Text transcript

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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Adam Ditkofsky, senior portfolio manager, global fixed income at CIBC Asset Management 

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In terms of our positioning in our portfolios, with regards to the expectations for the Bank of Canada, we are currently long duration, meaning that we anticipate rates will continue to move lower, as we expect the bank will need to resume its rate-cutting cycle in the coming months. 

Now, if we look at what’s priced into the bond market right now, in terms of expectations for rate cuts, there are no further rate cuts fully priced in for the balance of 2025. But these expectations can quickly change, especially if we continue to see economic weakness that forces the bank’s hand. Right now, the Bank of Canada remains concerned with uncertainty surrounding the U.S. trade war and tariff implications, and more specifically, the bank is concerned with re-accelerating inflation. 

Now, as of the end of June, Canadian CPI stood at 1.9%. But core inflation data points, which exclude the most volatile components, like food and energy, is at approximately 3%. So the bank being on hold has been prudent. 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. So they may need to provide further support in a stumbling economy. And the current 2.75 for the overnight rate may not be appropriate. 

Now, I break it down into three things. 

The first being unemployment, which now sits at 6.9% and has been rising for the past few years. Anecdotally, it also appears to be getting worse, especially with the tariff uncertainties. Right now, there are roughly 3.3 unemployed people in Canada for every available job in our country. And based on recent StatsCan data, there’s less than 500,000 jobs available in Canada right now. So it’s no surprise we’re seeing wage growth rate quickly drop, and of course, without more labour needs, I expect our unemployment rate is going to worsen. 

The second issue is with the trade war. We’ve drastically reduced our trade surplus with the U.S. to the point that is no longer offsetting the trade deficit we have with the rest of the world. Now, if we can’t quickly improve these relationships or find some substitute markets for our exports, 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. So that would be a massive drag for GDP as well. 

Historically, we’ve always thought of ourselves as an export nation because of our raw materials, but unfortunately, that hasn’t been really the case since the Great Financial Crisis. And up until this year, our surplus with the U.S. has offset the deficit with the rest of the world. So trade is painful, and this means that we’ll likely see a contracted economy, at least in the near term. 

And the third being real estate, which in Canada still represents close to 40% of the average household net worth. It has, unfortunately, been stagnant, especially residential markets, with inventories rising and sales not drastically improving. 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 refis going from close to 2% from where they were five years ago for mortgages, to now closer to 4%. 

Overall, all three of these aspects — the unemployment rate, the trade situation and the stagnant real estate market — all provide me with confidence to believe that Canada is still very much not out of the woods economically. While the new government will look to stimulate growth, they have also noted plans to cut spending in government jobs. To me, this is all supportive for further monetary stimulus. 

Now, to be clear, our base case is not calling for a recession. But the risks are still very much there, and we continue to expect more rate cuts. And, in terms of our forecast, we’re expecting two to be included, at least until the end of Q2 of next year. 

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In terms of how fixed-income markets are reacting to the global rate divergence, particularly with the Fed, well, in reality, the Fed and the Bank’s actions have been very similar this year, other than the fact that the Fed has been on pause for longer and their overnight rate is much higher than ours at 4.5%. We’d argue if the U.S. weakens more than anticipated, they have more room to cut rates, especially with rates being well above neutral, and inflation being around 2.5% to 3% in the U.S. 

In July, the Fed left rates unchanged, but we saw that this was not a unified Fed, and President Trump continues to publicly challenge Chairman Powell, threatening to replace him next year. So far, the U.S. economy has been very resilient, but we are starting to see cracks with slowing employment growth, and a modestly weakening consumer. 

So if inflation continues to remain stable, it’s likely we’ll see some cuts this year in the U.S. as well. And if not, Trump could look to replace Powell next year with someone willing to lower rates more aggressively. Currently, in early August, the futures market is pricing in two cuts by the Fed this year, and four cuts by June 2026. We’d argue this is consistent with our forecast where we see four cuts through the second quarter of next year. 

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In terms of the role of Canadian government bonds in today’s environment compared to corporate credit, well, that role really has never changed. They continue to be a large part of the Canadian bond universe. They represent triple-A securities, or the highest credit quality of government bonds in our country, and they provide reasonable yields for high-quality, low-response securities. 

Unlike corporate bonds, they offer far more liquidity and are easily tradable, and represent benchmark securities that corporate bonds are priced off of. Even in periods of high volatility, like the early days of Covid and the Great Financial Crisis, government bonds maintained their liquidity, while corporate bonds in some cases, couldn’t be moved as easily. 

In terms of needs in a portfolio, government bonds have always acted as a lower-risk diversifier in periods of market sell off, and that should continue to be the base case. In risk-off periods, government of Canada bonds should generate positive returns as yields fall, so they should continue to act as a low-risk source of income, and increase overall portfolio diversification. 

We continue to hold a significant portion of our holdings in government bonds. 

First, markets are not experiencing the inflationary rates of 8% like we did post-Covid. So we aren’t in a period where we see rates rising drastically. And corporate bonds, like stocks, currently have very expensive valuations, with corporate bond spreads being close to their multi-decade tights, which has caused us to become more defensive in our portfolios. 

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Right now, we favour investment-grade credit over high yield, especially with high-yield spreads being less than 300 basis points, and their overall yields being less than 7% in many situations. Keep in mind, high yield means lower-rated companies, meaning they are considered to have lower credit quality, and in many cases, have weaker credit fundamentals or are more cyclical. Now, as I mentioned earlier, we’re more defensive in our portfolios, so we’re at the lower weights in terms of our positioning. That doesn’t mean we aren’t buying any high yield, it just means we’re being more constructive on credit investments. 

Bottom-up analysis is key to understanding the risks when we make these investments, and I’m also looking for mispriced securities right now. So key fundamentals, relative valuation and bottom-up analysis are very important to me at this juncture. 

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In terms of overlooked opportunities in fixed income, we still think that there’s some decent opportunities. If you look in our portfolios, one area that we like in particular is hybrid securities, which have essentially replaced the preferred share markets. 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, but they can be extended. They tend to offer very attractive yields and spreads higher than levels seen in the traditional bond market, and in today’s market, better than the high-yield market. 

These securities benefit the issuers as they are treated as partial equity by the rating agencies, meaning the credit metrics benefit from their issuance while the companies aren’t diluting their equity. And the advantage to bondholders in our portfolios [is] we get enhanced returns that are currently very attractive relative to the rest of the market on a valuation basis. 

And these aren’t new names to us. These are very well-known names in our portfolios. Think about names like Enbridge, Bell Canada, Rogers, TC Energy, AltaGas. These are just some examples, but all high-quality, investment-grade corporate bond issuers where we’ve traditionally held in our portfolios as well. 

Other opportunities that we see that are also still in less traditional sectors, they include some private debt, data centre real estate opportunities that we like as well, and CLOs. And of course, our investment-grade bond funds continue to be solid alternative to cash holdings, offering attractive after-tax yields, with limited risks to yields rising, as all the funds have fixed maturity dates, meaning investors are protected from rising yields if they hold the funds until maturity.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

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.

Text transcript

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. 

* * * 

Leslie Alba, head of portfolio solutions, total investment solutions, CIBC Asset Management 

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Through the latter half of this year, our team at CIBC Asset Management is paying close attention to tariffs, policy relief and oil prices, especially in the context of their potential impact on GDP, unemployment and inflation. 

With respect to tariffs, markets seem to be pricing in more certainty now than they did earlier this year. 

You know, equity markets have been resilient following the volatility we experienced at the beginning of April. And with the 2026 midterm elections approaching, the U.S. does have strong incentives to finalize trade agreements sooner than later to alleviate economic pressures, but also to secure political wins ahead of the elections. 

So, our team expects a flurry of announcements this summer, including a comprehensive trade and political agreement with Canada. 

Policy relief is another area we’re monitoring closely through the rest of the year. Most countries, aside from the U.S., are delivering synchronized and important fiscal and monetary stimulus, which is really helping to offset the economic drag of tariffs. 

Also, lower oil prices and disinflationary trends outside the U.S. provide some room for central banks to cut interest rates without fueling inflation. 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. 

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The global macroeconomic backdrop remains broadly supportive of equities, and that’s really driven by several key factors, including fiscal and monetary policy offsetting tariff headwinds, reduced policy uncertainty leading to improved risk sentiment in markets, and if The Federal Reserve does resume rate cuts, this should support both equity valuations and global activity.  

However, the balance of risk is skewed to the downside, and so within our managed solutions, we maintain a measured near-term view. 

Many major equity markets are above the levels we saw before the U.S. election. So to put things into perspective, the TSX Composite Index and the S&P 500 Index closed the second quarter of 2025 at record levels — and that’s in local dollar terms. Meanwhile, MSCI Europe Index was not far from its previous peak. 

So, what we’re seeing is current valuations that imply a pretty benign outcome, despite persistent macro and policy risks. And therefore, if downside scenarios do materialize, particularly around trade disruptions or policy missteps, equity corrections could be significant, with U.S. markets likely to be the most vulnerable given their elevated starting point. 

Over the near term, we see a more favourable equity outlook outside of the United States — particularly in Canada, Europe and emerging markets. 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. 

And then we also remain constructive on emerging market equities. And that’s supported by a weaker U.S. dollar, historically being a tailwind for emerging market performance. But also, we see continued strength in the global tech cycle, the lagged effects of earlier emerging market rate cuts, and lower oil prices. In addition to that, 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. 

And then on the bond side, so, thinking about fixed-income markets, 10-year government bonds, especially U.S. Treasuries, remain attractive. They continue to offer relatively elevated yields, which could decline looking ahead, and lead to outperformance of U.S. Treasuries versus other bonds. 

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Our long-term orientation for markets remains risk-on, with equities continuing to be the cornerstone for wealth generation. 

Our outlet for equities includes the view that over long term, U.S. companies will remain exceptional, but that the spread between U.S. and the rest of the world will narrow. We’re observing growing signs of moderation in U.S. exceptionalism, particularly outside of mega-cap tech stocks.  

And 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. Also, valuations remain stretched, and the earnings premium, relative to rest of the world, is compressing. 

Meanwhile, when we look across to Europe, it appears to be at the inflection point and potential start at the end of secular stagnation, starting with near-term policy support, though this support could have longer lasting effects on its economy and markets if we see a fundamental shift in the region’s attitude towards debt.  

And then, when we look to China, China’s ascent in technology, manufacturing, particularly in electric vehicles, solar and AI infrastructure, there are signals that we could be moving towards a more multipolar investment environment. 

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

We also maintain the long-term view that bonds are an important ballast in investors’ portfolios. So although yields have come down from their peaks in 2023, they remain relatively higher than levels seen over much of the last decade [or] decade and a half. 

The diversification potential of 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. 

Also, what we find through our research is that long-term bond returns tend to closely follow the starting yield, and all-in yield today remains relatively attractive, so bonds are an important component of balanced portfolios. 

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Our view is that investors should continue to position their portfolios in line with their long-term investment objectives, and in consideration of any investment constraints. Our long-term view on equity and fixed-income markets is broadly constructive, and so we recommend remaining fully invested. History does remind us that leadership — whether across regions, sectors, strategies or asset classes — is rarely permanent. 

And so because of that, practical patience, selective positioning and disciplined diversification will remain central to portfolio construction through the second half of 2025 and beyond. And we believe that 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.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

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.

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

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.

Text transcript

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. 

* * * 

Michael Sager, managing director and CIO of the multi-asset and currency management team, CIBC Asset Management 

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We’ve certainly experienced a slowing in global GDP growth in the past couple of quarters, and that’s been led by a weakening of activity in the U.S. economy. Overall, though, activity, whether in the U.S. or in the global economy in aggregate, has remained resilient and probably a little bit better than was thought likely at the onset of the tariff war in spring of 2025.  

So that’s the broad situation. It’s slower growth than would have been the case, but it’s okay, and that means that it’s okay for equities and risky assets, broadly speaking. Tariff risks and related policy uncertainty emanating from the U.S. certainly remain high and are important drags on activity by themselves over the next couple of quarters.  

And if we think about where that drag on growth from tariffs and uncertainty is going to be biggest, well, it will be the U.S., which sounds kind of counterintuitive but makes sense when you think about the fact that it’s the U.S. that has chosen to fight a trade war on all fronts. And so the biggest hit to growth will be in the U.S.

Elsewhere — and this is why we’re still relatively constructive on the global economy — the impact on economic activity from tariffs, that negative impact, is likely to be mitigated by higher fiscal spending in Canada, in Europe and China, as well as more policy easing from central banks. So as a result, we do expect the global economy to avoid a recession, and as I said at the top, that economic conditions will remain broadly supportive of equities and risk assets, even though we are in the middle of a slowing. 

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So let’s turn to Canada and think about how the election, and the results of the election impacted the outlook for the Canadian economy. I think the bottom-line conclusion is that the results of the election are likely to be positive for the economic outlook in Canada. Right now, economic activity is weak. We don’t get the data for the second quarter until well into Q3, but Q2 is likely to be the weakest point of the cycle for Canada. GDP is very soggy. The unemployment rate has risen quite meaningfully.  

So I think it’s clear at the moment, the economy is not doing particularly well. But there’s reasons to think that we’re on the cusp of a gradual improvement. Certainly, tariff risks remain. But here we continue to think that a trade deal with the U.S. is coming, which means that the aggregate tariff rate applied to Canadian exports to the U.S. actually will be quite low.  

In addition, we do think there’ll be significant policy support. There is continued positive real-wage growth, and both of those will be important tailwinds to economic activity, helping the Canadian economy to recover and growth to strengthen as we move through the next four quarters.  

And so specifically, as a result of the election from a couple of months ago, we’re going to get quite significant government fiscal policy support, and that support will be quite targeted, which makes it particularly impactful. For instance, 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.  

So if you put all of those together, yes, there’s a negative hit to growth coming from tariffs, but we think the policy to support fiscal and more Bank of Canada rate cuts will probably almost offset that negative tariff impact, and will be an important tailwind to the recovery that we expect. That recovery will likely be very helpful to Canadian equities, relative to U.S. equities for instance. 

* * * 

We’re not calling for an abrupt change in the status of the U.S. dollar. In fact, if you look at the broad usage of the dollar in international transactions over the last quarter century, it hasn’t changed. So despite repeated calls for a loss of global dominance, the dollar is as dominant as it ever was. But at the margin, clearly, something is happening, and investors have grown more concerned regarding the quality of U.S. policy making, the sustainability of U.S. government debt and other factors.  

And you can see that concern in a breakdown of traditional correlations, whether it’s between the level of the U.S. dollar and the level of U.S. Treasury yields. A clear break in that relationship. Or in the correlation between returns to the dollar against the Canadian dollar and local equity returns. Again, a clear change in the correlation. So at the margin, something is deteriorating in the status of the dollar. But we don’t want to over emphasize how big that change is in a short period of time. So that’s one aspect.  

And then, the U.S. dollar is clearly expensive, even though in the first six months it weakened by about 10% on a broad basket. It’s still expensive and likely to weaken. The U.S. economy is losing its cyclical growth leadership. The Fed is likely to become less hawkish, and the rest of the global economy, as I already talked about, is likely to recover faster than the U.S. over the next few quarters. Put those pieces of the puzzle together, they suggest a weaker dollar. So that’s our outlook.  

And so we think about the Canadian dollar today, we’re trading at $0.73 today, being the 10th of July, we think that the Canadian dollar can easily appreciate to around about $0.78. So [a] high single-digit increase in the value of the Canadian dollar against the U.S. Again, that relates to what’s happening in the underlying economy: a gradual slowdown in the U.S., a gradual recovery in Canada. Same story in Europe, where we expect the euro to continue to strengthen, for instance. So the outlook that we have for a weaker U.S. dollar is symptomatic of our view for the cyclical economic outlook. A strengthening rest of the world, and a weakening U.S. economy. 

* * * 

Our view of a modest growth rate for the global economy this year is broadly positive for equity markets and risk assets. So that’s the first opportunity. Definitely keep invested and stay focused on the opportunity that equities broadly offer.  

Within that there are, of course, relative opportunities. We think that Canada and EAFE are relatively attractive. Within the U.S., we like tech. We think that 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.  So U.S. tech remains positive. We’re neutral on the remainder of the S&P, the 493, as it were.

So U.S. tech, we’re positive. Canadian equity, we’re positive. EAFE, we’re positive. Less attractive from fixed income, given our view on the economy, although within that U.S. Treasuries are probably more attractive, given that there’s a bigger opportunity for yields to fall in the U.S., given the backup over previous months, and therefore for prices to rally.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

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.

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

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.

Text transcript

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. 

* * * 

Greg Zdzienicki, vice president, client portfolio manager, equities, CIBC Asset Management 

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The low-volatility effect is a term that’s used to describe the observation that stocks with lower price volatility historically have generated higher returns than stocks with higher price volatility. 

And this was first researched by academics decades ago as an anomaly of conventional asset pricing theory. It observed that stocks that have lower price volatility historically have generated higher returns than those with higher price volatility. And investing approaches that sought to exploit this low-volatility effect started to gain a lot of prominence, particularly after the 2008 global financial crisis, as investors sought a less volatile investment experience. 

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. 

* * * 

Low-volatility strategies are protected during significant market dislocations. You know, if we go back over the years and take a look back to the tech bubble, where we had a valuation issue, multiples got expensive, MSCI World Index was down about 20%, the S&P Global Low Vol Index was actually up about 3% during that period of time, really protecting on the downside. 

If we fast forward to the financial crisis in 2007 to 2009, and this was an issue that was caused by a debt crisis, we had the MSCI World Index down about 32%. Low-vol strategies down just less than half of that during that same period of time. And if we move forward to 2022 when we saw volatility come back, the MSCI World Index [was] down about 13%, with the S&P Global Low-Vol Index down only 1%. 

So during these market dislocations, whether it was a valuation response by the markets, whether it was a response to a debt crisis, or whether it was a response to a pullback in volatility, like we saw in 2022, low-volatility strategies have protected on the downside and offered investors diversification while maintaining long-term equity market exposure. 

* * * 

So far throughout 2025, we’ve had a number of different investment environments. We started off the year with a lot of volatility. In January, when tariffs were announced, the market did see a tremendous amount of volatility. The performance of low-volatility strategies during the tariff troubles that we saw in the beginning of 2025 was exactly what we’d have expected it to be. 

In Canada, low-volatility strategies were down about 2% to 4%, whereas the index was down about 12%, 12.5% during that same period. In the U.S., we saw a very similar type performance: S&P 500 down 18%, 19% during that period of time, whereas low-volatility strategies were down closer to 6%. And in international markets, we saw the same phenomena as well. When we look at international markets down about 13% during the tariff trouble period, the low-volatility strategy is down closer to 5%. Across all regions, whether international, U.S. or Canadian, we saw low-volatility strategies perform exactly as expected, protecting investors on the downside. 

* * * 

At CIBC, we combine our low-volatility strategies with dividends. And by combining dividends with low volatility improves the sustainability and visibility of a portfolio’s cash flow stream. So the largest impact to these low-volatility strategies, of course, is going to be volatility. As the VIX moves up or the volatility index starts to move up, these strategies tend to show their defensive characteristics. These strategies that are coupled with dividend-paying stocks also tend to resemble characteristics of quality, high cash flow and good profitability. 

* * * 

Low-volatility strategies play a very important role for long-term strategic asset allocation. 

First of all, they have a smoother return profile. So allocating the low-volatility equities can lead to a more stable return profile, aiding investors in achieving those long-term goals, while protecting capital during market downturns. They also have enhanced diversification. This tends to improve diversification when integrated into various investment styles, be it growth, value or core. 

When added to a portfolio, low-volatility strategies improve capital preservation and recovery times. They have the potential to provide better capital preservation, and they facilitate faster recovery in uncertain market conditions, making them an attractive option for risk-averse investors. And low-volatility strategies have historically outperformed during market corrections, providing better risk-adjusted returns, lower downside capture, which makes them a valuable complement to traditional portfolio strategies. 

* * * 

By using low-volatility strategies for risk reduction, clients are still maintaining long-term equity exposure. Whereas an allocation to fixed income can provide risk reduction in a portfolio and smoothen out a return profile, it does not provide that long-term equity exposure that some investors need in their portfolio to achieve those long-term goals. 

Low-volatility strategies, by their nature, tend to invest in more defensive industries. When we look at the sector exposures and say, at a Canadian low-volatility dividend ETF, there’s going to be significant exposure to areas like financials, utilities, consumer staples, communication services. These are areas of the market that tend to exhibit these lower-volatility characteristics. These are also areas of the market that tend to have better cash flows, higher profitability and tend to pay dividends. Areas of the market, for example, information technology, consumer discretionary, materials in Canada will be underrepresented within a low-volatility ETF. 

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. And that is what really drives that diversification benefit. Low-volatility ETFs in the U.S. will be overweight consumer staples, overweight financials, overweight utilities, and will have a meaningful underweight to areas such as consumer discretionary [and] information technology. 

So particularly in the U.S., where we’ve seen a lot of leadership from the Magnificent Seven or the Great Eight — we saw technology lead and becoming substantial part of the index — low-volatility ETFs in the U.S. are going to look very different than the benchmark, again, continuing to deliver those diversification benefits and protection during downturns in the market. 

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

When we look at low-volatility ETFs, and we take a look at the market cap that they invest in, if it’s Canada or an international ETF, the majority seems to be clustered in that $10 to $50 billion market-cap range. In the U.S., we’re probably more in the $50 to $100 billion, with significant exposure as well in companies over $100 billion.

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This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

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.