MBA, CIMTM, Fin. Pl.
Investment Specialist, Products Knowledge
Stay the course!
History and the many studies conducted on the subject show us again and again that, during market corrections, it’s much more advantageous for an investor to stay the course than to give in to panic.
Even if the temptation is great, this is a situation where it’s especially important to resist your impulses.
Benefits within reach
Obviously, you shouldn’t remain completely passive. You can take action to limit the impact of events on your wealth and even take advantage of the crisis.
In this case, you should position yourself to derive the greatest possible benefit from the different sources available to you, or from the different stakeholders who can generate added value for your investments.
A key asset: the expertise of our teams
As a client, you certainly know that managing your wealth goes far beyond simply selecting an investment product for your portfolio. This management involves both the tax and legal aspects of your personal and professional situation, and it continues through the different stages and different events of your life and your career.
That’s why Professionals’ Financial has been presenting webinars for several weeks now that analyze the current situation from a market and investment perspective. Most recently, we explained to you the new government economic and fiscal measures, according to their relevance for professionals and business owners.
We strive to inform our clients and answer their questions to help ensure the optimal functioning of their practice, while limiting the need to draw on their savings. We want you to get through this crisis and be ready for the recovery.
Private Management that listens to its clients
In our Private Management portfolios, important decisions have been made, and continue to be made, in the sole interest of our investors. With the stock market downturn, many of our approaches are now underweight equities relative to their investment policy target.
Our team of managers is very aware of this situation and is positioned to rebalance the portfolios at the right time. The return to target (increase) in equities will make it possible to benefit even more from the market upswing that will follow the current decline. For now, we mustn’t rush things and we must be patient in order to protect our clients’ capital.
Canadian equities retreat
Last February, another action was undertaken by our Private Management. Although not very significant at first, this initiative has greatly benefited our clients. We reduced the weighting of Canadian equities in the portfolios. This not only allowed us to limit our exposure to a stock market whose year-to-date performance has been far from stellar, but also to take advantage of the decline in the Canadian dollar.
The loonie started the year at US$0.77. In early April, it was hovering around $0.71. This devaluation is good news when our investments are denominated in other currencies, but what about Canadian investors? The S&P 500 Index, for an American investor, produced a return of -22.56% as of April 5, 2020, while for a Canadian investor, the return was –15.78%.
Your best defence: our portfolio managers
Our portfolio managers work for you. In our last article, we explained the three-step strategy put in place by our manager MFS Investment Management Canada Ltd. in the FDP Global Equity Portfolio.
We now invite you to examine what Fidelity Investments Canada ULC has done in our FDP Canadian Equity Portfolio as well as in our FDP Canadian Opportunities Equity Private Portfolio.
Sound sector and security selection
Fidelity has made some adjustments to its allocation since the start of the year. For example, exposure to some more cyclical sectors like energy and industrials has been reduced, while the weighting of utilities and financials has been increased.
Changes have also been made to the stocks in the different sectors.
- For example, National Bank has been replaced by Bank of Nova Scotia. It’s clear that National Bank should get through the crisis without much difficulty, but at the same time, it doesn’t have the strength of Scotiabank. Bank of Montreal and TD Bank are the other banking sector holdings for this manager.
- Other stocks have been added like Dollarama. Although this issue is in the consumer discretionary sector, it has in the past shown very good stability in more difficult times. Moreover, the company is considered an essential service during the confinement period.
Your advisor: the pillar of your portfolio
Your advisor is the cornerstone of your relationship with the Financial. He orchestrates the management of your wealth. His role is entirely focused on achieving your financial goals by using the most effective means.
Attaining your financial goals is not always a long, smooth journey, but your advisor can show you the best path, according to your situation. He gives you access to all the fields of financial planning and to our specialists in these areas: taxation, legal aspects, estate planning, personal and corporate finance, investments, retirement planning, insurance. This integrated management adds definite value to your wealth.
As for your investments, your advisor works with you to build a portfolio that’s right for you. He knows you well, he knows your situation, and he can help you position yourself to take advantage of the upcoming recovery. He’s also familiar with the latest data in the field of behavioural finance and can help you avoid the emotional pitfalls.
And what are you doing to optimize your situation?
As we’ve already mentioned, substantially changing the allocation of a portfolio in times of crisis is not a good solution. It’s unlikely that your personal or professional situation has changed drastically in the past few months or that your risk tolerance has significantly decreased or increased. Think about it: changing your portfolio allocation now puts you at risk of unduly lengthening the time it will take to gain back the ground you’ve lost.
However, other actions can be taken to improve your situation.
- You could, as soon as your budget allows it, sign up for a systematic savings plan which shelters your contributions from emotional decisions based on market fluctuations.
- You could take advantage of the cost averaging technique and buy, at a low cost, more units of the funds you own. This way, you’ll have more units to better benefit from the rebound.
- If you’re retired and living off your investments, you could adjust the amounts you withdraw. The cost of living in a period of confinement is now lower for you, which would allow your investments to recover value.
- If you hold an RRIF, you could, if possible, take advantage of the 25% reduction in the minimum annual RRIF withdrawal. You could also delay your withdrawal this year, again to allow your investment portfolio to recover.
- If you plan to make major purchases in the near future, such as buying a car, you could take advantage of financing rates which are currently very low and which are unlikely to increase. This gives your investment portfolio more chance to recover by making small withdrawals over a longer period of time, rather than paying for the purchase in cash by making one large withdrawal now.
Think long term
We can’t emphasize it enough: wealth creation is a process, not a single event. The accumulation of many small short-term acts, which add up over time, has a major long-term impact.
All the players we’ve mentioned and described to you are involved in achieving your financial goals and can help you take advantage of the current situation. More than ever, good teamwork is the key to success.
All together towards a common objective: achieving your goals, your satisfaction and your peace of mind.
If you have any questions about your investment portfolio, feel free to contact your advisor. We’re working hard to protect your assets during this difficult time. You can count on us.
Yann Furic, B.B.A., M. Sc., CFA
Senior Portfolio Manager, Asset Allocation and Alternatives Strategies
Stéphane Girard, MBA, CIMTM, Fin.Pl.
Product Manager, Professional Practice
The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. For any questions, don’t hesitate to contact your wealth management advisor or your tax specialist, accountant or legal advisor.