Geoff Phipps explains the value he sees in hedge-fund and 'alternative' strategies amid market volatility
Amid high market volatility, sticky inflation and shifting global fiscal policy, Geoff Phipps believes the long-short equity strategy will become increasingly appealing over the next decade.
With the rise of populist political leaders employing a more hands-on approach to growth across the globe, Phipps believes alternatives have the potential to take protect against macro forces like sticky inflation and political uncertainty.
“I think alternatives are going to be a much larger part of investors’ portfolios for the next 10 years,” said Phipps, trading strategist and portfolio manager at Picton Mahoney Asset Management.
Phipps suggests the rise of populist leaders of all political stripes has played into his thesis that the 60-40 model will no longer be as reliable as previously thought. He says 60-40 “is not pushing up daisies yet,” though these signals are pushing Picton Mahoney towards a 40-30-30 mix.
“The big picture is that fiscal policy has played an enormous role in driving GDP growth over the past few years,” he said. “Fiscal can mean tax cuts. It can mean increased programs for like social programs. It can mean a whole bunch of things. And that looks fairly embedded.”
The long-short strategy has inherent benefits in a sticky inflation environment according to Phipps, who points back to the 1970s, where inflation skyrocketed over the decade due to the 1973 energy crisis and the Vietnam War. While he does not see such drastic shifts in inflation coming soon, he does believe today’s sticky inflation will have a negative impact on bond performances.
“When we think about secular inflation period, it just means lows are higher on the bottom of the cycle, and the highs are much higher,” he said. “And in that environment, looking at that bond portion historically, we can really question whether that's going to protect returns when there is an equity decline.”
Canada’s demographic shift is also a factor in Phipps’ thinking, as fiscal policy will be dramatically influenced by a larger retiree cohort.
“We have in Canada, but one in eight Canadians turning 65 over the next 10 years, there's a massive demographic bubble,” he said. “The most important years for retirement savings in terms of wealth creation and preservation is the 10 years before retirement and the 10 years after, and we're now into that 10 years prior for this huge demographic cohort that is set to reach retirement age over the next decade.”
Phipps suggests US President Donald Trump’s “contradictory” stances on tariffs and immigration will increase inflation and decrease growth, furthering his prediction of long-term slow inflation.
“Obviously, tariffs are inflationary,” he said. “Reducing the amount of the labour force through immigration is inflationary in the short-term, it hurts demand a bit too. And cutting fiscal would be anti-growth.”
Within this context, Phipps sees energy as a solid defence against inflationary pressures. He is particularly excited about the liquid natural gas sector, which has significant global demand, though supply has not flowed as freely as many would like due to its substantive infrastructure needs. As energy needs continue to soar in emerging markets such as India and China, Phipps believes more governments will invest in the critical infrastructure needed to reach global markets.
“The problem is that it requires enormous infrastructure, and we've seen hiccups with that, even in countries aligned with building as a policy,” he said. “I think that infrastructure build is going to be ongoing in North America, and I think that that's going to be very positive for a lot of these economies.”
Phipps is also keeping a close eye on copper, as the metal is integral to energy-intensive AI data centres and grid electrification. He says there is a “massive undersupply” of copper, though points to the delicate geopolitical dance of sourcing from politically volatile regions such as Latin America and The Democratic Republic of Congo.
There's a limited amount of assets globally that are mega projects with a tier one return profile,” he said. “AI data centres, grid electrification, clean energy, all these transitions are going to require a lot of copper, which is going to be problematic.”
According to Phipps, Picton Mahoney are also “secular bulls” on nuclear energy. He believes that more countries will embrace nuclear energy due to technological advances, high levels of uranium in North America and the limitations of renewable energy sources, though again stressed the high level of government involvement needed to build adequate infrastructure.
“We do have new technology, these small reactors … aren't your reactors of the Cold War, which is encouraging,” he said. “And we do have a lot of supply in Canada and the US with respect to uranium.”
