Decision by Committee (April 13, 2023) — Risk management

This commentary is authored by the Guardian Capital LP Asset Mix Committee (AMC)1

Market performance year-to-date has been fairly solid across asset classes despite elevated volatility and a persistently uncertain outlook, supported by continued positive surprises from the dataflow that suggests the global economy remains on solid footing and indications of easing inflationary pressures supporting the view that central banks are nearing the end of their tightening cycles.


Strength in the face of adversity
(year-to-date total return; percent, Canadian dollar basis)

Index market performance


Source: Guardian Capital based on data from Bloomberg to April 13, 2023

Against this backdrop, there remains a cautious optimism that a “goldilocks” or “soft landing” outcome for the global economy can be achieved in the months ahead – in which inflation continues to ease, central banks can move to the sidelines, and moderate growth momentum is sustained. That said, the gains this year have led the AMC to add focus on managing risk exposures against expectations that market conditions will remain challenging in the months ahead.

For starters, the relative outperformance of Equity versus Fixed Income over the last month has increased the overweight in the asset class. While the AMC still favours maintaining an overweight in Equity and underweight in Fixed Income, there was a preference to rebalance asset allocations to prior levels.

Within Equity, while the AMC continues to believe that there are good opportunities in Developed Markets (DM) outside of the US (namely, Europe, Australasia and the Far East or “EAFE”) and Emerging Markets (EM), given the better relative valuations and growth outlooks, the relatively low exposure to US markets in Global Equity allocations — a tactical underweight in the asset mix has been compounded by the outperformance of EAFE stocks — represents a performance risk.

US equity markets carry a relative bias towards high-quality growth stocks, with companies that are global leaders able to exert pricing power and sustain profitability. These attributes tend to be supportive of outperformance in challenging economic environments where profit margins and earnings growth face added pressures, such is expected in the months to come.

Although the US’s quality growth bias is a factor underpinning its higher relative valuation versus other international stocks, the resultant higher duration would benefit should weaker economic conditions warrant a reversal of the recent tightening of monetary policy.

Finally, in the more near-term, market sentiment has turned comparatively negative on American equities. For example, the latest Commitment of Traders report from the US Commodity Futures Trading Commission2 showed that speculative positioning in futures and options contracts on the S&P 500 Index was more than two standard deviations net short, setting up for a potential rally as these positions are covered.

Given these considerations, the AMC decided to reduce its Equity overweight and reallocate some of the proceeds toward core Fixed Income strategies and its positions in cash. Specifically, the Canadian Equity allocation (representing the largest weight in the asset mix) was pared with positions in underlying holdings reduced proportionally. The overall allocation to Global Equity was left unchanged.

Within Global Equity, allocations to global investment strategies (that are underweight US) were reduced from their current market weights and redeployed to the US-specific strategy in the asset mix. The allocation to Emerging Markets Equity was left unchanged as the AMC continues to carry positive views on the grouping against China’s continued economic reopening, further softening of the US dollar and the likelihood that EM will reestablish its growth premium over DM in the months ahead.

For Fixed Income, the preference remains toward adding duration in the asset mix, given the continued assessment that market interest rates are at or near their peaks, increasing the allocation to the core Canadian Bond strategy. The other portion of the proceeds from the reduction in Equity was allocated to cash as a buffer to any potential near-term reversal of recent momentum and as a dry powder that can be tactically redeployed as market conditions warrant.

Overall, the asset mix allocation remains overweight in Equity with a bias toward Global Equity (and a continued tilt outside of the US) and a focus on quality growth strategies that stand to benefit from a market environment in which general growth moderates to lower rates and profitability faces greater headwinds. In Fixed Income, there remains a skew in favour of high-quality credit, for which carry and spreads are attractive, and duration remains below that of the broad bond market index. Cash is above its strategic weight.

The AMC will monitor economic and market developments closely in the coming weeks and stands ready to tactically exploit opportunities that may present themselves.



Asset Mix Committee Summary Views3

Conservative Asset Allocation

conservative asset allocation

*Benchmark3 =portfolio strategic asset allocation **Figures may not add up due to rounding



Growth Asset Allocation

growth asset allocation

*Benchmark4 =portfolio strategic asset allocation **Figures may not add up due to rounding






















1. Guardian’s Asset Mix Committee (AMC) consists of investment professionals and asset class specialists and is charged with overseeing the development and management of multi-asset investment portfolios, specifically addressing asset mix composition/allocation and areas for advice or communication to such clients as it relates to the makeup of their portfolio.
2. Commodity Futures Trading Commission. “Commitments of Traders Report.” Market Data & Economic Analysis, April 11, 2023.
3. These Asset Allocations represent the Asset Mix Committee’s tactical views given their assessment of market conditions and performance expectations. They do not represent any particular client account or portfolio, and are subject to change without notice.

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