Canada Life Investment Management 2023 market outlook
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The past year has been a punishing one in the markets, with the S&P 500 down about 15 per cent year to date. The lingering effects of COVID-19, war in Ukraine and, most of all, the re-emergence of inflation and high interest rates have triggered losses in equity and fixed-income portfolios alike.

And yet, these threats have so far been mostly abstract. Economies continue to grind out growth, employment levels remain high and most long-term borrowers have yet to roll their debt into higher rates.

The year ahead, however, is when the rubber hits the road. How consumers respond to cost-of-living challenges and how that affects corporate profits will be a key determinant of investment returns in 2023, according to Canada Life Investment Management’s upcoming 2023 Market Outlook report. In 2022 central banks broke with their accommodative interest rate policies of the past decade to aggressively tackle inflation, which proved a larger and potentially longer-lasting problem than anticipated. By August they signaled that price stability, in the range of 2 per cent to 3 per cent growth per year, would be the priority over economic concerns, particularly Canada’s housing market.

What’s still unknown is how long inflation – and the monetary tightening in response – will persist. We don’t know how high interest rates will have to go and for how long they’ll remain high before the U.S. Federal Reserve and other central banks are satisfied the inflation monster has been subdued. Likewise in question is the collateral damage to the economy in terms of consumer demand, unemployment and debt default.

Given the uncertainty, advisors may be wondering what they can do to prepare for the year ahead. Here are some ideas.

Stress-test portfolios

Now’s the time to see how client portfolios can withstand market shocks and other ups and downs, especially when it comes to rising rates. Consider which sectors, regions and securities are most rate-sensitive and adjust allocations to each with an eye to managing risk.

Check for geopolitical uncertainty

If Russia’s invasion of Ukraine taught us anything, it’s that disruptions in one part of the world can have a profound impact on markets across the globe. While that conflict will hopefully stabilize in the year ahead, advisors may want to consider how deteriorating U.S.-China relations might upset economic stability in Asia, especially if countries in the region are forced to side with one of the superpowers. The gravity of geopolitical tensions from the previous 12 months underscores the importance of investing with sub-advisors who have boots on the ground in global markets and can provide a clearer panoramic picture of economic events.

Double check diversification

As we head into next year, make sure client portfolios are properly rebalanced to their intended asset allocation, as equity and fixed-income weightings may be out of whack. Also, ensure clients have the right mix of assets between sectors and geographies and consider how the strengthening U.S. dollar might weigh on certain regions, especially emerging markets. In this environment, an active investment strategy has an opportunity to outperform a passive one.

Be flexible in managing risk

There is the potential for missteps by policymakers, especially with respect to interest rates. Advisors must position portfolios to be resilient in multiple scenarios.

Take a multi-manager approach

No single asset manager is an expert in every asset class, which is why Canada Life Investment Management blends management styles, investment philosophies and risk-management protocols by employing sub-advisors. The managers they hire help advisors deliver truly global perspectives and diverse capabilities. In their 2023 Market Outlook report you can hear perspectives from some of their leading investment managers on the Canada Life shelf.

Over the past year, Canada Life Investment Management has focused on two main objectives, expanding their lineup of funds so advisors have greater choice for the investment plans they create and strengthening our existing fund shelf, making it even more competitive, to deliver stronger investment outcomes for clients.

They also added two new underlying funds, the Canada Life U.S. Carbon Transition Equity Fund and the Canada Life Sustainable Emerging Markets Equity Fund, to the Canada Life Sustainable Portfolios. Canada Life Investment Management is taking actions to deliver investment solutions that are competitive and well-positioned to meet the evolving needs of Canadian investors.  

Meeting the challenges of 2023 will involve staying nimble to actively manage fixed-income exposure across sectors, equity diversification and access to alternative asset classes. The direction of markets may be unknown, but they’re confident that the principles of portfolio management and the mix of investment products they provide can help advisors and their clients navigate the stormy seas.

Register for Canada Life Investment Management’s 2023 market outlook call and get answers to your top questions about the markets.

Capitalize on Canada Life Investment Management’s Market Outlook report, which will be released Jan. 5, 2023 on canadalifeinvest.ca. With market insights from some of the most sought-after investment managers in the industry, it’s designed to help you support clients through uncertain times so that they can plan for life as they know it.

Disclaimers

For advisor use only. The views expressed in this commentary are those of this investment manager as at the date of publication and are subject to change without notice. This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any product or fund referred to.

Canada Life Sustainable Portfolios are available through a segregated funds policy issued by The Canada Life Assurance Company or as a mutual fund managed by Canada Life Investment Management Ltd. offered exclusively through Quadrus Investment Services Ltd. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

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