Asset Mix Committee (August 8, 2023)
The flow of economic activity data has continued to show underlying consumer-driven resilience since Guardian Capital LP’s Asset Mix Committee […]
Decision by Committee (October 12, 2023)
While there are differences in momentum across the globe (firmer in the US, less so in Europe), economic growth has generally continued to show resiliency against expectations for greater moderation in the face of numerous headwinds since Guardian Capital LP’s Asset Mix Committee1 (AMC) last met in early August.
Overall, the AMC views that the macro backdrop still suggests an imminent recession is not in the cards and that the global economy appears set to continue to muddle through at somewhat below-trend growth rates. Underlying inflation looks to continue to trend lower but will likely remain somewhat sticky at higher than desired levels, which will likely result in rates staying elevated for longer than previously assumed, acting as a persistent headwind.
Against this, while yields on offer in Fixed Income look attractive, the near-term risk for rates remains marginally biased to the upside, which does not provide much conviction to increase allocations further at the moment. Credit quality remains solid in general, and the combination of higher yields and lower duration in the space support a continued tilt in that direction.
The macro outlook remains generally positive for earnings, and while market expectations have firmed in recent months (and there is the argument that consensus has perhaps turned too buoyant on earnings growth prospects), the ongoing weakness in markets means that equity valuations are below their historical averages — this is especially the case when the impact of the narrow leadership, where a disproportionate share of the returns in the global equity market can be attributed to just 10 large US stocks, is stripped out.
US economic and market leadership looks like it will be sustained, but there are extreme relative valuation gaps for Europe, Australasia and the Far East (EAFE), Emerging Markets and Canada that point to tremendous potential. That said, until there is more visibility on the rates outlook and that a turning point is in the offing, emphasis on Quality Growth stocks (which are more insulated from rates) would appear to be the way to go — so attractive opportunities exist, but the AMC has no screaming desire to allocate to these areas at this time.
Given the decision to reduce the Equity overweight and increase its allocations to Fixed Income at its last meeting in August, the AMC is comfortable with its risk exposures and has decided to leave the asset mix in the model-balanced portfolios unchanged at their current market weights. The AMC’s target portfolios remain overweight Equity (underweight Fixed Income and Cash); Equity allocations are biased toward Global Quality Growth; Fixed Income is skewed toward corporate credit and modestly below benchmark duration.
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
| Fund | Benchmark* | New Target Allocation** | Changes from pre-decision positioning** |
|---|---|---|---|
| Equity | 30.0% | 31.5% | – |
| Canadian Equity | 17.5% | 15.3% | – |
| Canadian Equity | 6.6 | – | |
| Canadian Growth Equity | 4.6 | – | |
| Canadian Focused Equity | 4.1 | – | |
| Global Equity | 12.5% | 16.2% | – |
| Global Dividend Growth | 5.4 | – | |
| Fundamental Global Equity | 3.9 | – | |
| US All Cap Growth | 3.6 | – | |
| Emerging Markets Equity | 2.3 | – | |
| US Equity Select | 0.5 | – | |
| International Equity Select | 0.4 | – | |
| Fixed Income | 65.0% | 64.3% | – |
| Canadian Bond | 49.7 | – | |
| Investment Grade Corporate Bond | 12.6 | – | |
| Short Duration Bond | 2.0 | – | |
| Cash | 5.0% | 4.2% | – |
*Benchmark= strategic asset allocation standard **Figures may not add up due to rounding
Growth Asset Allocation
| Fund | Benchmark* | New Target Allocation** | Changes from pre-decision positioning** |
|---|---|---|---|
| Equity | 70.0% | 73.1% | – |
| Canadian Equity | 40.0% | 35.2% | – |
| Canadian Equity | 14.0% | – | |
| Canadian Growth Equity | 12.9% | – | |
| Canadian Focused Equity | 8.3% | – | |
| Global Equity | 30.0% | 37.9% | – |
| Global Dividend Growth | 13.2 | – | |
| Fundamental Global Equity | 10.1 | – | |
| US All Cap Growth | 8.4 | – | |
| Emerging Markets Equity | 4.2 | – | |
| US Equity Select | 1.0 | – | |
| International Equity Select | 1.0 | – | |
| Fixed Income | 25.0% | 22.6% | – |
| Canadian Bond | 18.7 | – | |
| Investment Grade Corporate Bond | 2.6 | – | |
| Strategic Income | 1.3 | – | |
| Cash | 5.0% | 4.3% |
*Benchmark= strategic asset allocation standard **Figures may not add up due to rounding
1 The Guardian 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.
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