Decision by Committee (February 9, 2023) — too much too soon?

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

After a dismal end to a historically poor year for global financial markets, 2023 has started on the right foot as materially better than expected outturns in economic data (particularly in Europe and China) and cooperative inflation figures have supported broad rallies across equity markets.


Starting out strong
(year-to-date total return; percent, Canadian dollar basis)

year-to-date total return; percent, Canadian dollar basis

Source: Guardian Capital LP based on data from Bloomberg to February 9, 2023

The gains are a welcome development from a performance perspective and valuations do not yet appear particularly stretched. Still, despite the cloudy and risk-laden outlook, the speed and magnitude of the gains in risk assets year-to-date give the AMC cause for pause.

While economic momentum has continued to be more resilient than anticipated, and looks to continue in the near term, the outlook remains highly uncertain. Growth is expected to slow materially in the coming year and, while viewed as having lower odds than even a few months ago, a recession and the potential for a “hard landing” outcome cannot be dismissed.

Similarly, while corporate profits have held up well and the “earnings recession” anticipated by many has not yet happened, earnings expectations are consistently being revised lower as profitability is anticipated to face increased pressure in the months ahead as margins compress from elevated levels. There is scope for further downgrades, which could trigger a renewed bout of investor pessimism and valuation multiple compression.


Diverging paths…
(MSCI World Index; year-to-date percent change, US dollar basis)

MSCI World Index; year-to-date percent change, US dollar basis

Source: Guardian Capital based on data from Bloomberg to February 9, 2023

Accordingly, and combined with the constructive outlook for Fixed Income as global policy tightening cycles appear to be approaching their endpoint and market interest rates viewed as at or near their peak, the AMC decided to pare its risk exposures by reducing its Equity overweight and re-allocating some of the proceeds toward core Fixed Income strategies and positions in cash.

Within Equity, allocations were reduced proportionally based on current market weights across underlying holdings, except for Emerging Markets (EM), which was left unchanged. The outlook for EM is viewed as relatively more positive than for Domestic Markets (DM), particularly in the near term, due to the benefits from China’s broader economic reopening as it moves away from its “zero COVID” policy. More generally, the EM central bank tightening cycle is more mature, and the grouping is expected to re-establish its growth premium over DM, which the AMC believes should support positive relative performance. An anticipated continued weakening of the US dollar is also seen as constructive for the asset class.

For Fixed Income, the AMC’s preference was toward extending the duration in the asset mix given the continued assessment that the balance of risks for rates is tilted to the downside (i.e. there is more scope for rates to move lower than higher from current levels over the coming year), resulting in an increased allocation to the core Canadian Bond strategy.

A 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 remains overweight Equity, with a bias toward Global Equity 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 constraints. In Fixed Income, there remains a skew in favour of high-quality corporate credit, for which carry and spreads are attractive and duration remains below that of the broad bond market index. Cash is currently above the strategic weight.

The AMC will continue to 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 Views2

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. 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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