Pressing risks to the economy could force the Bank of Canada to continue its rate-cutting cycle, says Adam Ditkofsky, senior portfolio manager, global fixed income at CIBC Asset Management.

“The bank being on hold has been prudent,” he said in an Aug. 5 interview. “But while inflation remains their primary focus for the bank, we can’t ignore that the bank just recently cut their growth outlook for Canada significantly, from an average growth rate of 1.8% to 1.3% this year, and to 1.1% next year.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Ditkofsky said there are three key risks to growth.

1. The unemployment rate

Currently at 6.9% and expected to rise, the unemployment rate is causing wage growth to drop, he said, adding that there are 3.3 unemployed people for every job available, and fewer than 500,000 jobs available across Canada.

“Without more labour needs, I expect our unemployment rate is going to worsen,” Ditkofsky said.

2. Trade uncertainty

If Canada can’t improve relations with the U.S. or find other trade partners for exports, Ditkofsky said he expects a contracted economy.

“We’ll continue to see merchandise trade deficit north of $5 billion a month, which is roughly 2.5% of our GDP on an annualized basis,” he said. “So that would be a massive drag for GDP as well.”

3. A stagnant real estate market

Residential markets, in particular, have rising inventories and sales that are not improving, he said.

“Also, we still have 60% of mortgages coming up for renewal this year, and while it’s not as painful as last year, given that rates have come down, we are still seeing [refinances] going from close to 2% from where they were five years ago for mortgages, to now closer to 4%.”

While Ditkofsky’s base case doesn’t call for a recession, concerns are valid.

“The risks are still very much there,” he said.

Given the expectation of continued rate-cuts — likely two more through Q2 2026 due to trade uncertainty and the risk of re-accelerating inflation — Ditkofsky is long duration for fixed income.

He continues to favour government bonds over corporate credit, which tend to have more expensive valuations.

“Unlike corporate bonds, they offer far more liquidity and are easily tradable,” he said. “In risk-off periods, government of Canada bonds generate positive returns as yields fall, so they should continue to act as a low-risk source of income, and increase overall portfolio diversification.”

Ditkofsky also likes investment-grade credit over high yield. “That doesn’t mean we aren’t buying any high yield. It just means we’re being more constructive on credit investments.”

One overlooked opportunity in fixed income is hybrid securities, he said, which offer higher yields and spreads compared to the traditional bond market, and are even more attractive than high yield today.

“These are generally deeply subordinated capital instruments from investment-grade corporate bond issuers, that are expected to be called by the issuers at certain dates in the future,” he said.

Enbridge, Bell Canada, Rogers, TC Energy and AltaGas are all examples of hybrid securities currently in Ditkofsky’s portfolio.

He said private debt, data center real estate and collateralized loan obligations are less traditional sectors that could also offer opportunities.

“Key fundamentals, relative valuation and bottom-up analysis are very important to me at this juncture,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

A potential slowdown in the U.S. due to tariff-related headwinds and economic uncertainty is making Canada, Europe and emerging markets more attractive to investors, says Leslie Alba, head of portfolio solutions, total investment solutions, CIBC Asset Management.

“We see a more favourable equity outlook outside of the United States, particularly in Canada, Europe and emerging markets,” she said.

“Canadian equities are well positioned for relative outperformance as domestic growth accelerates amid a U.S. slowdown. And then in Europe, we have improving medium-term prospects, and that’s being driven by supportive fiscal and monetary policies, and should lift equity markets.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Alba said she is constructive on emerging markets due to a weaker U.S. dollar.

“We see continued strength in the global tech cycle, the lagged effects of earlier emerging market rate cuts, and lower oil prices,” she said. “The Fed’s easing cycle should provide emerging market central banks with more room to cut, further supporting growth and equity returns in those markets.”

Alba said longer term, U.S. companies would remain “exceptional” but spreads would narrow.

“While innovation-led returns — so, returns from AI, for example — remain a powerful structural driver of U.S. market returns, the breadth of U.S. equity leadership continues to narrow,” she said. “Also, valuations remain stretched, and the earnings premium relative to rest of the world is compressing.”

Alba said China remains a key player on the tech front, particularly in electric vehicles and solar power. And a breakthrough in AI by the Chinese firm DeepSeek further underscores the country’s tech strength.

“Although risks to investing in China remain high, the country is clearly reshaping global competitive dynamics,” she said. “News from DeepSeek earlier this year is a pretty humbling reminder that technology and innovation can emerge outside the United States.”

Bonds remain an important part of balanced and diversified portfolios, Alba added. “Bonds should shine through amid economic headwinds and equity market weakness, given that the higher coupons that are offered today should create some buffer for portfolio returns.”

Specifically, she said 10-year government bonds, including U.S. Treasuries, are attractive. “They continue to offer relatively elevated yields, which could decline looking ahead, and lead to outperformance of U.S. Treasuries versus other bonds.”

Overall, investors should remain patient, Alba said, and focus on selective positioning and diversification through the latter half of the year.

“That approach of diversifying the portfolio, remaining fully invested with bonds being a ballast, really does equip the portfolio to navigate volatility while maintaining long-term opportunity capture.”

Key macroeconomic indicators

There are several economic factors that Alba is paying attention to, which will shape global economies through 2025. The outcome of tariffs, policy relief and oil prices will impact GDP, unemployment and inflation across the world.

“Where we do see the most significant tariff-related headwinds is in the U.S., where we project a 1% GDP drag over the next 12 months, though this will likely result in federal rate cuts later this year, but not enough really to offset that drag,” she said.

Meanwhile, countries outside the U.S. are planning to deliver fiscal and monetary stimulus, which will offset any economic slowdown from tariffs on those countries, she said.

“Also, lower oil prices and disinflationary trends outside the U.S. provide some room for central banks to cut interest rates without fueling inflation,” she said, adding that as the global macroeconomic backdrop improves, risk sentiment in markets will likewise improve.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

There is a heightened probability of a U.S. recession, primarily due to labour market weakness and inflation risks, says Jeffrey Mayberry, fixed-income asset allocation strategist and portfolio manager at DoubleLine Capital in California.

“The jobless claims number is continuing to go up every single week — not to levels that you’re worried about yet, but the trend is something where we’re probably at a yellow light,” he said in a July 14 interview.

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Mayberry said there’s also a risk of higher inflation. “It’s kind of being priced into bonds, but maybe not to the same extent that we are expecting,” he said.

In the current economic environment, Mayberry said he likes inflation swaps, which don’t have the supply/demand dynamics of Treasury inflation-protected securities. Zero coupon inflation swaps are pricing in higher inflation over the next two years. “But over the medium to longer term, inflation is coming back down towards a more normal level.”

However, it’s not all doom and gloom in the U.S., he said. Corporate credit earnings are “very strong,” with low probability of defaults over the medium term, despite ongoing volatility around tariffs.

“(While) there are some worrying signs, nothing where we are advocating for selling credit,” he said. “(It is) something just to keep an eye on, something to have your hand close to the ‘ready’ button, and ready to make potential moves, depending on whether the data worsens or strengthens from here.”

Through year-end, fixed-income investors should consider structured credit, like residential mortgages, commercial mortgages, asset-backed securities, Mayberry said.

“While those spreads have come in and tightened, we think the probability of default is relatively low, and those spreads still give you some advantages over your investment-grade corporate bonds or higher up the credit stack in your high yield, your double-B high yield. You get some more yield, similar amounts of risk, similar amounts of volatility.”

He added that riskier credit continues to do well, with high yield up 2.5% in Q2, almost doubling the return of the Bloomberg U.S. Aggregate Bond Index.

There is also opportunity in non-dollar names, like emerging markets, he said. “Look at Canadian fixed income being a potential buying opportunity to move into those types of non-dollar trades, whether it’s in Canada or anywhere else around the world.”

Mayberry said the Fed is likely to cut rates in September and October, so investors should have more exposure to the lower end of the Treasury curve, and less on the longer end. This includes shorter-duration assets.

“The volatility that we saw in the second quarter could continue here over the rest of the year, and provide some opportunities to pick up some relatively cheap bonds, and try to take advantage of some dislocations in the markets to provide good yielding, good spreading assets with (much) lower amounts of risk,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Despite the negative hit to growth in the last couple of quarters due to ongoing tariff uncertainty, Canada and the global economy will likely avoid a recession, says Michael Sager, managing director and CIO of the multi-asset and currency management team, CIBC Asset Management.

“Fiscal [spending] and more Bank of Canada rate cuts will probably almost offset that negative tariff impact, and will be an important tailwind to the recovery,” he said in a July 10 interview.

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Sager said that while Canadian GDP is “very soggy” at the moment and unemployment has risen, government policy support and real-wage growth should help the economy strengthen over the next four quarters.

“We’ll see more government spending to at least partially alleviate housing supply constraints, targeted spending to improve infrastructure and productivity, which has been very poor for a number of years, and targeted spending to help diversify away from Canadian reliance upon the U.S. economy at least at the margin,” he said.  

The picture may not be as rosy south of the border, with the trade war putting a strain on growth, Sager said. And while the U.S. dollar remains globally dominant, investors are growing concerned over U.S. policy making and government debt.

“At the margin, something is deteriorating in the status of the dollar,” he said. “But we don’t want to overemphasize how big that change is in a short period of time.”

Sager said while the U.S. dollar weakened by about 10% in the first half of 2025, it’ remains expensive. As the Fed becomes “less hawkish” and the global economy is expected to recover faster than the U.S. over the next year, he predicted a continued weakening trend for the U.S. dollar.

As a result, he said, the Canadian dollar should increase in value against the U.S., going from $0.73 as of July 10 to about $0.78. The euro is also likely to continue strengthening.

Investment opportunities

Modest growth in the global economy will be positive for equity markets and risk assets, Sager said.

“Canada and EAFE are relatively attractive,” he said. “Within the U.S., we like tech. Along with the global economic cycle, we think the global tech cycle has positive legs still, and really the most dominant place to get access to the up tech cycle that we expect remains the Mag Seven.”

Sager is “neutral” on the remainder of the S&P 500 and said fixed income is “less attractive,” with the exception of U.S. Treasuries. That’s because there’s an opportunity for yields to fall in the U.S. and prices to rally, he said.

Overall, investors should stay focused on opportunities in equities, Sager said. “[The anticipated] recovery will likely be very helpful to Canadian equities relative to U.S. equities.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Low-volatility ETFs tend to beat their benchmarks during periods of market dislocation, says Greg Zdzienicki, vice-president, client portfolio manager, equities, CIBC Asset Management. 

In a June 27 interview, Zdzienicki said low-vol funds have proven their value time and time again in recent market turbulence.

During the tech bubble, for example, the MSCI World Index was down about 20%, while the S&P Global Low Volatility Index was up about 3%. And during the financial crisis from 2007 to 2009, the MSCI World Index was down about 32%, while low-volatility strategies were down about half of that.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

More recently this year, when tariff uncertainty hit markets, low-volatility strategies in Canada were down between 2% and 4%, while the index was down about 12%, Zdzienicki said. In the U.S., the S&P 500 was down about 18%, while low-volatility strategies were down about 6% during that same period.

“Across all regions, whether international, U.S. or Canadian, we saw low-volatility strategies perform exactly as expected, protecting investors on the downside,” he said.

The ability to provide better capital preservation and faster recovery in uncertain market conditions makes low-volatility ETFs “an attractive option for risk-averse investors,” he said. “They also have enhanced diversification. This tends to improve diversification when integrated into various investment styles, be it growth, value or core.”

Zdzienicki said when it comes to sectors, Canadian low-volatility dividend ETFs tend to have more exposure to financials, utilities, consumer staples and communication services. These sectors have lower volatility characteristics and “tend to have better cash flows, higher profitability and tend to pay dividends.”

Meanwhile, information technology, consumer discretionary and materials will be underrepresentend in Canadian low-volatility dividend ETFs, he said.

“If we take a look at the U.S., we do see a significant difference between the exposure to the broad market and a low-volatility dividend ETF,” Zdzienicki  said. “And that is what really drives that diversification benefit.”

Low-volatility ETFs in the U.S. are overweight consumer staples, financials, and utilities, and underweight consumer discretionary and information technology, he added.

“Internationally, we will see very similar type exposures, and again, we will have less exposure to areas like technology, materials and consumer discretionary,” Zdzienicki  said.

And when it comes to market cap, he said Canadian and international ETFs are in the $10 [billion] to $50-billion range, while U.S. ETFs are in the $50 [billion] to more than $100-billion range.

Overall, investors seeking a more stable return profile to reach long-term goals should consider low-volatility ETFs, Zdzienicki  advised.

“Low-volatility strategies offer a defensive investment approach, and they can lower a portfolio’s sensitivity to movements in the overall stock market, also known as beta, thereby reducing their overall volatility and enhancing risk-adjusted returns over the long term,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

AI has the potential to completely revolutionize the investment industry, says Greg Gipson, managing director and head of exchange-traded funds at CIBC Global Asset Management. But integrating it into ETF portfolios involves three key challenges.

“AI has the power to transform ETF strategy,” he said in a June 20 interview, helping to define what goes into an ETF, how portfolios are put together, and how risk is managed and monitored.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

According to Gibson, AI will power portfolio construction in ways that were previously unimaginable.

“AI is able to process large amounts of data, unstructured data and alternative data sources, which just really enables a richer and more contextual approach to selecting the components that go into an ETF,” he said.

And while AI can be cost efficient and could help businesses scale more efficiently, Gipson said, there are still some hurdles to clear.

First, there needs to be a structured database that AI techniques can access, he said.

“As important as the machine learning or AI-based approach is, I would argue that even more important is data acquisition, data cleansing and data storage,” he said.

Second, it’s important to understand how the AI model analyzes data, Gipson said. “Without understanding what the model does, interpreting the output can both be challenging, and also lead to incorrect assumptions about what is being recommended.”

To combat this challenge, there is a burgeoning field called XAI — or explainable AI — that would explain the rationale of AI recommendations.

A third challenge involves the implementation costs to acquire data, he said.

“The actual software or processes to run these types of analysis is increasingly commoditized,” he said. “But the cost upfront to be ready to use those types of techniques should not be underestimated by any business or any user.”

Opportunities in ETFs

There are several opportunities for investors who want to benefit from the use of AI in ETFs. He described the easiest path as simply to invest in an ETF that is focused on companies that utilize AI, Gipson said.

“Think of these as thematic ETFs, where an AI or machine learning-based process is able to determine those securities that have a particular correlation or particular exposure to something like AI or data centres,” he said. “That understanding allows the ETF manufacturer, ETF manager, to create a vehicle — an ETF — that then is offered to investors to gain exposure to an area of the market that they may otherwise not be aware of.

Another opportunity is around data processing, he said.

“There are massive, massive increases in the amounts of data. It’s often fragmented, it’s unstructured, it’s alternative, it’s sitting in spreadsheets or PDFs. And really what AI allows is that automation of data consumption, and then also a clean and efficient and structured way of analyzing fragmented data.”

This is particularly important in areas where information is sparse, like when considering emerging market conditions or commodities.

“Often this data sits in an environment that’s not necessarily conducive to a systematic review or incorporation of the data into a process,” he said.

Gipson said despite the uncertainties, the AI future is bright.

“In my opinion, the outlook for integrating artificial intelligence into ETF portfolio construction is truly exciting,” he said. “The next wave of really building and developing, curating unique solutions for investors lies in the ability to leverage artificial intelligence, leverage the power of machine learning to create a more customized solution that meets individual investor needs.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Target maturity bonds that are closing in November 2025 have already realized most of the capital gains that came from purchasing the bonds at a discount, says Pablo Martinez, portfolio manager at CIBC Asset Management. So it’s time to move those funds into other strategies.

This could be the later sleeves of the funds, from 2026 to 2030, he said in a June 11 interview. “Those funds are still trading at a discount, and provide a good GIC-equivalent yield.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Martinez said the sleeves available for the next five years have varying qualities.

“2028 and 2030, that’s where we have the best combination of higher yielding bonds that are trading at a discount,” he said. The 2027 and 2029 sleeves have a less favourable combination of price and yield. The 2026 sleeve, meanwhile, is exceptionally liquid, being seen as a popular alternative to money market instruments.

The funds that are maturing this year could also be moved to fixed-income pools, he added. “Those provide greater diversity in asset classes or in geographical region, and a longer-term approach.”

A third option is the corporate bond market, “which provides a higher yield, great diversifier as well, and also goes longer into the yield curve and provides a bit more yield,” Martinez said.

The key factors Martinez considers when searching for a GIC-equivalent yield for target maturity funds are the overall yield of the portfolio, as well as the discount of the bond.

“When we combine both, that’s how we get the best GIC-equivalent yield for the portfolio.”

A closer look at fixed income

Martinez said ongoing tariff uncertainty has resulted in higher inflation and volatility in global bond yields. Still, yields are within trading range.

“The reason for this is that the break higher in yield was limited by fears of economic slowdown that would result from lower international trade,” he said. “So the bond market is seesawing between those two themes: tariffs-induced inflation and slower growth.”

On a positive note, markets are less reactive to daily headlines, and participants are more focused on the ultimate goal of the U.S. administration, he said.

“[This includes] increasing revenues from tariffs to finance a lower tax base [for] corporations and consumers, and also to try to get the deficit in order,” Martinez said.

Uncontrolled spending by the U.S. government remains a key risk, however, and could result in “loss of confidence in the Treasury market,” he said. This could lead to higher yields.

“That being said, a buyers’ strike for the Treasury market is not our base case scenario,” Martinez said.

While the rebound in the corporate bond market provides opportunities for investors, sectors that could be impacted by tariffs, like the automotive industry, could be riskier.

“But the overall corporate bond markets remain a place where there’s still good opportunities,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

A changing regulatory environment for climate and ESG policies is the biggest factor impacting the sustainable investing landscape today, according to Aaron White, executive director, head of sustainable investments at CIBC Asset Management.

“Some companies and market participants, like asset managers and pension plans, are pulling back from their net-zero pledges and their affiliations,” he said in a June 4 interview. “This is largely due to the lack of clarity around the regulatory frameworks, and uncertainty in how they may be held accountable for ambitious targets that they might not meet.”

As a result, investors must evaluate how companies and participants are reacting to the material impacts to their businessess and portfolios, he noted.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

There are also concerns around whether or not policy support for the transition to a low-carbon economy will remain strong, said White.    

“For businesses, this uncertainty makes long-term planning incredibly challenging,” he said. “And for investors, [it] creates greater uncertainty around the realities of transition risk in portfolios.”  

Further, there are questions surrounding the impact of diversity, equity and inclusion (DEI) initiatives in the U.S., he added. “Organizations are pivoting to measuring how DEI initiatives deliver positive financial outcomes, and ensuring that these efforts are creative to business and investment success.”

The industry is also looking towards November’s United Nations Climate Change Conference, COP30, where leaders will gather to discuss global climate goals.

“[The industry is] waiting to see whether COP30 will bring ambitious new targets, or whether we’ll see reduced ambition in the face of political and economic pressures,” White said.

The outcome of these factors will shape the sustainable investing landscape going forward, he said, whether it’s more disclosure on policies, strengthened DEI initiatives, or bolder climate targets.

Opportunities

Despite ongoing uncertainty, there are still opportunities in sustainable investing, White noted.

Growth in nuclear energy is one area to consider, with project capacity expected to double by 2050, he said. And nuclear energy is now included in Canada’s Green Bond Framework.

“While concerns around accidents and waste management remain a challenge for this sector, both operationally and optically, these risks are declining,” he said, adding that following 60 years of operation, nuclear power plants have had “very few safety incidents.”

White suggested looking to utilities, materials and industrials within nuclear energy, including mining and uranium as demand increases.

There has also been new policy support from governments for infrastructure projects in Indigenous communities, he noted, which will provide opportunities for investors.

“Governments and companies will need to actively bring Indigenous communities to the table, and support participation in the economic benefits of these projects,” he said.

The carbon dioxide removal (CDR) market also provides opportunities. The industry is expected to scale 10 gigatons of production per year, he said, making it one of the largest commodity producers by 2050.

Investors can look to companies in afforestation, biochar, rock weathering and technology-based solutions, White suggested, adding that Microsoft, Stripe and Shopify are all active in the CDR market.

“This market has now reached the maturity where it’s ready for investors to scale, and we believe that debt will be an essential component of this,” he said.

Investors should also monitor how emerging markets manage costs associated to the physical risks related to climate change, he added, and how developed economies support the south in the transition to a low-carbon economy.

“It will be a critical component of whether or not we can achieve our net-zero ambitions because we need to bring the entire world together within this process,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Analyzing which companies will benefit from AI solutions and how easily those solutions can be integrated into the company’s workflow will be key to finding winners in the AI revolution, says Robertson Velez, portfolio manager, Global Technology Fund at CIBC Asset Management.

Valez said AI will cut both ways, offering productivity leaps to some companies and crippling costs to others.

“Most people assume AI is good for everyone,” he said in a May 29 interview. “But it is important to recognize which businesses will thrive with the adoption of this technology, and which will be disrupted by it.”

In order to find winners of the AI revolution, look to companies that will gain a competitive advantage, otherwise “this would just mean added costs for companies to stay relevant,” he said.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Velez outlined three areas that could provide opportunities for investors.

1. Semiconductors and infrastructure

Some may think that it will be difficult for semiconductor and infrastructure companies to grow, having peaked after a two-year run, Velez noted.

“Our view is that as the cost of implementing AI come down, the demand for AI actually goes up, not down. And this is supported by the continued growth in capex guidance of the major hyperscalers, like Alphabet, Meta and Microsoft.”

Velez likes Nvidia, a core AI infrastructure play, as well as Broadcom, which benefits from AI-related connectivity solutions and custom chips.

2. Enterprise software and tools

A challenge in enterprise software and tools where AI is used is migrating volumes of data into a form that is useful for AI training, Velez said. Still, he expects the market for data migration tools will grow to “be as big as the AI market itself.”

The key is to find companies that can use these tools to improve productivity, he noted. Velez likes Microsoft Copilot, which can access enterprise data to improve its Office suite of programs. He also likes ServiceNow, which uses AI to incorporate data to boost workflows, as well as Salesforce, which uses enterprise data to implement agentic AI to replace human functions.

3. Consumer applications

Direct applications of AI to the consumer can take several forms, he noted, including enhanced search engines, analytics or consumer-facing applications.

“For example, Google and Meta use AI in all its consumer-facing products to improve monetization. Apple uses AI to augment its smartphone products,” he said. “So these are some of the opportunities ahead.”

Ongoing challenges

Velez said acceptance of new AI technologies will be the main challenge going forward, as many industries are resistant to change.

“As AI is proven out in various fields of endeavour, however, such as in robotaxis or in humanoid robots, I think we will soon see an inflection point in AI adoption,” he said.

There is also continued uncertainty over U.S. trade policies and export control restrictions on U.S. companies and their allies, which restrict them from selling technologies to China, noted Velez.

Beyond losing sales in the short term, “there is a bigger risk that China will develop these capabilities on their own without relying on American platforms, making them a bigger competitive threat longer term,” he said.

“Looking past the noise, we believe that AI remains the most important technology to invest in over the next decade because of its potential to massively change the way we work to improve productivity,” Velez added.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Alternative investments can offer investors enhanced returns with less risk compared to public investments, says Meric Koksal, managing director and head of product at CIBC Asset Management.

That’s because alternatives are often uncorrelated to public markets, she said in a May 21 interview. “Adding them to your asset allocation typically reduces the overall risk or volatility of the portfolio.”

Further, investing in private markets provides investors access to companies in a more diverse range of industries and geographies, she said.

“Almost 85% to 90% of companies by count are held privately,” she said. “So when investors are looking at only public markets, they’re really getting exposure about 10% to 15% of what is available for investment out there.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Koksal detailed the three areas in alternative assets that wealth investors have access to: private equity, private credit and real assets.

Private equity

Private equity can be considered for the equity allocation of a client’s portfolio. It allows clients to invest in the early stages of a company’s development, compared to public markets where the opportunity comes when the company is relatively mature with a steady revenue stream, noted Koksal.

“There is more risk involved [in early-stage investing], and that is why they tend to deliver higher returns than what you may see in public markets,” she said.

Private credit

Private credit is a great fit for a client’s fixed-income allocation, she said.

“These strategies effectively aim to pay a steady income to clients, typically on a monthly basis. And this income tends to be higher than what investors can achieve in public markets, even in the high-yield space.”

Koksal noted returns tend to be in the low teens range.

Real assets

Real assets help diversify a client’s portfolio by adding to their equity and fixed-income allocation, while also providing a hedge against inflation, she said.

“As the cost of living rises, the value of these physical assets, and the income they generate tend to increase as well.”

As with all investments, there are several factors to consider before adding them to client portfolios. Koksal said advisors should review client goals, time horizon and liquidity needs. Alternative investments should be considered longer term, and currently only offer quarterly liquidity.

“This is very important when considering investment in private markets for clients that have very specific and constrained daily liquidity needs,” she said.

Another key consideration is a client’s risk tolerance, she said. Due to liquidity constraints, alternatives are considered medium to high risk.

She also suggested advisors explain how fees for alternatives differ from traditional investments. “A lot of the investments that you will see will involve a management fee, as well as what’s referred to as performance fee,” she said.

And before adding alternatives to client portfolios, advisors should do their research by reviewing educational resources that cover the benefits and nuances of these investments, she said.

“It’s very critical for advisors to provide regular updates to their clients once these private investments are introduced in the portfolio,” she said.

Koksal’s episode of Advisor to Go was the second in a two-part series on alternative investments. Check out part one, where CIBC’s David Wong discussed the evolution of alternative assets.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.