers believe the five-year part of the yield curve is expected to remain the anchor for risk-efficient positioning. But central bank cuts might present an opportunity to extend duration, especially if the yield curve steepens as long-bond rates remain high. “Unless tariffs or [rate] cuts change the outlook, five years still makes the most sense over the next six months,” Connor said.

U.S. “uncertainty”

In the context of an overall fixed-income portfolio, the sweet spot is only one element of portfolio construction to consider. Dewan recommends diversification into international bonds outside North America, citing differences in central bank policies and “uncertainty around U.S. policy, which is a big risk for many investors right now.”

The sweet spot will also vary depending on the investment objectives and risk tolerance of the individual investor. In a more conservative portfolio, said Dewan, longer-term investors should consider holding mostly fixed-income securities with an emphasis on short-term corporate credits. Risk-tolerant investors with a longer-term horizon, he added, can take on more duration risk by holding longer-dated securities.

“Active duration management is essential,” said CI’s Fenton. That means dialing risk up or down and rotating into parts of the yield curve that provide the best risk-adjusted rewards.

For example, CI Global Unconstrained Bond Fund has gone from having very short-term positioning in 2021–2022 to a recent duration of 5.5 to six years, now that there’s a normal, upward sloping yield curve.

Active management can also pay off in terms of being able to overweight corporate credits versus market benchmarks, said Briggs. Franklin Canadian Core Plus Bond Fund, for instance, maintains a large overweighting in high-quality corporate securities, while holding far less in federal bonds than the fund’s market benchmark, the FTSE Canada Universe Bond Index.

By accepting somewhat higher credit risk, actively managed ETFs can generate higher yields with less duration risk. “If you structure your portfolio to be more geared towards corporate debt, you should generate higher returns and better risk-adjusted returns, because you just don’t have the interest-rate volatility,” said Briggs.

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Rudy Luukko

Rudy is an award-winning journalist who has covered the fund industry for four decades. He led Morningstar.ca’s editorial coverage from 2004 to 2018 and is now an independent financial journalist.

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Latest market numbers https://www.advisor.ca/investments/market-insights/latest-market-numbers/ https://www.advisor.ca/investments/market-insights/latest-market-numbers/#respond Tue, 12 Aug 2025 11:00:00 +0000 https://advisor.staging-001.dev/uncategorized/latest-market-numbers/

Go here for the latest TSX numbers, here for the latest CSE numbers, and here for the latest Cboe Canada numbers.

Go here for global market numbers from Bloomberg’s World Stock Indexes page.

Go here for the latest Canadian dollar exchange rates (USD, EUR, GBP) from the Bank of Canada.

Real estate and financial stocks help S&P/TSX composite rise more than 140 points

August 12, 2025

Canada’s main stock index gained more than 140 points to finish trading Tuesday on strength in the real estate and financials sectors, while U.S. stock markets reached new highs amid better-than-expected U.S. inflation data. 

The S&P/TSX composite index was up 146.03 points at 27,921.26.  

“It’s been a very positive day for risk assets across the board when you’re looking at equities,” said Macan Nia, the co-chief investment strategist at Manulife Investment Management. 

He said gains were seen across Europe and on the TSX. 

“But the driver has been the S&P 500 and Nasdaq, that the risk-on rally has continued into the U.S. as we got those better-than-expected inflation numbers that investors were very closely watching to see whether it gives any clues to us in terms of what the Fed may or may not do after the next meeting in September.” 

In New York, the Dow Jones industrial average was up 483.52 points at 44,458.61. The S&P 500 index was up 72.31 points at 6,445.76, while the Nasdaq composite was up 296.50 points at 21,681.90. The S&P 500 rose 1.1% to top its all-time high set two weeks ago, and the Nasdaq composite jumped 1.4% to set its own record.

Stocks got a lift from hopes that the better-than-expected inflation report will give the U.S. Federal Reserve leeway to cut interest rates at its next meeting in September.

Lower U.S. rates would give a boost to investment prices and the nation’s economy by making it cheaper for U.S. households and businesses to borrow to buy houses, cars or equipment. 

U.S. President Donald Trump has angrily been calling for cuts to help the economy, often insulting the Fed’s chair personally while doing so. But the Fed has been hesitant to move because of the possibility that Trump’s tariffs could make inflation much worse. 

“This narrative that tariffs would at some point impact prices in the U.S. has been top of mind for investors really all year,” Nia said. 

“We’re in August, the trade uncertainty started in March, so investors were expecting maybe we might start seeing the trickle-down effect of tariffs.”

He added that the recent U.S. inflation numbers have increased the odds of the Federal Reserve lowering borrowing costs multiple times this year. 

“So the markets are cheering the potential of lower interest rates for a U.S. economy without thinking on the other side of, ‘why are interest rates being cut in terms of the recession dynamic of that,’” he said, adding that the probability of a recession in the U.S. over the next six months remains low.

Going forward, Nia added that investors might want to exercise some caution. 

“I think in the short term, we’re vulnerable. Markets are priced for perfection. Valuations are elevated. We’ve gone through earnings season unscathed,” he said. 

Nia also noted that September is a historically weak month for markets. 

“Near term, I think some cautiousness would be prudent for investors, but remaining constructive on the long-term outlook,” he said. 

On the trade front, Nia said he doesn’t think recent tariffs placed on Canada by China will weigh on Canada’s benchmark index. 

China announced a 75.8% preliminary tariff on Canadian canola on Tuesday, following an anti-dumping investigation launched last year in response to Canada’s tax on Chinese electric vehicles.

“When you look at the drivers of the TSX in terms of the contribution, it’s coming from financials, it’s roughly a third of the return. A third of it has been the materials, so gold. And then Shopify, to the surprise of no one, has also contributed a couple per cent,” he said. 

“So it hasn’t really been any agriculture or anything of that nature. So I don’t think that’s going to be a driving factor for the TSX moving forward.” 

The Canadian dollar traded for 72.60 cents US compared with 72.54 cents US on Monday. The September crude oil contract was down 79 cents US at US$63.17 per barrel.

The December gold contract was down US$5.70 at US$3,399 an ounce.

Daniel Johnson — The Canadian Press with files from The Associated Press

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Gold a bright spot for TSX as Canadian index outperforms S&P 500 https://www.advisor.ca/investments/market-insights/gold-a-bright-spot-for-tsx-as-canadian-index-outperforms-sp-500/ Thu, 24 Jul 2025 13:29:56 +0000 https://www.advisor.ca/?p=291932
artisteer

Gold and precious metals have been a bright spot this year, helping the S&P/TSX composite index outperform the S&P 500, with fund managers saying there could still be time for retail investors to get in on the action.

“In Canada, gold has been the huge mover, and I think if you break apart the index, gold is now at 12% of our index, and that has been the huge winner,” said John Zechner, chairman and founder of J. Zechner Associates.

“That to me is the single most important reason why Canada has played such catch-up and has actually done better than the S&P 500, certainly this year so far.”

The TSX was up roughly 11% year to date, as of Wednesday afternoon, while the S&P 500 was up about 8%, according to LSEG Data & Analytics.

Meanwhile, the price of gold has risen about 30% over the course of the year so far, with the August gold contract hovering around US$3,400 an ounce. 

Dennis da Silva, senior portfolio manager at Middlefield, agreed that the gold sector is “the largest contributor” in driving the TSX higher.

“If you look at the S&P/TSX global gold index, that’s up 40% year-to-date. So if you tie that into the TSX, I would say about 30% of the index’s return is driven by gold and silver names or precious metals in general,” he said in an interview last week.

In contrast, U.S. markets have been primarily driven by large-cap technology companies in recent years that “pushed forward that U.S. exceptionalism story,” said Chris McHaney, head of investment management and strategy at Global X Investments Canada.

“I won’t say it’s run out of steam, but it has started to look like some of those drivers are starting to slow down in terms of the amount of growth that’s being provided to the U.S. market,” he said.

McHaney noted the performance of the so-called Magnificent Seven group of stocks has been split this year. The Magnificent Seven is a group of large-cap U.S. tech stocks that have a major influence on equity markets. The list includes Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla.

For example, Tesla shares are down nearly 20% year-to-date; meanwhile, Alphabet shares are flat. On the flip side, Nvidia and Microsoft shares are up roughly 27% and 20%, respectively, since the start of the year. 

The mixed picture has helped Canada’s more metal-focused index gain, said McHaney. 

“It really is more of a story of gold has been on fire and in Canada, we just have more exposure to that,” he said.

According to da Silva, there are a few reasons why gold prices have risen, one being that the commodity benefited from demand for safe haven assets, particularly as the global trade dispute flared up. 

Stock markets have been volatile this year, particularly in March and April, when U.S. President Donald Trump started rolling out tariffs on countries around the world, only to delay many. The uncertainty over how the global economy and company profits would be impacted by changing trade policies has driven investors to safe haven assets like gold. 

McHaney said there are a few factors that influence the price of gold — government deficits around the world, inflation concerns and trade uncertainty tend to be positive ones — but it can be difficult to assess which is driving price moves at a given time.

Central banks buying

Central banks around the world were also buying more of the key commodity as another source of reserve currency, da Silva said. 

He noted this trend became more common after the U.S. and European Union froze Russian assets after it invaded Ukraine.

“I think that was kind of a wake-up call that your assets are not safe. They can be frozen, and that caused countries to re-evaluate how they hold foreign reserves. I think at that point that’s when we started to see pretty active buying,” da Silva said. 

Going forward, da Silva said he would be “hard pressed” to say gold is likely to continue appreciating at the pace it has over the past three years unless large-scale economic or geopolitical disruptions were to occur.

However, he said investors could still likely benefit from investing in gold companies.

“I don’t think it’s too late … I think history always shows if it’s a fundamentally strong sector. That is, they focus on costs and profitability per share. That’s an industry that can make good money over time,” da Silva said.

While McHaney said it is difficult to determine whether the TSX will continue to outperform the S&P 500, he said he also doesn’t think retail investors have missed the boat in terms of investing in gold specifically. 

“I think some of those drivers that have been working well for Canada are not necessarily going away tomorrow either. There could be a psychological element of maybe ‘I missed that performance, I’ll just stay where I am,'” he said.

“We think gold itself might not keep rising in value, but it just has to stay kind of where it is now for the gold equities to continue to do very strongly.”

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Daniel Johnson, The Canadian Press

Daniel Johnson is a reporter with The Canadian Press, a national news agency headquartered in Toronto and founded in 1917.

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Patriotism sure, just not for portfolios: NBF https://www.advisor.ca/investments/market-insights/patriotism-sure-just-not-for-portfolios-nbf/ Tue, 22 Jul 2025 21:30:11 +0000 https://www.advisor.ca/?p=291854
United States and Canada flags, bond breaking
AdobeStock/tanonte AI generated

Canadian consumers may have been shunning U.S. products and travel since the new U.S. administration sparked cross-border conflict, but investors are proving that they aren’t nearly as patriotic. According to National Bank Financial Inc. (NBF), domestic investors continue to snap up U.S. securities.

In a report Monday, NBF economists noted that Canadian investors have been eagerly adding U.S. financial assets to their portfolios since the start of the year.

“The idea of ‘buying local’ has resonated with many Canadians since the U.S. threw our longstanding, mutually beneficial bilateral relationship into doubt,” it said. “But this ‘Buy Canadian’ bias hasn’t really shown up where it arguably matters most: in portfolio investment flows.”

Citing data from Statistics Canada, the report said most of the buying activity has come in U.S. equities, but that domestic investors have also added to their holdings of U.S. corporate and government debt too.

“Canadians have even helped finance Uncle Sam’s wholly unsustainable budget deficit; not exactly the tough message to the American administration some might have advocated,” the report said.

Moreover, foreign investors have been shedding Canadian assets — primarily equities — even as “Canadian stocks have generally outperformed the U.S., based on benchmark equity indices,” it noted.

Looking ahead, NBF maintains a slight overweight position in Canadian equities (it recommends a 21% weighting vs. a benchmark weight of 20%), and a more decisive underweight for U.S. stocks (15% vs. a 20% benchmark weight).

In a separate report, NBF cautioned that U.S. equity valuations are elevated and could come under pressure as economic growth weakens, threatening margins and earnings, which could “trigger a reassessment of valuations.”

Additionally, foreign investors could turn away from U.S. markets if concerns about inflation, interest rates and the independence and credibility of the Fed continue to arise.

“A decline in foreign participation could reduce demand for U.S. financial assets, potentially leading to higher funding costs, increased market volatility, and further downward pressure on the U.S. dollar, with broader implications for financial stability and capital flows,” it said.

At the same time, NBF is also expecting some strength in the Canadian dollar in the months ahead as the federal government pursues an ambitious effort to kickstart domestic investment.

“So politics aside, and contrary to year-to-date portfolio capital flows, a ‘Buy Canadian’ investment strategy looks sensible to us,” the report said.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.

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Markets may have had too many TACOs https://www.advisor.ca/investments/market-insights/in-the-face-of-repeated-threats-by-the-u-s-to-impose-punishing-tariffs-on-trading-partners-and-repeated-climbdowns-investors-may-have-become-too-skeptical-of-these-threats-a-complacency-t/ Thu, 17 Jul 2025 21:20:18 +0000 https://www.advisor.ca/?p=291682
Tacos
Photo by Davey Gravy on Unsplash

In the face of repeated threats by the U.S. to impose punishing tariffs on trading partners, and repeated climbdowns, investors may have become too skeptical of these threats — a complacency that could be raising the risk of actual negative trade action, Desjardins Group suggests.

In a new report, economists at Desjardins note that, unlike earlier in the year when markets plunged in response to U.S. President Trump threatening high, sweeping tariffs, his latest threats — promising large tariffs on major economies including Europe, Japan, Canada and Mexico starting Aug. 1 — have produced little market reaction.

In fact, equity markets are near all-time highs and bond markets haven’t flinched either, despite both renewed tariff threats and the prospect of rising U.S. debt following the passage of its budget bill.

The lack of response suggests the market doesn’t see these latest threats as credible — reinforcing the TACO (Trump always chickens out) trade thesis.

“This raises a key question: are markets placing too much confidence in the TACO trade — the assumption that Trump will ultimately tone down the rhetoric before it inflicts real damage?” Desjardins analysts wonder.

“The irony is hard to ignore: stable financial markets may be encouraging Trump to up the ante. Investor complacency may have created a potentially precarious moment,” they warn in the report.

Desjardins said its “best guess” is that the U.S. will ultimately settle on tariffs on key trading partners that are in the 10% to 20% range, “allowing global trade to adjust without major disruption…”

In the meantime, the world’s major central banks are in “wait-and-see mode” too, it said.

“Should tariffs exceed market expectations or uncertainty persist beyond Aug. 1, pressure will mount” on the central banks in Canada, Europe, the U.K. and Australia to ease policy, it suggested.

In the U.S., Federal Reserve Board head Jerome Powell has signalled that rates are holding steady for now, “pending clarity on the inflationary impact of tariffs.”

“However, President Trump continues to push for lower rates and has openly pressured Powell to resign, adding a layer of political risk to the Fed’s policy outlook,” it said.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.

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Canadian investors keep buying U.S. shares https://www.advisor.ca/investments/market-insights/canadian-investors-keep-buying-u-s-shares/ Thu, 17 Jul 2025 16:50:08 +0000 https://www.advisor.ca/?p=291656
U.S. and Canadian flags flying; United States and Canada
iStockphoto/KKIDD

In May, Canadian investors increased their exposure to foreign securities by $13.4 billion, up from April when they made net purchases of $4.1 billion, according to data Statistics Canada released Thursday.

U.S. shares accounted for the bulk of that, with Canadians buying $14.2 billion of U.S. shares in May and selling $2.8 billion of non-U.S. shares. Investors also bought $3.2 billion of U.S. corporate bonds while divesting from $2.8 billion of U.S. T-bills and $1.3 billion of U.S. government bonds.

Foreign investors reduced their holdings of Canadian securities by $2.8 billion in May, a fourth consecutive monthly divestment.

Foreign investors reduced their exposure to Canadian shares by $11.4 billion, led by shares from the energy and mining, management of companies and enterprises and manufacturing sectors. They also acquired $13.1 billion of Canadian bonds, following a $25.1-billion divestment in April.

At the same time, foreign divestment from Canadian money market instruments totalled $4.5 billion in May and largely targeted government of Canada paper (-$4 billion). Foreign acquisitions of provincial ($8 billion) and federal ($6.9 billion) government bonds were moderated by a divestment of private corporate bonds (-$4.2 billion).

As a result, international transactions in securities generated a net outflow of $16.2 billion from the Canadian economy in May, a fourth consecutive month of net outflows.

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Jonathan Got

Jonathan Got is a reporter with Advisor.ca and its sister publication, Investment Executive. Reach him at jonathan@newcom.ca.

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Canadians missing out on late-stage life sciences investments https://www.advisor.ca/investments/market-insights/canadians-missing-out-on-late-stage-life-sciences-investments/ Thu, 10 Jul 2025 04:32:00 +0000 https://www.advisor.ca/?p=291351
Pill bottle
Photo by Christina Victoria Craft on Unsplash

While early-stage life sciences companies attract Canadian investment dollars, those in the later stages of development have to rely more on global investors with deeper pockets. That’s according to a new white paper posted Wednesday by adMare BioInnovations, a Montreal-based life sciences innovation hub.

“We’re building high-value companies here in Canada, but too often, the economic returns and control over intellectual property end up elsewhere. [Merger and acquisition] (M&A) activity is a natural part of a healthy ecosystem and often a sign of success. But if the capital behind those deals is mostly foreign, we never break the cycle,” said Gordon McCauley, president and CEO of adMare BioInnovations in a media release.

“With greater Canadian participation, the value created here can be reinvested to grow the next generation of companies, advance homegrown innovation, strengthen our life sciences ecosystem and create lasting impact for Canadians.”

The sector delivered $842 million in deal value in 2024 — a far cry from the $122 million it produced in 2013, according to adMare. (In 2021, that figure was $1.2 billion.)

Therapeutic companies are the primary centre of attention. They make up 42% of Canada’s life sciences companies, but account for 78% of venture capital (VC) deal value in aggregate. And it’s the VCs that are doing the heavy lifting, funding domestic therapeutics firms — 69% at start-up, 78% in the early-growth stage and 94% at the late stage, according to the report.

Canadian investors prefer start-ups and early-stage opportunities because late-stage companies require so much more funding. The white paper reports that 61% of the Canadian deals written in 2024 were funded entirely by domestic investors. Yet that money made up just 22% of dollars invested in Canadian life sciences companies during the year.

“[T]he domestic funds are too few and too small to support scaling therapeutic companies throughout the entire funding life cycle,” reads the report. “Indeed, comparing the total amount of life sciences VC capital in the US and Canada in relation to GDP over the last decade points to a notional funding shortfall of approximately $1.5 billion per year.”

The paper reports that more than 75% of investors in Canadian life sciences companies are from outside the country. “Alongside international investment can come pressure to redomicile companies outside of Canada. Additionally, investors participating in the earliest stages of company growth, where Canadian investors focus, are under pressure to generate returns that can counter long-term development needs,” according to the white paper.

“Taken together, these data present a compelling case to increase domestic investment so that Canadian investors take advantage of the sector’s strong returns and so that Canada captures more economic and social benefit from the sector.”

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Kevin Press

Kevin Press is editorial director for Advisor.ca. He has been writing about money since 1997. Reach him at kevin@newcom.ca.

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Canadian institutional investors more cautious than U.S. counterparts https://www.advisor.ca/investments/market-insights/canadian-institutional-investors-more-cautious-than-u-s-counterparts/ Thu, 26 Jun 2025 08:05:00 +0000 https://www.advisor.ca/?p=290816
Hand holding a glass globe
AdobeStock/artrachen

Canadian institutional investors have a more cautious market outlook for the coming months than their U.S. peers, a new survey shows.

Released Monday, the annual survey was conducted by CoreData Research on behalf of Schroders plc, a British multinational asset management company. It was carried out this spring and involved 995 institutional investors globally, including 279 in North America.

It found that 55% of Canadian institutional investors expected the next 12 months to be more volatile than the period between 2007 and 2010, which included the global financial crisis. That compares to 44% of U.S. institutional investors who said they expected more volatility.

The survey also revealed that 76% of Canadian institutional investors considered tariffs and protectionist trade policies among the most significant macroeconomic factors impacting their investment strategies in the next year.

To navigate the uncertainty, 69% of Canadian respondents said they were at least somewhat more likely to employ active management in their portfolios.

The survey results also showed that Canadian institutional investors were leaning into private markets to generate returns and income.

Asked which two asset classes they were considering for the best return opportunities, 50% of Canadian institutional investors identified private debt and credit alternatives, while 48% selected private equity.

Further, 45% of Canadian respondents indicated they were decreasing their risk appetite in response to evolving macroeconomic trends.

Eighty per cent of the North American institutional investors said the S&P 500 raised the greatest concern over market concentration.

The survey was carried out by CoreData Research in April and May 2025, after U.S. President Donald Trump’s so-called “Liberation Day,” when his administration announced a slew of tariffs on international trade.

The 995 total respondents comprised institutional investors and “gatekeeper” wealth managers — specialist advisors who control access to investment opportunities for institutional investors. The breakdown of respondents by geographic region was as follows: 279 from North America, 245 from Asia Pacific, 293 from Europe excluding the U.K., 132 from the U.K. and 46 from Latin America.

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Noushin Ziafati

Noushin has been the associate editor of Advisor.ca since 2024. Previously, she worked at outlets including the CBC, Canadian Press, CTV News, Telegraph-Journal and Chronicle Herald. Reach her at noushin@newcom.ca.

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How to help clients navigate ESG disclosures, ratings https://www.advisor.ca/investments/market-insights/how-to-help-clients-navigate-esg-disclosures-ratings/ Thu, 05 Jun 2025 21:28:22 +0000 https://www.advisor.ca/?p=290099
Lots of smoking chimneys in a dark environment
iStock / JacobH

For many financial advisors and their clients, ESG disclosures and ratings can be confusing and frustrating.

But advisors can cut through the confusion if they understand what to look for and how to match that to their clients’ expectations, delegates at the Responsible Investment Association conference heard on Wednesday.

Bryana Lee, senior legal counsel, investment management with the Ontario Securities Commission (OSC), said there are a few things advisors should look for in fund disclosures to determine whether a fund meets their clients’ requirements.

“It’s sometimes tempting to see the name of the fund and think you understand what that fund is focused on, but I think it’s important to delve deeper into the disclosure,” she said.

One thing Lee said advisors should look for is whether a fund is broadly focused on environmental, social and governance issues and whether those three pillars are equally weighted, or if the fund is more focused on one pillar than the others or a subset of those three pillars. They should then measure that against what their client values.

Another area advisors can dig into is the extent to which ESG factors were considered by a fund, Lee said.

She noted that ESG may be the primary focus of some investment funds, while some other funds consider ESG as one of many factors.

Lee also highlighted the importance of evaluating negative screens.

Some ESG funds will have negative screens, she said, “but that does not necessarily mean that they always really have 0% of holding in that industry.” It’s essential for advisors to look at the fine print.

“Some prospectuses say, ‘We might have a de minimis holding, like 0.5% or something in our portfolio’ in this industry that you might think that they screen out,” Lee explained.

“And then there would be other funds that truly do screen out — 0% of the fund is held in this industry, but they don’t screen out an industry that maybe feeds into that industry. … Different investors will have different feelings about whether that’s appropriate for them.”

Rating agencies’ role

Clark Barr, head of methodology with Morningstar Sustainalytics, acknowledged that sifting through fund documents for these details can add quite a bit of work to advisors’ jobs. Part of the role of rating agencies in the industry is “doing some of that legwork for advisors,” he said.

With Morningstar Sustainalytics ratings in particular, Barr suggested reading the agency’s methodology for different ratings to understand how in depth they are as well as limitations they may have. He noted that there are some ratings that cover negative screens, for example, so advisors won’t have to dig much deeper into that area.

“It might not meet your clients’ needs exactly, but it might even give you a starting point to meet those clients’ preferences,” Barr said.

Matthew Kan, senior advisor, behavioural insights with the OSC, said investors need to “have their eyes open when they’re actually going in and investing in ESG.”

One factor investors need to consider is that some ratings reflect how ESG risk is being managed as opposed to ESG impact itself, he said.

Kan, who co-authored an OSC report about ESG ratings last fall, also noted that while there’s “good information” out there that ESG ratings are based on, this information may be incomplete or could be updated.

Another challenge with ESG ratings, he said, is that it’s difficult to compare these ratings across industries.

Varied approaches

Laure Maillard, senior advisor with Desjardins who oversees retail responsible investment disclosure at the firm, named a few other challenges that advisors specifically face in the responsible investment landscape.

She said it can be time consuming to do due diligence and difficult to manage differing client expectations about the same products “in a more polarized world today.” There’s also an abundance of products to choose from and there’s still no unified approach to responsible investing, adding to the complexity of the space.

“Responsible investment is, in fact, an umbrella term that means a lot of different approaches, [from] the more simple vanilla ones to sophisticated ones,” Maillard said.

Kan said this complexity, along with greenwashing concerns, tends to cause investors to disengage from ESG investing and lose trust in it.

However, he stressed that advisors should not shy away from learning more about responsible investing because the more knowledge they have, the better they can support their clients and earn their trust.

“Because investors don’t really know as much, they certainly do take advisors’ words on any recommendations at face value. They’re not going to come back and second guess you,” Kan said.

“So, I think it’s very important [for advisors] to understand that information and be able to translate that to your clients, because by building the trust and having positive engagements, that leads to reinforcement and leads to future ESG investing as well.”

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Noushin Ziafati

Noushin has been the associate editor of Advisor.ca since 2024. Previously, she worked at outlets including the CBC, Canadian Press, CTV News, Telegraph-Journal and Chronicle Herald. Reach her at noushin@newcom.ca.

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Foreign investors divested from Canadian securities in March https://www.advisor.ca/investments/market-insights/foreign-investors-divested-from-canadian-securities-in-march/ Fri, 16 May 2025 18:29:51 +0000 https://www.advisor.ca/?p=289149
Businessman trading online stock market on tablet screen, digital investment concept
iStock / Nespix

Foreign investors reduced their exposure to Canadian securities by $4.2 billion in March, marking a second consecutive monthly divestment. Meanwhile, Canadian investors bought $15.6 billion in foreign securities, mainly U.S. bonds, according to a Statistics Canada release Friday.

There was a $19.9-billion net outflow of international transactions in securities from the Canadian economy in March, bringing the total outflow to $45.9 billion in the first quarter of 2025.

Foreign investors reduced their holdings of Canadian shares by $12 billion in March, following a $21.9-billion divestment the month earlier. The pullback was led by shares in the banking, trade and transportation, and energy and mining sectors.

At the same time, non-resident investors acquired $11.9 billion in Canadian bonds while reducing their exposure to Canadian money market instruments by $4.1 billion.

There were foreign acquisitions of $13.1 billion in federal government bonds, moderated by a divestment in federal government enterprise bonds.

For their part, Canadian investors increased their exposure to foreign securities, including a $9.3-billion investment in U.S. bonds and $1.8 billion in U.S. government money market instruments. These were offset by a $1.8-billion reduction in holdings of non-U.S. foreign debt instruments.

Canadians also bought $7 billion in foreign equity securities, including $5 billion in U.S. shares in March. This followed a much larger $29.9-billion investment in U.S. shares in February.

The Bank of Canada reduced its policy rate to 2.75% in March, the Canadian dollar appreciated by 0.4% against the U.S. dollar, and the S&P/TSX composite index fell by 1.9%.

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Jonathan Got

Jonathan Got is a reporter with Advisor.ca and its sister publication, Investment Executive. Reach him at jonathan@newcom.ca.

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