Increased volatility can have a negative impact on customers’ emotions, and cause them to deviate from their long-term financial plan. On our latest podcast, Greg Sweet, Director, National Sales chats about emotional investing with Jason Gibbs, Vice President, Portfolio Manager and Co-Lead of 1832 Asset Management’s Equity Income team. They discuss the hazards of letting your emotions influence your thinking, potential pitfalls to avoid, and how advisors can help.
Speaker Key:
GS Gregory Sweet
CM Craig Maddock
YG Yuko Girard
VO Voice-over
GS Welcome again to our listeners. I’m Greg Sweet, Director, national sales. Today we’d like to bring you one of our podcasts for our customers to share our insights on the latest market developments and how we believe these events should inform your investment process. Today our special guests are Craig Maddock, senior portfolio manager and head of Scotia’s Multi-Asset Management team, as well as Yuko Girard, one of the team’s Portfolio Managers. Today we’ll chat about Craig and Yuko’s views on the current market environment and how the team plans to address investing in these challenging circumstances.
Craig, what does the Multi-Asset Management team mean to Scotiabank customers? Can you tell us a little bit about your team and your capabilities?
CM I like to think of what we do as total portfolio management. It’s where everything that’s needed for an investor to be successful is in one of our professionally managed, simple, convenient, almost like a one-ticket portfolio solution. And of course we don’t just manage one portfolio but actually hundreds of different portfolio solutions spanning various risk levels and of course appealing to different investors’ preferences for things like growth or income or the desire for a low cost or other things that might be, ah, rich in features that the clients are looking for.
00:01:14
Now, importantly, each portfolio is managed to maximise its probability of success over time and we like to think of that in terms of a full business cycle, kind of ten-year-plus time horizons. But the idea is that for clients with long-term goals in mind, this portfolio solution that we create is really the best way for them to invest. I believe our goal of maximising the probability for success is extremely important. It means that we purposely include all of the different and, more importantly, complementary strategies that are designed to achieve a target return over time. That’s going to include things like setting the best asset mix for the future, selecting the best strategies for each component part of a portfolio, and of course choosing the best and brightest people to make the decisions on behalf of the portfolio each and every day.
There’re 19 of us on the multi-asset management team and we manage over $120 billion in assets on behalf of our clients, but to me the most important word in our title is team. We’ve built a highly collaborative culture so that everyone on the team works together to maximise that probability of success for each of our clients.
00:02:16
GS I love that, Craig. Simple, one-ticket solutions. Couldn’t be easier for our customers. We’ve really seen a lot of volatility lately. Some of our customers are nervous about market outlook for the rest of the year. Yuko, where do you think things are going to go?
YG We’ve seen some increased volatility in both directions this year. Given that the global equity posted double-digit returns in the last two years, some type of correction was expected in 2022. However, the war in Ukraine and inflation becoming an ongoing concern from transitory issues made the situation worse. Through the first two quarters of the year, markets were down both for equities and bonds. Pretty rare as since 1990 there were only eight quarters out of 130 quarters where both equities and bonds declined. We saw a substantial rally in the summer which has now fizzled and there are now concerns about a slowdown in the global economy. Inflation has also increased materially over the past year and central banks across the world have been raising interest rates to address this issue.
Some of these events are unique to 2022, but some of them are just a normal part of the business cycle and a part of the ebbs and flows of a well-functioning economy. Sometimes when you’re investing, everything can go well and it can seem pretty easy. Other times there are challenges with the economy or global events and it can seem pretty scary. We know that this will happen from time to time as it is part of investing and we plan for it by consistently monitoring the market and then understanding the risks and the opportunities in the market.
00:03:48
As part of our plan, when we set up our portfolios, we anticipate a variety of circumstances. We know that we might experience a slowing economy, rising interest rates, or any number of other things that can cause volatility. Our portfolio managers have been investing for a long time. We’ve seen bear markets before. We’ll see them again. And portfolio managers tend to find more opportunities in volatile and declining markets. The key is to set up portfolios that can withstand some tough times and then also benefit when markets are performing better.
GS Now, seeing a portfolio go down in value instead of up, I think, can really unnerve investors, especially if they’re too focused on the short-term market movements. It’s times like this when I look at the long-term charts showing market returns, you know, those ones that show investment returns over several decades. Those lines… They never go straight up, but they always do go up over the long term. And I think when we look back at 2022, whether that’s, I don't know, 12 months from now, 24 months, 48 months from now, I think this volatility is just going to be a little squiggle in that upward line. I wouldn’t want to downplay the issues Yuko spoke of. The global economy is certainly not in the best shape at the moment and it’s prudent to take a cautious stance at this time.
Now, across our portfolios, we’ve increased the level of defensiveness and we are taking the necessary action to preserve that long-term potential return for each portfolio we manage. But, Craig, how do you and the Scotia advisors think about this?
00:05:13
CM Yeah. We really like to use a structured process to approach investing, which especially helps in uncertain times. We help our customers get positioned for success by doing a couple of important things. Number one is, put a plan together. Customers really should have a written-out financial plan. Number two, remain disciplined and stick to that plan. And then number three, good discipline, investing regularly. Sometimes that happens through pre-authorised contributions, but investing regularly can certainly be, ah, the cherry on top.
Another big part of this is really trying to avoid some of the mistakes that investors can make when they get nervous. The most important one is really trying to avoid market timing. So, Yuko, how do you feel about market timing?
YG We often see people trying to time the market, but it’s just so hard to do successfully. The hardest part is to decide when to go back into the market after selling in declining or volatile markets. Often, when investors sell in challenging times, they’ll miss out on the eventual rebound. We don’t take big swings with the market timing, but we do have the capabilities to make tactical shifts in our asset allocation. As already mentioned, earlier this year we increased the level of defensiveness across most of our portfolios. Importantly, we are continuously updating our outlook and reconsidering our positioning. One of the worst mistakes investors could have made in the past is moving to cash when things looked the worst in previous bear markets such as when the dot-com bubbles burst, the financial crisis occurred, or in the early days of COVID. Successful long-term investors generally ride it out. They have a plan and they stick to it.
00:06:52
CM Which, to me, brings us back to our approach to managing portfolios. Remember, we’re trying to maximise the probability of success over time and time requires patience. Patience reminds me of that great Warren Buffett quote. The stock market is a device which transfers money from the impatient to the patient. However, patience also requires confidence and a belief that the process will most likely achieve the desired outcome. Now, when stock prices are going up and down, being very volatile because of fears over things like inflation and what central banks will do or what’s the chance that the global economy might slip into a recession, I like to reflect back on some of the basic reasons we own investments in the first place.
So whether Jerome Powell hikes interest rates, I still believe people are going to continue to live their lives, consuming the products that are part of their lives. They’re going to go to the grocery store and buy groceries. They’re going to watch TV. They’re going to buy gas for their car and occasionally they’re going to buy a new phone and the data plan that makes it work. So to me, as long as enough of the companies are able to provide the goods and services that people want at a price that covers both their expenses and generates profits, well, we can own a part of those companies and ultimately use that to meet our clients’ long-term goals.
So we’re going to invest in businesses that provide these products and services and own a piece of that profit they generate. And while it might seem counterintuitive, this recent market volatility has caused a number of these great businesses to trade at prices far below their all-time highs reached back at the beginning of the year. And, sure, there’s a possibility that in the near future they will become a bit cheaper before they rise again, but for now, it’s a pretty good time to invest for long-term investors.
00:08:32
GS You know, Yuko, Craig, when I reflect on our conversation today, it really comes down to having confidence in the process. Whether you’re a customer and your process is about having a written financial plan, committing to investing early, investing often, being diversified in your investment strategy and disciplined in your investment approach, or whether it’s a money manager, making sure that you’re being diligent with our customers’ capital, finding opportunities to maximise the likelihood of constructive outcomes for our customers, it all comes down to structured process and confidence behind it.
Yuko, Craig, thanks so much for your time today. Really appreciate your insights and helping our customers remain confident in their long-term strategies. To all of our listeners, thank you for investing your time with us today. I trust that you found great value in the information that we’ve shared to help you navigate these trying times. And with that, thank you for your business. Be well. Stay invested.
VO This audio has been prepared by 1832 Asset Management LP and is provided for information purposes only. Views expressed regarding a particular investment, economy, industry, or market sector should not be considered an indication of trading intent of any of the mutual funds managed by 1832 Asset Management LP. These views are not to be relied upon as investment advice nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions and we disclaim any responsibility to update such views. To the extent this audio contains information or data obtained from third-party sources, it is believed to be accurate and reliable as of the date of publication, but 1832 Asset Management LP does not guarantee its accuracy or reliability.
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