With so many factors currently impacting global markets, developing an effective asset allocation strategy is of utmost importance. With that in mind, Wealth Professional
sat down with Chief Economist and Strategist, Asset Allocation at Mackenzie Investments
, Todd Mattina, to ask about his asset allocation approach in the current market conditions.
“We’re currently overweight stocks relative to bonds mainly on a relative valuation basis; we see that longer-term sovereign bonds look fairly overvalued,” Mattina says. “Within currencies, we’re slightly overweight the U.S. dollar relative to the Canadian dollar. This decision reflects macro-economic issues like divergent monetary policies, such as the Fed hiking interest rates this year, while the Bank of Canada looks, at best, to remains on pause.”
Mackenzie is maintaining an underweight position in sterling, a view the firm has held since before the Brexit referendum. It’s a position that has worked out well, and one that Mattina expects to continue to yield positive results, especially considering negative sentiment on the back of Brexit.
Within stock markets, Mackenzie is currently underweight both Japanese and U.S. stocks. “Being underweight the S&P 500 reflects a number of things. On the macro-economic side, you’ve got tighter monetary policy, and based on various valuation indicators, the S&P 500 looks richly valued,” Mattina says. “We also don’t like Japanese stocks, which again is largely a valuation story.”
Mattina sees opportunities in UK stocks and Mackenzie has been overweight British stocks since before Brexit. “That’s been a very good tactical bet largely based on valuations,” he says. “British stocks look attractively valued and we think that will continue. A weaker sterling will only provide further support to British stocks.”
When making tactical asset allocation decisions, Mattina follows a process driven investment framework focused on three broad factors: valuation of the assets Mackenzie trades, macro-economic conditions, and general market sentiment. “In each of those three buckets, we have numerous quantitative, and some qualitative, models that we use to try and express where we see opportunities and risks in the markets,” Mattina says. “For any asset we’re trading, we have 16 – 20 quantitative models, which we use to develop our overall view on the markets.
“All of our investments are derived in this framework, looking at these three buckets. These buckets matter for all investors and they cover various time horizons. For example, market sentiment factors can have a shorter-term horizon while valuations have a longer-term outlook.”
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