Sam

Hello everyone and welcome to our Market Connect session. I'm Sam Ferbero, President and CEO of Canada Life Investment Management and Senior Vice President of Wealth Solutions at Canada Life.

It's great to be back with all of you as we continue to explore the forces shaping Canada's investment landscape. And today's discussion is gonna dig deeper into the economic signals influencing Canadian equity performance.

It's funny, inflation remains uneven, corporate earnings are adjusting to new cost structures and shifting global demand continues to impact Canada's resource heavy sectors. And all of these factors were in place folks before the war in Iran erupted, magnifying the potential for any tree driven inflation, further geopolitical disruption.
In an environment filled with mixed messages, understanding what truly drives equity returns beyond the headlines is absolutely critical.

And our goal today is to deliver clear insights, timely perspectives and practical takeaways to help you support your clients.
Now to help you get the most of today's event, we're encouraging you to ask questions throughout the session. We're gonna address your questions during the Q&A portion at the end of our discussion. And in order for you to actually participate, you will see instructions for logging into Slido on your screen. Feel free to submit your questions and vote on others. And this is gonna help us prioritize what matters most to you.

Now for financial advisors joining us live, there is a CE credit certification that will be sent out to you in the coming weeks. For those of you who attend the full session and for Quebec based advisors, there is a CE quiz that will appear on the screen after the session ends.
Now, let's jump into today's discussion. Canada's equity market is shifting as rates move and commodities fluctuate and earnings adjust. Energy prices are skyrocketing while last year's drivers like gold have slid backwards. There's a lot happening. And it can be tough to separate what really matters from the day-to-day noise. Whether you're managing risk, looking for new opportunities or even trying to get a clearer read on the market, today's conversation is here to help to make you sense of it all.

Now, I'm thrilled to be joined by two exceptional guests whose perspectives will guide us today throughout the discussion.
First, we welcome Leslie Marks, Chief Investment Officer of Equities at Mackenzie Investments. And she's gonna take us through the macro picture, the key signal shaping Canada's outlook. And second, we're joined by Jeff Braddox, co-head of equity strategies at Picton Investments. They're the sub advisor on council Canadian growth and Jeff's gonna basically walk us into the market level details, sector trends, portfolio considerations, risks and where he sees the opportunities right now. So welcome both of you and thank you very much for being here.

Lesley
Thank you for having us.

Sam
Oh, it's our pleasure. Our pleasure, thank you, Leslie. So I'm gonna start with the big picture. We'll go to our first question. And again, folks, I encourage you to ask your questions as well. We're gonna get to them.

But here's the first question. Canada's equity market has been reacting to mixed economic signals, as I just shared with you. There's the softening of inflation, shifting growth expectations, continued sensitivity to the commodities sector as oil prices are rising and it's making life more costly for the Canadians at the gas pump and even sometimes in the grocery stores.

So Leslie, from your macro lens, what signals matters most right now and do you see a case for the space in Canadian equities?

Lesley
Well, thank you for that kickoff question, Sam. And it's great to be here at this, such an important time in the investor's life cycle, I would say, based on my experience even. And I think the first thing to set the stage is really to talk about the economy. And when you talk about the case for the space for the equity investor a little bit separately.

And the reason I say that is because the Canadian economy is not really the Canadian stock market. Now, having said that, we just saw our GDP numbers this morning for January and February. And I think that was a slight surprise to the upside and the reason being the strength that we've seen in the commodity spaces of energy and gold, but weakness in manufacturing. And so when you think about those economic cross currents and everything that's happening, we really are seeing that play out with respect to our economic growth.
When you talk about the case for the space though, we have to look at the Canadian stock market. And what I was looking recently at the numbers, the weights for energy and materials. And of course we all know that the Canadian stock market is thought of as a financials play with our Canadian banks and then energy and materials next to that. But what I thought was really interesting was that over the last year, if you take us back a year ago, energy and materials represented about 30% of our stock market and financials overall, including banks and non-bank financials were at 32. Well, fast forward a year later, that has really shifted and energy and materials are now 38% of our market.
So when you ask about the case for the space, it used to be we talked about financials first and commodity second. And I think now we really need to focus on the commodity story first and financial second. So not to say that they're both not very important, but right now a lot of the cross currents are related to the news that we've seen over the last month with the war in Iran and the impact that that's having in the commodity space. But even ahead of that, there was a recognition that commodities were a very important factor when it comes to national security.

Little did we know that we would see that play out in real time so quickly. And so despite what's happening now day to day and all of the focus on the volatility around energy prices and gold prices, we still think that commodities play such an important role in national security. And that has been highlighted to everybody all over the world that we continue to believe that that is the case for the space for Canada. I highlighted this chart here today, which is the, if you could put up the chart with the earnings trends.

And this really is the picture that tells a thousand words. You can see that Canada has the best earnings growth profile when compared with the S&P 500, which has been so dominant in investors' minds in the prior four, five, 10 years, pick a period of time. And now that's really shifted, which is why we think that the outlook for Canadian equities continues to be strong.

The other thing that really stands out to me on this chart is you can see that the TSX expectations are about 19% for this year. Well, the market trades at a multiple in the 17 to, around the 17 times earnings range. So we've got a really attractive valuation and nice earnings growth. And the prospect of earnings falling to a 12% growth rate in 2027, I think that that is a bit of a stretch. And you could see sort of an understatement of earnings expectations in 2027. And those numbers start to actually come up throughout the year as well. So we think the next two years look quite good for Canadian earnings and Canadian stocks. And that's the case for the space.

Sam
Oh, that's great. Leslie, you talked a little bit about the GDP numbers and manufacturing commodities now ahead of financial.
Jeff, obviously you've got a market level perspective. How are you seeing these signals showing up in a sector trends and portfolio positioning?

Jeff
Yeah, that's a great question. And first, great to be on the call, Sam, and great to be joined by Leslie. And thanks for everyone listening in today. I really like Leslie's answer and kind of stepping back and looking at some of the bigger picture, the bigger drivers of our Canadian equity market.

And stepping back, there's been a resurgence of the TSX versus global markets over the last few years. And I kind of want to build on a few of those points. It ties into the webinar title Beyond the Headlines. We'll clearly talk about the headlines in a moment, particularly the conflict in the Middle East and how that's impacting day to day.

But I do want to kind of narrow in on some of those bigger forces underneath the surface that have driven the TSX higher and one of the leading global markets. Leslie did a great thing distinguishing that difference between our economy and our stock market. I find for a lot of people, they translate the economy into return expectations for our market.

They're vastly different as Leslie highlighted. Take something like automotive. It's a sector that's been in the headlines with tariff, roughly 10% of manufacturing GDP, less than half percent of TSX or healthcare, double digits of GDP, less than 0.3% of our market.
As was mentioned, materials, resources, energy, make up 70% of our market.

And so I think it's really important to kind of take a step back and look at commodities, because they're very big drivers of our market,
especially on a relative global index. And I always say to people, commodity companies are not buy and forget companies. If you treat them like buy and forget companies, it's like a roller coaster. You're going to get on, you're going to go up, you're going to go down, you're going to get dizzy, you're going to get an upset stomach, and you're going to land up right at the start point, right where you started. There are cyclicals.

And as this chart highlights, they go through cycles.
And in blue areas, there's periods where we call it positive fundamental change in these cycles. You know, the commodity starts to inflect and these companies change their businesses. Their earnings powers improve, their cash flow improve, balance sheet deleverage, the look of great capital allocators at those times. And then the reverse happens in the orange periods or we go through down periods.
And important to highlight, these tend to be long cycles as this chart highlights. They're not one to two year periods when you see this. And the reason is, is usually there's big drivers behind this.
And so I think if, you know, we'll talk about the near term, what's happening with the Middle East, but no good question is where are we in that cycle? And I think for a lot of commodities, we're pretty early into a new cycle. And it comes down to kind of those long-term supply and demand mismatches.
You know, probably one of the best ones of the highlight is copper. And the following slide highlights copper. You know, the last big copper bull cycle we had was the early 2000s. China came out of the world stage, big demand.
What it meant is that copper companies heavily invested between kind of 2004 to 2007, you know, raise capital in the markets, but it takes a long time to build a new mine or expansions.
And so this new supply came on, call it right after the GFC, probably the worst timing possible. And so we went into a decade where you didn't need to own a copper company, bear market for them.
And so what the companies did, they cut cap backs, they cut expiration grade decline. And now we're at the start of a new cycle, where candidly, it's not a demand cycle, it's just supply, there's a lack of supply. Now this chart looks at just kind of the starting years for copper supply and throughout the year, we continue to see deterioration and there's very few mines coming on.
So I mentioned that it's just kind of one of the broader trends is kind of beyond the headlines is that commodity cycle nature of Canada. That's not to say Canada can't generate positive returns outside of commodity cycle, but those big returns where it leads global benchmarks, a big driver of that is commodities.
Now I think in the short term, we'll expand on this, I think all risk assets are contingent on the war. Hopefully we see resolution if we do short-lived, I think we get a snap back to the TSX and we go back to this commodity cycle. If it's prolonged, I think it just delays this cycle. And so I would say that kind of case for Canadian equities is strong in the short term, contingent obviously on the conflict, but these are big cycles that last multiple years.

Sam
Yeah, Jeff. You mentioned we're probably early in a new cycle and there's a lot of events that are happening out there. And I appreciate that both of you have laid this out. We talked about the difference between the economy and the stock market, but of course Canada doesn't operate in a vacuum. And a lot of what we're seeing is shaped by global forces. And we've seen this in the last month.
So let's shift our attention now here. And Leslie, I'm gonna come back to you and just wanna talk a little bit about looking at the global backdrop. How are these broader forces shaping your outlook for Canada?

Lesley
Well, I think it's right to be thinking in a global context because there's been some large pervasive trends that have been shaping the global economy and the global outlook. And before the last 30 days and we entered into this conflict in Iran, the focus, our premise was really, and I think Jeff touched on it as well, that we were going to face more of a global reflation trade and that that would be very good for commodities. That would be good for cyclicals. That would be good for value stocks. And this was really the widening out trend that we expected to see beyond US growth stocks.
We started to see it in 2025 and 2026 started to play out exactly as we had expected it would. Well, that was until the US and Israel went in and started attacking Iran. And this is what we saw. And I thought that this was a really good slide to highlight in the sense that the better your stock market did in January and February, the worse it did in March. March was really the mirror image of January and February.
So Jeff used the reference of, depending on how long this conflict lasts, what will happen from here, of course there's a lot of uncertainty, but there's also a lot of motivation to end this conflict. And you're starting to see that in the narrative coming out of the Trump administration. One of my favorite taglines that I read in a piece of research was referencing, it takes two to taco. And I think that's humorous, but also very much true. And it really highlights that, as much as the president has indicated that he wants to move on from this conflict, it's not so easy to do that.
And I think that's what's creating a lot of uncertainty, but we do expect that we will get there, that there will be, there's so much motivation around a conclusion to this conflict. And we think what will happen is that that will resume the trends of earlier this year. And we go back to that, if you will, the blue side of this chart, which will be very good again for Canadian stocks, international stocks, again, that sort of global reflation oriented trade. Maybe just a couple of other things to highlight.
Structurally, these forces are very good for Canada and Canadian assets and the things that Canada is very much rich in. Despite the fact that some folks around the world are, by policy moving away from the energy transition, I think if anything, the last 30 days have highlighted to us the importance of continuing on that path.
Canada can be seen as a leader in the energy transition. This electrification mega trend, I think will continue to be really important. A risk premium will continue to be a factor in oil prices and the importance of having strategic reserves.
All of what we saw in the gold sector in 2025 will also continue to dominate, even if the war headlines don't. LNG diversification will also be important.
Really the consistency that we're seeing through our own federal government and policy related just is just playing into what's happening with the global trends. This idea of moving away from globalization towards national security and independence and decreasing trade and manufacturing, all of that requires a lot of capital and a lot of resources. And in that sense, to your question, these broad forces actually really enhance the outlook for Canada.

Sam
Yeah, Leslie, well said. And you're sharing obviously a slide that demonstrates the global equity returns. And I'm just wondering, Jeff, maybe we'll go to you now and maybe unpack that.

Lesley
Sorry, I apologize. I forgot, I have one more slide. You do, don't you? Yes. Yes, and I don't want to mess up, Jeff.

(Laughing)

Lesley
So I also wanted to highlight, and I think I said this in some of my words, but similar to how markets performed year to date with that sort of Jan Fab period versus the March period, the factor returns or the trends driving returns also performed similarly.
And if you look at the strength in factors in January and February, it was in value. It was in dividends. It was in things, anything sort of but growth and quality, which is much more of the US oriented market.
And so I think if we see a resumption of those trends, again, getting away from the current headlines and headline risk, that also will be very good for Canadian stocks. So it was really just meant to reinforce our view on the case for the space and the fact that even the global trends will be good for Canada.

Sam
Yeah, no, Leslie, I'm glad you added the next slide. In fact, Jeff, this is probably a good place to keep the discussion going. And I want to understand, and I'm sure the audience wants to understand, what are you seeing across the sectors? Leslie sharing factors, for example, or styles. And as these global themes filter into Canadian equities, what are you seeing across each of these sectors?

Jeff
Thanks, Sam. And I'll dig into that, and what we're seeing that conflict in the Middle East, how that's playing into the TSX. And similar to, I'd say, most global indexes, we've seen a big reversal, like Leslie's highlight, what was worked earlier this year is flipped and underperformed in the TSX.
So I'll give you a bit of color on that. We'll start with base metal commodities. I've talked to those earlier, very tied to global growth. And they were leading that whole supply demand new cycle. They've seen in March, 20 to 30% corrections. And it's due to that concerns on the outlook for global growth due to higher oil prices, also led in higher bond yields, moving within the material sector gold. And this is, it's become a big part of our index.
And it's probably surprised a lot of investors that it hasn't worked in March. In past geopolitical crisis, it's acted as safe haven, had 100% of the time, but quite a bit of the time. But not this time. What you've seen is actually gold stocks have actually declined in March, 20 to 30%.
I think a reason for this is positioning. Gold stocks came into March, really the winners, they had momentum.
And when investors de-risk, they often sell their winners first and raise cash. So gold hasn't acted as a safe haven. I think if this conflict continues, if we move into a different phase of escalation, yeah, I think you'd see gold start to perform better. There's been a lot of positioning. We track positioning that has been cleaned out in gold.
Turning to some of the other areas to understand the TSX over the past month, energy has been a big short-term outperformer.
Think people would expect on this call. Oil prices surge, it's the only sector up at the TSX this month. But an interesting thing to highlight there, the energy stocks are about 20% up, oil is up 60% in the month period. And it tells you that the market is not convinced these oil prices will last, or to some degree, maybe global growth impacts demand.
Canadian banks, I would say the other big sector of the TSX have been a pretty big surprise. They're down, but much less than the market. Down roughly 5%, much less than global banks.
Now, I think they've clearly done a commendable job managing through a very slowing housing market in Canada. I think it speaks to the oligopoly structure of our Canadian banks, six banks versus 5,000 in the US.
I would say probably where we stand today though, valuations are elevated. I think really you need revisions, earning revisions to move them higher. And with capital markets pretty choppy. Wealth management falling with AUM, there's probably limited upside to earnings, revisions from that side.
And so, we've chatted about this and kind of where we go from here, the conflict. I think if it deescalates, you see a re-risking, regrossing as this chart highlights that flip to what worked before and several of those areas I've mentioned.
And if it persists, I think broader asset classes, risk assets probably come under pressure. I think probably the TSX because of the nature of energy, which is counter to the market and gold start performing, probably on a relative basis does reasonably well from there.
The last point I would highlight is we talked on the big groups of the market, but what we've also seen looking at the market, given that it's very macro driven in the last month, very flow driven in, and de-risking is you get a lot of dislocations we've seen in the market.
Just to expand what we mean by this is investors de-risk and often they sell what they can, not what they want to. And so they push down companies with good fundamentals. And so I'd say in the last month, we've seen a lot of great opportunities of names we like high conviction that are off. They don't have these global exposures. And we're using that volatility, those dislocations to add to those companies where the fundamentals have been strong. So that gives you a bit of color of some of the inner details of the TSX over the last month.

Sam
Yeah, great, great perspectives team. This is, I think this is very important. We started with the big picture and alongside these global forces, obviously investors are now starting to watch, well, how does that impact here at home? And they're watching things like rate expectations and they're making sure that they're watching it very closely, especially this year.
And I think everyone, I think Jeff, Leslie, everyone's trying to get a handle on when or if the central banks will be cutting rates this year or even raising them later this year. The question that's being asked is, well, what does that mean for growth and valuations?
And Jeff, you mentioned things like housing market. You talked a bit about dislocation, de-risking, selling what they want versus not what they want. Those are all great questions, but a lot of times when they're looking at things, they're looking at even, what do I do with my mortgage and things like that?
So Jeff, I guess the question will stick with you. How are changing rate expectations influencing market behavior and risk appetite?

Jeff
So a good question. I'll touch briefly on Canada and then I'll touch more on the US because I think that has bigger implications for our equity market we've discussed.
On Canada, I've been actually quite surprised by expectation of rate hikes. When you look at Canada, now our house and market, maybe not frozen, but definitely slow Canadian house and market rates are. We have the headwinds from trade with the US. We have immigration slowing. And if you looked at our economy, actually, population growth over the last four or five years, we haven't had a lot of growth X population. So it feels like we need probably more supportive policy than restrictive policy in Canada.
Turning to the US, which has been really fascinating over the last three months. We came into this year kind of like a bit of a Goldilocks environment. We had this broadening out of the economy. Inflation wasn't as much of a concern. And there was an expectation that it's gonna be rate cuts.
A new Fed chairman coming in, so, you know, supported by the president, maybe some rate cuts there, that backdrop has changed. Right now, I'd say the markets more in the US, a bit globally, we're in kind of more of a stagflationary phase from the conflict. So we get oil moving higher, bond yields rising with inflation expectations.
I think for the next path forward, I don't think this phase lasts to be very clear. I think if this conflict continues, the next phase is more growth scare for global economy. Meaning this continues, oil price stays higher, tighter financial conditions. I think then you start to see actually bond yields probably start to pull back, recognizing weaker global growth. And maybe even on the short end that eventually rate cuts within that environment.
I mentioned Gold probably does better if you start thinking about rate cuts, that changes the view for Gold. And you probably see policy response. You probably need risk assets to fall there, but you probably get policy response. Now, hopefully we don't get there, but I highlight that from that expectation. So to conclude, I think it's been a very shifting environment from rate cuts to rate hikes globally.
A very much linked to the conflict in the inflation scare. And I think that's had a big dictated on risk appetite and equity markets. So very fluid to your question, Sam, on rate market expectations throughout this year.

Sam
Yeah, Jeff, good points. Policy response is certainly something we should expect. Shifting environment is absolutely there.
Leslie, obviously we'd love to hear from you more from a macro standpoint, especially for areas like financials, real estate and other rate sensitive parts of the market. What are your thoughts?

Lesley
Well, Jeff referenced this interesting time in the market and what the market is pricing in. And if you look at the forward curve, the expectation of rate hikes has pretty much come out of the curve for the US, but that's not the case in Canada.
And I think that's the weirdest thing that's happening right now, because that's very counterintuitive. And it really is going against the narrative that we're hearing from our governor of the Bank of Canada, Governor Macleod. And even recently, the deputy governor, Carolyn Rogers was also speaking. And I'm actually gonna read you a quote that she said for our listeners.
This is only four days ago. She said, “my colleagues and I at the bank are stealing ourselves for a tough job ahead, citing US trade protectionism, Canada's immigration controls and AI adoption as structural changes impacting the five year outlook”.
Recognizing, I think that we're in a period of time of low growth that normally would actually forecast, we would be forecasting rate cuts under any other circumstances. But obviously the Bank of Canada and the Federal Reserve have a harder time with that, given the inflationary projections now. And when you look where we entered the year, the expectation was for about a 2% rate of inflation. And now that's moved up to 3, 4, 5%.
So we have central bankers that are really forced to confront these stagflationary conditions when those weren't really expected or projected by anyone at the start of the year. So I think the market overall is recalibrating.
When you look at even the Canadian dollar, it's been weaker over the last couple of days. I think it's starting to, the wind of rate hike sales is really coming out of the Canadian dollar, but yet the forward curve and the expectations for rate hikes is still there.
And I think the thing for all of us to anchor on is the fact that hiking interest rates is not going to change the outlook for oil prices. So actually addressing inflation, and this is what Governor Maclum and the Deputy Governor Rogers are both communicating, which is we actually can't impact inflation by increasing interest rates. And given the weakness in the Canadian economy, that's not the expectation right now.
So that was a long way to describe the macro challenges that we're facing as investors. Your question was connected to sectors and how we look at sectors.
Real estate has been a challenging one. Obviously housing prices have corrected fairly significantly. We have a lot of challenges, goes back to Deputy Governor Rogers' comments around immigration and the fact that the Canadian population is now shrinking.
Temporary residents, the number of temporary residents is shrinking. That's a very rental focused market.
Slight shameless promote. It's shameless because I didn't do this podcast, but we did just put out a great, and it's like 22 minutes podcast between our chief fixed income strategist and someone who is a bit of an expert in the housing market in Canada.
His name's Ben Rabideau from North Cove Advisors. I just listened to it yesterday. He gives some great insight into the outlook for the Canadian housing market, which is very statistically based around this shift in population and the importance of that for the outlook for both rental and owned real estate. And it's not a pretty picture when it comes to real estate.
So interest rates aside, of course, I think most people know about the mortgage rollover impact and the fact that 2021 was actually the trough in mortgage rates. And so we're just hitting that five year renewal.
So we're not looking that as a danger point when it comes to our financials, but certainly a headwind to add on to the headwinds that Jeff referenced when it comes to Canadian financials. So you've got a real estate headwind.
Now, if we did have a higher interest rate outlook, in general, that is typically good for our financials from a margin perspective, but you have to look at the other conditions surrounding that upside. And if it's more because of inflation and people are starting to lose their jobs and the labor market starts to weaken.
And so if people aren't working, they're not paying their bills and that becomes a bigger issue for our financials. So we have to strike a fine balance here. Our economy is not strong right now, although it may have surprised slightly to the upside in January and February.
And with a higher, taking out the prospect of rate cuts right now, I think for interest-sensitives, financials, real estate, any of the rate sensitive parts of the market, those are gonna be a little bit challenged today on a relative basis when you look across the different sectors that you can allocate as an investor.

Sam
Yeah, thanks for that insight, Leslie. It's, you mentioned headwinds, economy's not exactly as strong as we probably would want it to be. And so with all of this uncertainty, it's no surprise that maybe financial advisors are starting to look beyond some of the traditional tools.
And that brings us to, let's call them alternative investments. And they continue to grow in popularity as investors look for more tools to manage volatility.
So Jeff, I wanna start with you.
The Picton team has done a lot of work across the alternative equity space. And so therefore, what are some of the trends you were seeing and where do these strategies fit today? And Leslie, I wanna ask you also about what you think about alternatives as part of the broader Canadian equity opportunity set. But Jeff, let's start with you.

Jeff
Yeah, it's a good question. And as you mentioned, our firm spends a lot of time on alternatives, alternative education and portfolio construction. And we've been having a lot more conversation with advisors across Canada. And I'll just spend a little bit of time on the reason behind that.
We look over time, investors generally weighted their portfolios to the two asset classes, equities and bonds, call it 60-40 or whatever derivative.
The reality is, equities compound outperform bonds over time. They do very well for investors, but the path is extremely volatile.
And with the volatility, investors have the balance in the portfolio. Otherwise they have to change their asset mix, they react at the wrong time. And so they built this 60-40 portfolio.
This is an interesting slide and it looks at this portfolio and through different time periods. And a lot of investors, when they look at the 60-40 portfolio, it did exceptionally well from 2000 to 2020, 20 year period, which is a bulk of probably a lot of investors on this call, their time horizon they've had investable assets. If you break down that period of call 2000 to 2020, there were six major equity sell-offs over those periods.
And great bonds each time were negatively correlated equities. On the right side, it shows a table bonds outperform cash. It was the perfect balance.
And the reason for that is, when you think of what caused those sell-off and equities, it wasn't inflation. We had very low inflation. It was growth scares, recession, financial crisis, economic slowdowns.
And so in those environments, you get growth falling inflation is falling bond yields, fall bond prices, they're great diversifiers.
Now what this chart also highlights, it goes back to 1940, is that hasn't always been the case. If you look back before their 1940 to 2000, 60 years, there are 15 equity sell-offs in all 15 periods. The table on the right highlights, bonds actually underperform cash.
And so in those periods, asset mix has been challenged. Similar reason we have this conversation with clients is it started to change kind of 2020. In 2022, we had bonds and stocks fall together.
And I think a huge implication for portfolio construction and in those environments, what we saw is that they weren't necessarily growth scares, but sometimes inflationary scares. And when you get inflationary scares, both asset classes fall.
And also to highlight when they start correlating the volatility of your portfolio increases.
So to your question, Sam, we have a lot of conversations with advisors kind of stepping back and looking at the building blocks of portfolios.
You know, our firm came up with something kind of the new math we say instead of 60, 40, 40, 30, 30. And we don't have any specific numbers, but it's more to challenge the building blocks in portfolio. And that portfolio should have stocks that compound over time. They should have bonds, but they should also have a third leg alternatives, things that provide diversification, non-correlated return streams.
And the goal of this is really to build portfolios that are more resilient portfolios. You know, reduce the drawdowns involuntarily, provide some inflation protection. And really the goal is to help people reach their financial goals with what we say greater certainty.
So that gives you a bit of context is, you know, the relationship between the two asset classes people have had have changed. And that's brought people to have the discussion and say, what solutions can we add that act different and build better portfolios?

Sam
And Jeff, you have another slide that talks about the 60, 40. Did you want to share that now?

Jeff
Thanks, I appreciate that. Thanks for highlighting, Sam. And this just breaks it down actually the bonds equities in different inflation regimes.
And you can see both the return and also the correlations between the two. And you'll see as in low and stable periods like 2000 to 2020, they are great diversifiers. But as that inflation regime changes, you see difference in return expectations and also from a risk perspective. Thanks, Sam.

Sam
Yeah, my pleasure. And Leslie, this is probably a good place for you to pick up on the broader Canadian equity opportunities. Your thoughts?

Lesley
Well, obviously alternatives have been also a big part of the headlines and the narrative. And I just want to build on some of Jeff's points. I thought his slides really emphasized the importance and the role that alternatives can play in diversification.
Obviously very important and paramount to be matching an investor's liquidity needs with the liquidity of the vehicle, which has been a big part of the negative narrative more recently around private credit.
But that really hasn't impacted the case for the space. Those diversification attributes that alternatives bring to a portfolio, those advantages all still apply. It's just about getting it right and being educated.
And I think firms like ours and yours and Jeff's all spend a lot of time ensuring that we educate our investors around the value of alternatives in the portfolio, the role that they play, but most importantly, the appropriateness. So I think in all of that, none of that has changed.
I do want to, I know you love a good little anecdote. So I'm going to give a nice sound bite for our audience today.
And I think a lot of us come from the public markets world but the world is very much changing when it comes to the role that private markets are playing as part of the economic or capital markets ecosystem.
Recent speculation is that SpaceX will have an IPO in June of this year and the valuation, wait for it, will be in the range of $1.5 trillion.
Now to put just some meat on the bones there to highlight like how, because when we started talking about trillions of dollars, we sort of lose the context and the narrative. And there was one other IPO of a similar size which would not have been really something on any, a very many Canadians radar screen, which was Saudi Aramco. So let's park that for a moment.
The largest IPO prior to SpaceX was Alibaba with $169 billion market cap. And again, that might not be so much on people's radar screens, but the next one, the next biggest which would have been is Facebook, which, and it was called Facebook at the time, not dating myself, at $104 billion.
So let's have the goalposts here of Facebook came public at $104 billion valuation. And the speculation is that SpaceX will come public in the $1.5 trillion range.
So accessing private markets is going to become, has already become more and more important for investors to be involved in the big game changers in our market.
And the last little nugget I would share is that, I talked about SpaceX coming, but there are others in the pipeline, names that are very well known to all of our listeners, I would like to think.
OpenAI's latest round, private round, was valued at $840 billion and Anthropic’s at $380 billion. So there is a lot of action happening in the private markets. And when thinking about your portfolio, I would include that in consideration if it was appropriate.

Sam
Oh, that's great. And we always love these little nuggets, Leslie, you're always welcome to share them. Unbelievable valuations, of course.
So here's kind of where we are, folks. We're getting close to the Q&A period. And I do want to remind everyone, in order to participate, you will see instructions for logging into Slido on your screen. And so therefore feel free to submit your questions, you can vote on the others. And again, as I shared with you, this will help us prioritize what matters most to you.
I still have a few more questions, but I'm thinking, Leslie, Jeff, why don't we go to the Q&A right now, and this way we could start looking at some questions from the audience. And if there aren't many there yet, we can always go to some of my questions. And I'm gonna put my glasses on, because I'm gonna have to read this now.
Okay, so we've already got a few coming up here, and we already have 17 likes, and you can see them on your screen.
Here's a question. When building portfolios, how should Canadian equities be balanced against US and global markets in today's economic and valuation environment? Jeff, why don't we go to you first, and then Leslie, feel free to jump in.

Jeff
Sure. I think tying together some of the pieces we've talked about here of Canadian equities, some of the drivers, I mentioned earlier, there's that big component of a commodity cycle. I think we're at an earlier part of a start of a new cycle, which has been powerful for the broad market of the Canadian market.
I think turning to the other markets, the US has been a very interesting market prior to this last month.
Interestingly, you started to actually see the equal weighted index, we call it RSP or different indexes, start to outperform in the US. And that started probably in November of last year. And I think there's several reasons for that. One of those, I think is that the Meg 7, the arms race of AI are spending massive amounts of CapEx, and that means less free cash flow for investors and less buybacks. And that leadership of theirs is faded, not to say they've all faded, but as a group, it's very much more selective. And I think that's why the equal weighted index.
The other part I should mention with the US and probably maybe why it's favored the equal weighted market is that there are many areas of the economy that candidly the last few years have been going through what I would call rolling recessions. You didn't see it because the economy has been held up by AI CapEx, but there's been a lot of groups that have been really tough. We think a lot of those areas are moving to rolling recovery. And I think that benefits more of a broader market in the US in certain areas of the TSX to highlight.
And just to expand what I mean by this, a lot of those groups have been going through kind of the COVID bullwhip effect. So if you think of COVID, everyone's in lockdown, reopening and then demand surges, they build on production and then demand normalized.
And it meant, if you look at a lot of companies, they were working through inventories the last three, four years. And we're now at a point for a lot of these companies where inventories have been normalized, orders started to improve, margins improving. You're seeing it in some of the PMI data out there before the conflict. And so in Canada, I would say it's companies like Magna and BRB, side-by-side vehicles and autos.
If you look at them, they were up 40% on earnings Magna in February, a very strong inflection. So I mentioned that it's kind of a broad one to there. I think Canada will do well with commodities if we have resolution. And I think when you look at the US market, I think the US market can do well, but maybe not the mega cap index, so more of an equal weighted index.

Sam
Yeah, thanks Jeff. Good points. Leslie, with your macro view, how would you add to some of the things that Jeff's shared with us?

Lesley
I mean, I think Jeff did a great job positioning the answer to the question. The only thing I would add would be when you think about the US, it's very much a growth-oriented, technology-weighted market.
So depending on your view, and I think Jeff and I share a similar view around the role of cyclicals, around the role of commodities, the more cyclically-oriented markets happen to be in Europe and Canada, for example. Much more financials-oriented, manufacturing, defense, commodities.
And so in order to have that diversification of styles, and I showed you the difference in performance across factors earlier in our talk today, I think that diversification across geographies is really important.
If you just wanna have high-growth technology orientation, the US is the best place to be. That's not, I think what either of us is suggesting is the right strategy for the market environment that we're in today. A lot has changed for the outlook for US technology stocks versus 18 months ago.
So thinking about other markets is important to have that diversification of styles and factors across your portfolio.

Sam
Yeah, and that level of diversification, Leslie, obviously works really well. I wanna stay with you on the next question, because part of it is about downside risk and protection.
So the question is, with markets this volatile, what are some realistic ways investors can stay invested without taking on too much downside risk?

Lesley
Well, I think I wanna anchor on one important point of that question, which is about staying invested. And when you're in the midst of a volatile event or geopolitical event like we are today, it's sometimes hard to see through to the other side. But when you look back in history, every one of our major geopolitical events, of course, we have the benefit of hindsight, has all been resolved.
The long-term picture for markets without boring people with statistics is upward and, sorry, equity markets, I should say, is upward and to the right.
So I think the point is when you position your portfolio, it should align with your risk tolerance as far as how much inequities that you'd be willing to allocate, and you should always be anticipating because it's actually very normal, extremely normal to have a 10% drawdown, and frankly, a 20% drawdown is also fairly normal.
So when you think about positioning, you should position yourself knowing that a 20% drawdown in the equity portion of your portfolio is a possibility and maybe even a probability.
So having some sort of golden rules starting and having that plan is the most important way that investors can stay invested without taking on too much risk. I think the question probably was more intended, like what would be some areas that would be considered lower risk?
The reason I didn't lead with that answer is because people would have thought historically that these technology businesses that were generating high cashflow or these, I'm sure a lot of people have talked about the AI Armageddon in the software space, for example. I mean, these were the quality businesses that Jeff and I grew up investing in, but right now we're going through a major transformation when it comes to the role that AI will play, and so things that historically would have been perceived as low risk may present higher risk over the next three to five years.
So I'm going to go back to that first principles of investing and aligning the construction of your portfolio with your risk appetite as the way to encourage people to stay invested.

Sam
Yeah, wise words, Leslie. Making sure that suitability of the investment, staying invested, these are the reasons why we have things like know your product, know your client, understanding their investment objective for sure.
Jeff, anything to add before we go to the next question?

Jeff
Well, just brief, I think Leslie did an excellent job highlighting that, and the key is keeping investors invested so they can reach their goals. But we know we've seen a time after time is pulling money out the wrong time, and that's permanent loss of capital. Now, how you do it, I do think diversification sometimes looks like adding different funds, just different names of funds. I think it's important to understand the drivers of those, the factor risk, the risk that drive those.
I think it was a year ago, someone was highlighting to me, portfolio and I had US equities, global equities and a tech fund.
Now you had US equities, which were heavily driven by AI last year. Global funds, I think we're 72% US content with people owning the same stocks and then a tech fund. Yeah, the risk is a very common factor risk there.
And so it really comes to the billing block is it's not diversification by labels, but really drivers of returns and risk factors. And so that's a big part, I think, of keeping people invested as having those right portfolios to start with.

Sam
Right, yeah, let's shift gears. We'll go to the next one. Jeff, maybe we'll start with you on this one.
We're back to given the rising oil prices, will Bank of Canada still cut rates twice in the remaining 2026 as earlier forecast? If you have your crystal ball there, what are your thoughts, Jeff, Leslie?

Jeff
I probably don't have a lot to add to this. I'm an equity guy now to buy. I think Leslie highlighted this earlier too. And I mentioned in this backdrop, I think it might've been a bit more positioning in the bond market that was driving the expectations of that hike site. It feels like our economy is more supportive than restrictive. We're not changing oil price by raising rates.
It's a supply issue there. And so the inflation is very supply driven. I'd say, housing is kind of struggling, a few other areas. So I'm not gonna put a number on there, but I think we need more supportive policy than restrictive policy here in Canada.

Sam
Yeah, Leslie, thoughts?

Lesley
Yeah, I think I would just reiterate my points. And Jeff, you passed the test. You listened to what I was saying.

(Laughing)

Lesley
But no, I think right now the forecast is actually for the Bank of Canada hike rate. So that may surprise some listeners.
I do not think that the Bank of Canada is in a position to be cutting rates right now, but I don't think that they're going to hike. So I think we're actually at a bit of a standstill when it comes to policy and people shouldn't be waiting for rate cuts.
They're just, the economy would have to deteriorate quite a bit from here. I think the Bank of Canada's view is that the rate cuts from 2025 need to work their way through the system and that rates are low enough to be stimulative to the Canadian economy based on what we know today.

Sam
Great, next question is, should small cap Canadian equities play a role in our Canadian exposure? Leslie, Jeff, either one of you who wanna take that one?

Jeff
Maybe I'll, you go ahead, Leslie.

Lesley
Yeah, you go ahead.

Jeff
You're the star right here. I think it goes to that exposure of what are you getting with Canadian small caps? My earlier, some Canadian small cap funds, I think it's up to 70% commodities now. And so you're getting a pure commodity exposure, well, 70%.
Some are diversified businesses that are a collective of businesses that are not related to commodities. And so I don't wanna label all small caps the funds the same because they have very different risk exposures. And some can be a diversifier in a portfolio return stream. Some can be an enhancing risk within a portfolio.
So I don't wanna label all small caps because they're very different in how a manager, he or she will manage them. And so it comes back to is what is that exposure providing and how does it fit within your portfolio?

Sam
Okay, Leslie, anything to add?

Lesley
I'm just gonna rip off Jeff's metaphor around the roller coaster. I think if you want to be on that roller coaster ride, right now, given the high exposure to commodities in Canadian small caps, you just have to know what you're in for.
There's a lot of money to be made in Canadian small caps. It's near and dear to my heart because it's where I came from when I was a portfolio manager. So, I'm typically biased towards, but has to be appropriate for your risk tolerance, particularly given the importance of commodities in small caps right now.

Sam
Okay, very good. So we have two questions that were tied. They just changed now, but we'll split the difference.
Jeff, I'm gonna ask you one question, Leslie. We'll ask you the other. And then we'll close off here and help everybody get back to their way. So, oh, this is now jumping around on me, guys.

Jeff
Do I take that last one? I think I saw that was any opportunities there that are outside the risk.

Sam
Yeah, Jeff, do you wanna take that one?

Jeff
I think it's a good one to highlight because it's a great question. And you get these macro driven markets, as I said, investors, de-risk. They often sell what they can access to sell versus companies that improve their portfolio, just what's liquid they can sell.
And I think we're seeing a bit of those, what we call idiosyncratic opportunities right now, where they're not even driven by this macro geopolitical environment, but they're selling off just on liquidity.
And in some ways, it's not to the same extent of COVID. I'll give you one of those stories.
I remember in COVID, one morning, Intact Financial was down double digits because people need to get out of the market. Just for context, I was in lockdown with probably everyone on this call, meaning you can't drive, but we're still paying insurance premiums. It's the best environment in the world for Intact Financial. They're printing money, but it's down because people need liquidity.
And we're seeing some opportunities like that today. PNC is a really good example. Intact's down, Treasura's down. They're not really connected to what's happening in the Middle East, but it's the dislocations of markets. And so every day we're going through that with our team, our analyst team is looking for those types of opportunities where dislocations from liquidity, others de-risking create opportunities. And so we've tried a lot about commodities and banks, but there's still a lot of those opportunities we're seeing in this environment.

Sam
Okay, that's great, Jeff.
Leslie, we had a few of these questions jumping around. I think the one that I was looking at was, are there specific Canadian sectors or themes that you believe are being misunderstood or underappreciated by the market right now? Are you okay to take that one and- Sure, yeah. Give us an answer in about 30 seconds.

Lesley
Yeah, I think one of them that I would highlight is energy because everybody is currently focused on the geopolitical risk and that that's putting in a risk premium into energy prices. But I would suggest that energy was actually moving far ahead of this conflict.
And that was really highlighting the role that energy is going to play as part of that AI theme, as part of national security. So there is a big fundamental story around energy that goes well beyond the recent geopolitical events. And so if you see after this war, if the US believes that they can pull out of this war, then I think that you could see an opportunity in energy.
Obviously oil prices will come down, but I do think that there's more of a secular story at play here and it's not just a geopolitical one.

Sam
Yeah, well said, well said.
So folks, we're gonna wrap up here. We've got a couple of minutes before the top of the hour. I do wanna thank you, Leslie. I do wanna thank you, Jeff. You shared your insights and perspectives today. And this is, I guess, what makes things clear in navigating the rest of 2026 and what we require to have a good balance and awareness and adaptability. So thank you very much for joining us.

Lesley
Thank you for having us. Oh, our pleasure.

Sam
And to everyone who joined us in the audience, thank you for being part of today's event. We truly appreciate your time and engagement.
And just a quick reminder for our Quebec-based advisors, the CE quiz will pop up once the session wraps up.
And before all of you sign off, we'd love to hear your feedback. A short survey will appear on the screen shortly to provide your feedback on today's session.
And lastly, we look forward to welcoming you back for our next Market Connect. It is scheduled on May 19th. Until then, take care.