Canadian investors are embracing well-balanced asset allocation as equities climb.

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Risk appetite for equities edged higher in October relative to September, but continues to be well-balanced over all periods, reveals Vanguard’s risk speedometers. In October, risk was rated slightly above average, while in September, it was rated slightly below. Year-over-year risk appetite shows a similar, but larger, increase.

Vanguard’s risk speedometers measure the difference between net cash flows into higher-risk asset classes and lower-risk asset classes, in this case within the universe of Canadian mutual funds and ETFs.

The balance shown by investors is an encouraging sign, says the report, “considering that the Canadian equity market has outperformed the Canadian bond markets by 1.0%, 4.7% and 11.3% over the past one-, three- and 12-month periods.”

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Similarly, global equities have outpaced hedged global bonds by 4.8%, 7.0% and 18.0%, respectively, over the same periods with volatility remaining low, says the report.

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But balanced risk could change because investor behaviour typically lags market returns, says the report. Also, a balanced risk appetite may reflect high valuations and compressed risk premiums across asset classes.

Read the full report.