Portfolio manager David Tulk discusses the market implications and impact of the U.S. 2020 elections in November and potential investor reactions as governments try to blunt a resurgence of the COVID-19 pandemic. The Federal Reserve (the Fed) is now allowing inflation to run hotter, with the goal that average inflation will, over time, reach the Fed’s target. The decision reinforces the fact that interest rates will remain very low for quite some time. Inflation can create some challenges for a traditional 60/40 portfolio: the negative correlation between stocks and bonds, on which a 60/40 portfolio depends, could turn positive, which in turn can hurt diversification. To help protect portfolios against inflation, David notes that on the fixed income side, the team is investing in real return bonds in Canada and TIPs in the U.S., and on the equities side, in gold. David believes it’s important to be flexible when defining your portfolio, and to keep liquidity on hand so that you can add to positions that offer an opportunity, especially in times of market volatility. Diversification among different asset classes and geographic areas is also important.
Recorded on August 27, 2020.