Investors should focus less on predicting the next move in interest rates and more on building portfolios that can withstand a range of economic uncertainty, says the head of one of Canada’s largest investment firms.
The Bank of Canada held its policy interest rate at 2.25 per cent Wednesday, saying it was balancing economic risks.
But large institutional allocators look far beyond any single interest-rate decision, Duane Green, CEO Americas at Aviva Investors, told BNN Bloomberg.
His company manages investments like bonds, stocks, and real estate, holding approximately $460 billion globally.
He says trade tensions with the U.S and the war in Iran have made it increasingly difficult to construct an investment strategy around one central economic forecast.
“Before it used to be, how do we forecast where interest rates are going, and then what does growth look like?” says Green.
“Now it’s no one forecast can capture all of the uncertainty.”
Canada’s economy recorded no growth in the first quarter, while the unemployment rate stood at 6.5 per cent in June, according to Statistics Canada. At the same time, annual inflation reached 3.2 per cent in May.
The Bank of Canada says oil prices fell roughly 30 per cent following the announcement of an interim U.S.-Iran agreement, after having risen amid the conflict and disruptions in the Middle East. The central bank says renewed tensions continued to make the outlook highly uncertain.
Against that backdrop, Green says investors should concentrate on building resilient portfolios so they are not dependent on one market outcome.
He says that requires a combination of diversification, investment quality and discipline.
“It doesn’t mean holding more securities. It really is diversifying across multiple sources of return,” says Green.
What retail investors can learn from pension funds
Retail investors should not attempt to duplicate the portfolios of Canadian pension funds, Green says, but they can apply some of the same underlying investment principles.
“The fact is that perhaps individuals, their timeframes are different, their liabilities are different than a pension plan, so that’s why they don’t need to line up exactly,” he says.
Institutional investors generally construct portfolios with much longer time horizons than retail investors, Green says. “They’re looking at decades.”
Individual investors, by comparison, may be managing their portfolios toward retirement, future income needs and the possibility of living longer than anticipated, Green says.
“Whereas individuals like you and I, we’re managing towards how do we manage retirement? How do we get our retirement income? How do we manage our longevity?” says Green.
He encourages retail investors to obtain professional financial advice rather than making decisions based only on short-term market developments.
“I’m a big advocate of, you know, financial advice in the marketplace, and people need to take advantage of that to have that broader perspective,” says Green.
Aviva looks to expand in the Americas
Green says Aviva Investors is now in growth mode in the Americas and wants to offer more of its investment capabilities to external clients.
The company launched its Global Equity Income strategy as a Canadian pooled fund in March, targeting institutional investors and wealth-management firms in the country.
“We’ve got a new region, and we’re really looking at going and taking the capabilities that we have and taking it more externally focused,” says Green.
