A team of Morningstar panellists reveal their strategy to dealing with ever-shifting markets
Amid heightened market volatility, a slow and steady approach may win the race in the long-run.
Morningstar Canada organized a live panel of experts in Toronto on March 5 to determine the best ways to see past the short-term noise of US President Donald Trump’s tariffs while exploring opportunities to diversify their portfolios.
For Dave Sekera, staying focused on fundamentals is the priority amid Trump’s tariff chaos, with too much fluidity in the market to make accurate predictions to the future.
“Our equity analyst team is really staying focused on the fundamentals on the sectors they cover, the companies that they cover and remain focused on the valuations,” said Sekera, chief US market strategist for Morningstar. “Once we have better specificity as far as what the tariffs could potentially be over the longer term, how long they may last, we will incorporate that into our value.”
While Trump’s tariffs on Mexico and Canada have been dominating headlines, Sekera is more interested in the outcome of the US’ prolonged trade war with China, which he likened to “two heavyweight boxers in the ring.”
“When that fight starts in earnest, I think that to me is really going to have the bigger impact to the economy, the bigger impact to potential inflation rates over the long term as opposed to what we're seeing here in the short term,” he said.
Taking emotion out of the equation is essential for David Tulk, global asset allocation portfolio manager at Fidelity Investments, who suggested Canada’s growth would feel the full brunt of any full-fledged tariffs, while the US would see a long period of stagflation.
With regard to the bearish sentiment around the Canadian dollar, Tulk says he is looking to reduce foreign exposure. He also pointed to Canada’s low business investment and productivity as proof of an “unbalanced economy.”
“Our intention is very deliberate, to leave a lot of our foreign exposures on an unhedged basis,” he said. “Part of that is in the construct of a 60/40 fund, you want to minimize the amount of correlation that exists between the Canadian dollar and broad risk sentiment.”
Stephen Lingard said he has actively sought diversification amid such a volatile market, applying a more risk-averse strategy than he had last year. Lingard, senior VP and co-head of multi-asset at CI Global Asset Management, says his current portfolio target, which he admitted is “not very exciting,” looks like this: 57 per cent equities, 37 per cent bonds, and four per cent commodities, including gold, plus some cash.
While China is sometimes seen as a pariah, Lingard sees plenty of upside in a potentially rebounding Chinese economy.
“There's a perfect opportunity for both rerating potential valuations extremely low and we're starting to see the inflection point on fundamentals like earnings revenues in the actual data,” he said.
Tulk sympathized with the amount of precautionary work currently necessary for the Federal Reserve and the Bank of Canada, who he said are “comfortable remaining on the sidelines” regarding tariffs. He expects further cuts to interest rates from both central banks in the coming year.
With such uncertainty surrounding the North American market, Tulk sees promise in European markets, where defence spending is expected to balloon due to the US’ trend toward isolationism.
“There's been a positive reaction to the announcement of more defence spending across Germany and Europe more generally,” he said. “That reshaping of the global order is something that we're trying to evaluate in terms of where we want to take that rest of world equity exposure.”
As competition in the AI market ramps up, Sekera suggests that looking to steady performers like Walmart and Costco would be a wise decision, given their ability to yield long-term growth.
“It's crazy how much Walmart and Costco have gone up again,” he said. “They’ fantastic companies with wide economic modes and medium uncertainty ratings.”
