Canadian investment management firm sees five key themes for the coming year
A leading Canadian alternative investment manager says that the headwinds that have shaped the past 18 months have created opportunities in the alts space, and that’s set to continue in 2024.
With interest rates still elevated and inflation remaining above the BoC’s target (and also above targets set by other major central banks), Ninepoint Partners sees five key themes for the coming year.
“There has been no single issue that has weighed as heavily on the minds of investors as the ‘higher for longer’ interest rate environment that we have found ourselves in, and the structural shift that it has created in the market,” said Ninepoint co-CEOs James Fox and John Wilson, in the report. “Geopolitical tensions, energy transition, and demographic headwinds have all contributed to a shift towards persistently higher costs and, as a result, higher levels of inflation and interest rates than we’ve witnessed over the past 15 years.”
Private credit is one area with star potential in 2024, given reticence of traditional lenders and higher interest rates, there is opportunity for private alternatives to enjoy a watershed moment. There will be tests of the resilience and adaptability of private credit, but the returns for making the right moves could be significant.
Fixed income is also set for success in the coming year. Ninepoint’s outlook predicts we could see the best investing environment for bonds in 15 years. Although transitioning to higher rates has not been good for bonds, the new era we are entering can bring returns for investors with the ability, for example, to pick up corporate debt at double the rates of 18 months ago (5.5% to 6.5%) without taking on greater risk. High yield securities are trending cheaper.
Real estate and infrastructure are set to benefit from the expected reduction in interest rates as 2024 progresses. Stabilizing rates will not only ease pressure on REITS but should also give the housing market a lift and provide a better environment for some commercial sectors including healthcare, cellular towers, data centres and industrials. Government support will further boost infrastructure.
For the energy sector, potential weakness in some economies may constrain oil prices if demand falls. Another key factor will be the realization that U.S. shale oil companies may have depleted much of their highest quality product, which should aid producers in Canada, especially as export capabilities are increased.
Finally, digital assets are likely to continue to gain traction, especially if the SEC gives the green light to spot Bitcoin ETFs as expected. Ninepoint also expects a record level of adoption for stablecoins, those digital coins that are pegged to fiat currencies such as the U.S. dollar.
