But money managers believe you should start positioning clients for hikes to start in March
Most advisors and portfolio managers were not surprised that the Bank of Canada did not hike its rates yesterday. But, some are positioning to ease the impact on clients when they start, probably in March.
“I was taken aback last week, when these rumblings started that were indicating a rate hike was going to happen this week, because when I step back and look at the major cause of inflation, what I’m hearing from portfolio managers and economists is that the big cause was supply chain issues and a lack of supply,” Angel Georgijev, a certified financial planner and wealth advisor from the Georgijev Financial Group in London, Ontario, told Wealth Professional. “Increasing interest rates is not going to resolve that.
“Last year, and even at the beginning of this year, I was in the camp that rates weren’t going anywhere until spring. So, when this started to come up last week, I went: what’s changed? When they didn’t change the rate today, I was happily surprised, especially when there’s no indication that we’re going to get runaway inflation. I think we just have to get comfortable with the fact that things are where they are for the time-being. I think once supply starts to ease a bit, and that’s a result of COVID, things will begin to normalize.”
Grant White, President and Portfolio Manager of Endeavour Wealth Management at iA Private Wealth, said: “I wasn’t surprised that they left it alone for this one. I think the language is certainly pointing to the next meeting in March as when we’ll see interest rates rise.”
While he said the bank indicated inflation is becoming more of a concern and there’s been a lot of speculation about where interest rates could go year, he doesn’t expect them to move as fast as expected.
“I think we’re going to see a hike in March, and then we’re going to go into a wait-and-see period to see how things go,” he said. “Some people are calling for four or five rate hikes this year, but I think it’s going to be a bit slower than that because I don’t think everything is as rosy as it might look yet. So, I think the bank’s going to take a cautious approach while trying to manage inflation concerns. I think we’ll see multiple rate hikes this year, but I don’t think we’ll see as many as what some pundits are predicting now.”
While White expects interest rates to climb closer to 1% from their 0.25% overnight and deposit rates and 0.5% bank rate, he said many advisors and investors who entered the industry in the past 14 years have never seen the rising interest rate environment we may experience in the next few years. So, investors will have to align their portfolios accordingly and ensure they take a multi-asset class approach and use alternative assets, such as market neutral investments, to create consistent returns over the next few years.
Jackie Porter, President and Founder of Team Jackie Porter in Toronto, said: "Everybody, including the market, is breathing a collective sigh of relief because I think, unfortunately, Canadians, in general, and business owners have gotten used to cheap money, and that’s a very dangerous thing.”
She’s warning clients to pay attention to interest rates and the direction they’re going. She’s also recommending that advisors talk to their clients about the amount of debt they’re carrying and their plan for it if interest rates increase, and then really work with them on a sustainable debt repayment plan. They should also be talking to clients who have variable interest rates because she’s heard from different people who are close to the Bank of Canada and “it’s likely that we’ll have four or five interest rate jumps because they’re trying to normalize interest rates sooner than later. So, it could be a collective financial shock for people and businesses who are used to cheap money because it’s going to cost them more to live".
The other thing she noted was that “a lot of Canadians have seen their homes as piggybanks. “Rising interest rates could make it more expensive to finance a house just as its equity might decrease as rising interest rates cause buying demand to fall.
“There’s still cheap money, but for how much longer?” said Porter. “We don’t know.”
