When Ian Hardacre
from Empire Life
is articulating what he believes to be the best approach in the current market environment, there is one word that keeps coming up: caution. Political uncertainty continues to dominate the news agenda, valuations continue to rise and rates remain low. Yet, despite all of the risks on the horizon, investors haven’t really reacted.
“There is a lot of complacency right now in the equity markets and I think you have to be very conscious of that,” Hardacre, Senior Vice-President and Chief Investment Officer, Empire Life, says. “We’ve been very cautious and have taken profit from a lot of our names to build up some cash in our funds. There has been a real lack of volatility, but complacency can be dangerous. We are going to see more volatility in the equities market, although what causes that will be hard to determine.”
Empire Life follows a value-oriented strategy, which is proving to be challenging in the current market. Due to current valuations, even when a high quality company does stumble or fall out of favour it’s still unlikely to start trading at a level that represents a significant discount.
“We prefer volatile markets because they create dislocations in equity values, which we can take advantage of,” Hardacre says. “It is really difficult in this market because everything keeps rising regardless of what is going on. But, regardless of the market, it is really important that individuals find an investment philosophy they agree with and then stick with. Changing strategies in reaction to the market is a mistake.”
Like many money managers, Hardacre has been finding some attractive opportunities in international markets this year. He’s been able to identify quality companies trading at lower valuations than the U.S, and Empire Life has increased its asset allocation funds’ weighting to EAFE as a result.
In Canada, Hardacre believes that the big banks and life insurance companies are positioned to perform well. The energy sector also represents an attractive opportunity, Hardacre says. “Owning energy this year has been a bit of a contrarian play, but we are comfortable that valuations in the Canadian energy sector are quite attractive,” he says. “It’s been a tough year for most energy stocks but we have been allocating more money to energy related companies, whether it’s pipelines or the larger exploration and production companies.”
Global equity markets making investors complacent
How advisors should navigate the current markets