4 strategies to manage volatility

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Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Michael Keaveney, vice-president, managed solutions, CIBC Asset Management 

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Equity markets got off to a pretty good start in 2025 but, by any measure, volatility has spiked in recent times. Global equity markets started to turn a little bit in March to different degrees. Emerging markets were still trending higher. Developed foreign markets only slightly down. Canadian equity markets were off almost 1.5% in March. But U.S. markets were down almost 6%. 

Now some of that U.S. downturn could be attributed to loftier valuations there, and repricing of expectations around the mega-cap technology sector.  

But April took things to a bit of a new level. Since the start of that month, there’s been both a very rapid decline and stunning short bounce back in major global equity markets, particularly in the U.S., in companies of all sizes and parts of the market. 

Specific volatility measures, like the VIX, which measures expectations of future short-term volatility in the Bellwether S&P 500 by looking at options pricing, got up to levels in early April to rates we haven’t seen since the beginning of the pandemic, and certainly much higher than the fairly sleepy levels that we saw over the past couple of years in 2023 and 2024. 

Volatility in fixed income has also risen and the MOVE index, which tracks options on U.S. interest rate swaps, has also risen, but not quite as high versus its own history as the equivalent equity market measures. 

Maybe what we can’t measure very well, but we certainly feel, is a quickening of the news cycle as it relates to headlines that send the markets rushing in one direction or the other. The intraday market movements related to changing headlines reminds me of the frenetic energy around 2008 and 2009, of course with different catalysts. 

The major catalyst causing the current volatility that we’re seeing in March and especially April has been around the U.S. administration’s announcements and subsequent shifting about imposing tariffs on trading partners around the world. There’s very little clarity even now around the initial rate of tariffs, where they will be imposed, and for how long. And there’s plenty of speculation about how other countries will react to these tariffs, and how that could escalate and have a negative impact on global growth. 

Market participants generally don’t like that kind of uncertainty. Companies have a tougher time justifying making capital investments and providing forward guidance. Central banks’ policy stances become more difficult to generate with respect to inflation expectations and anticipated output. And investors as a group don’t like all of those effects. So the result is a broad change in sentiment from generally risk-on late in 2024 and even to the beginning of 2025 to very much more risk-off sentiment. 

But of course, it hasn’t just been straight down. Part of the volatility has been the large shifts up on certain days when there’s been a perception of a reprieve, or a delay, or other de-escalation of tensions. At the margin, many types of investors have been trading the headlines, and volatility has correspondingly spiked. 

All that points to just a lack of clarity on how a potential new global trading order will impact what has been quite a benign and optimistic market over the past couple of years. 

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There’s lots of times right now where advisors can show value to clients. Times like this come with their challenges but are also great times for all of us in the investment profession to earn our seat at the table by focusing on being proactive in our communications and encouraging a return to sound principles. Advice isn’t just about the investments themselves. It’s also the managing of emotions and all the other things that advisers do with their clients. 

And in times like this, some of that will also include a reminder of our past conversations we’ve had with clients, and the actions we’ve done to move clients towards their goals. 

We’ve got a number of strategies. Some of them come down to investments, but many of them come down to behaviour. And I think the first and most important strategy is to have well-documented goals for client investments. If you are on choppy waters in the lake, it’s much better to have sight of the shore or the lighthouse. 

The next strategy is to have a broadly diversified portfolio. Now while bonds have been a bit more volatile in this environment as well as the equity environment, they have done a better job at being balanced in the portfolio on days when equity markets are down. That’s been a very welcome change from 2022, when there was more of a moving in lockstep between bonds and stock markets. 

But global equity markets have also not behaved exactly the same. Canadian and foreign equities have outperformed the U.S. markets. And last year, in 2024, there was a strong impetus to think of the U.S. markets as the place to be — maybe to the exclusion of other markets. But times can change quickly, and a diversified approach really does sand the edges on overall volatility. 

Now the next strategy is to understand that volatility is a recurring feature of markets. Diversifying will remove a lot of the risk, but not all risk. So, there’s ongoing education, or perhaps better stated, there’s a coaching role that advisors should consider incorporating. Like many of life’s important lessons, it does get revisited from time to time. 

Now, finally, from a purely investment standpoint, we actually think that low-volatility equity strategies could be interesting as part of that broadly diversified portfolio. They come in several varieties, but the common feature is to target a basket of stocks with favourable volatility expectations versus a broader market, either as individual stocks or as a group. And that, we think, can give a smoother overall experience for the clients, while still maintaining exposure to the stock market. 

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I think the focus on proactive communication with specific clients in mind is really important. We can broadly push updates. We can push market notes and general commentaries. And those are all good to have in volatile times, but really to the degree that they enable further conversations tailored to the circumstances of a specific client. Because, nowadays, virtually everyone has easy and instant access to all kinds of investment information, commentary, predictions. And in many cases, it’s pushed to them, whether they want it or not in headlines and in social media. But a trusted adviser knows the client, they know their goals and are in a unique position to cut through the noise and not just add to it. So reaching out and talking to clients about them and not just the markets is really tip number one. 

Next, I think that as advisors, we need to have go-to resources to illustrate that coaching on fundamental investment principles, particularly: 

• inevitability of bouts of volatility over short periods; 

•  the value of diversification; and 

•  the merits of taking a long-term approach. 

These tools should be up-to-date with current information. They should be available during the conversations you have with clients ,and as follow-ups to those conversations. And don’t assume that these fundamental tools are only for novice investors. Even more experienced investors are going to benefit from coaching back to the fundamentals. 

And then, finally, a third tip would be to make sure that you’re well prepared to comment on activity and current positioning within your clients’ investment portfolios. In volatile times, clients really want to know that there’s a steady hand at the tiller. Whether there’s been significant changes, or more of a staying of the course, we think that most clients will benefit from hearing the rationale. 

Now, that said, it’s a good idea to frame all of this communication in terms of how the portfolios are positioned for a variety of outcomes, and not just the certainty of any specific outcome, because we are in volatile times.

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