Three industry insiders explain what the devastating conflict means for investors
The market initially reacted negatively, and investors rushed to buy bonds as Russia invaded the Ukraine yesterday. Wealth Professional asked three industry professionals what the conflict means for investors and while all three advised holding portfolios steady, they offered a variety of insights and recommendations.
Chad Larson, Senior Portfolio Manager and Senior Investment Advisor, MLD Wealth Management with Canaccord Genuity Corp., Calgary
“The markets went from risk off to very quickly almost situation mode and panic set in,” said Chad Larson, commenting on this “incredibly sad conflict”. “Portfolios are like a bar of soap: the more you play with them, the smaller they get. So, sticking to a plan and remembering what your long-term plan is remains important because all geopolitical events sort themselves out.”
Markets also sort themselves out, he added. "Generally, wealth is created by being able to be steadfast and take advantage of opportunities instead of being victim to circumstances.”
Larson noted that chaos can also create opportunities for well-balanced, diversified portfolios to take advantage of severe price swings – especially when fear grips the market and people start selling. While there had yesterday initially been a “flight to bonds as a haven of safety”, he noted some sectors will do well as oil prices and gold were both surging.
“Those sectors are going to do a lot of the heavy lifting,” said Larson. “So, you can use some of those profits from the sectors that are working to take advantage of things that are on sale that you wish you had the opportunity to buy. But, make sure that you’re sticking to your plan, and you have a disciplined process and the right people in place to execute on that.
“Right now, it’s just a lot of noise, but these are the same businesses they were last week, and I think this creates incredible opportunity for investors that have balanced portfolios to be balanced and take advantage of these opportunities.”
Rob McClelland, Senior Financial Advisor, The McClelland Financial Group of Assante Capital Management Ltd., Thornhill, Ontario
Rob McClelland told WP his clients’ portfolios range from 50% to 90% equities, with an average 70%, which they rebalance daily. So, his firm does not get tactical around market corrections.
“I’m not a believer that you can. All of the evidence that I’ve seen, over my 30 years, has been that market timing around events, such as this, don’t work,” he said. He added that with yesterday’s rebound, anyone who had “made the move to the exits” earlier in the day would have already been down capital and triggered capital gains taxes, then found it harder to get back in and recoup losses.
“If you were going to get out, the right time would have been the end of the year, the minute there was discussion that Putin may attack the Ukraine,” he said, noting most don’t have the stomach to get back in when things really are at the bottom. Besides, he noted that history has shown that the markets usually rebound and improve since “we’re investing in companies that produce goods and services, and they will continue to produce those goods and services.”
“No one likes this stuff,” said McClelland, “and the natural reaction is to run to the exit. Typically, when you run to the exit, that’s often when you get trampled. Sometimes you’re better just to stay where you are.”
Kevin McCreadie, CEO and Chief Investment Officer, AGF Management Limited, Toronto
McCreadie noted that while markets initially dropped yesterday, they rebounded later in the day, though energy and banks were still down, and the conflict was adding to inflation fear.
AGF had been concerned about rate hikes before the conflict, so was watching how the central banks’ moves might impact inflation and had already been fairly defensively postured. The real question for advisors, he said, was how the invasion would impact global growth, given the worries about higher inflation, and how they would seek good pricing around the world, especially if there’s a push on energy prices and agricultural supply due to the two countries involved.
“So, I think if you were worried about inflation before, you’re probably even further worried about it now,” said McCreadie. He noted it will further squeeze discretionary spending and cause some global weakness, so advisors may need to go slower, especially with increased volatility.
AGF is holding more cash than normal in balanced accounts to allow it to hedge its portfolio risks, particularly for equities. Its equity portfolios are also geared to higher quality companies with cash flows and growth, and it’s been significantly underweight fixed income. It’s more into emerging market debt and some high-yield debt to diversify how it will get fixed income return.
Overall, though, McCreadie didn’t expect banks to get that aggressive because of the fear economic growth will be softer. But, he said, “you won’t really know that until we start to move into the later part of the summer and see if some of this inflation that we’ve seen from the supply chain starts to abate.”