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Macroeconomic shifts mean it may be time to review client strategies.

Quantitative easing is clearly in the rearview mirror as central banks raise interest rates to dampen inflation, and as Gloeckler notes, “we’re going through consequential macroeconomic shifts in the global economy.”

That’s why this may be a critical time for financial advisors to review each client’s IPS with them, to ensure that they’re still comfortable with their investment strategies.

“We’re getting out of an extended [period of free money—a] central bank-supported stimulus period. Hopefully, we’re going to go back to more standard market conditions soon. So, whatever has worked over the past two years, it might be time to review that. Investors should be asking themselves if they still believe in the positioning of their portfolio,” says Gloeckler.

Colin Gloeckler, TMX LOGICLY chief strategist
Be aware of mechanical effects.

Gloeckler points out that there are mechanical effects at play in the current environment. Gloeckler notes that, in fixed income securities, the yield curve of all issuers rises as target rates increase and since present value depends on future cash flows discounted at a rising rate, valuations are dropping across all investments.

That said, Gloeckler stresses that it’s not the right time to simply throw everything out. “It’s the right time to ask yourself important questions and be aware of the mechanical effects that are going to happen.”

He also identifies specific steps that advisors may consider with their clients, including analyzing opportunities to harvest and carry forward investment losses, reviewing exposure to sectors that may be more vulnerable to interest rate increases, and moving from broad-based exchange-traded funds (ETFs) to more targeted funds or even single stocks. Gloeckler adds that [TMX] LOGICLY equips advisors with the ability to conduct such deep-dive analysis at both a client and practice level.

“Through direct indexing, you can, [for example], focus on a few high-dividend-paying companies that are navigating market cycles fairly well, which may be suitable for clients in a volatile market,” he says.

Data from TMX LOGICLY has indicated strong flows into short-term – one-year, or less, — T-bills suggesting investors are seeking to maintain positive real returns in the face of high inflation while staying nimble to adjust to volatile interest rates. This data suggests these short-term investments are a parking spot for funds that may find their way back into other areas of the market. 

Leverage AI to improve portfolio construction.

“We’re running a lot of AI-inspired models,” says Gloeckler. “We’re able to crunch so many data points so fast that some of the things that were impossible to achieve not so long ago are now within reach.”

For example, using historical data, algorithms can be taught to recognize patterns, features, and environments to attempt to predict the potential future behaviour of a security. These algorithms can review a pool of securities and identify alternatives with similar performance and exposure to help advisors replace an investment sold to realize a capital loss. the algorithms can also help monitor rebalancing of third-party models to keep advisors informed.

Even more importantly, today’s technology makes it easier for advisors to monitor and respond quickly when a portfolio strays from a client’s IPS. TMX LOGICLY, for example, systematically, consistently, and rigorously monitors for deviations from the IPS so it can alert the advisor.

“We provide you with tools to do an ad hoc analysis, a thorough portfolio analysis, or a continuous AI-based solution called the Portfolio Coach, where, every day, we’ll make sure that you’re in line with your expectations,” Gloeckler says. “TMX LOGICLY is not a black box. It’s really a decision support system. It empowers you [as an advisor], and guides you to deliver confident outcomes.”


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