This is sponsored content submitted by Sun Life Financial. Sadiq S. Adatia, Chief Investment Officer, Sun Life Global Investments, discusses the market and how he’s positioning managed portfolios for long-term growth.
There’s a combination of things happening in today’s market that’s causing uncertainty and risks to rise. For starters, the British decision to leave the European Union (EU) probably means slower growth in the U.K. and Europe, where the economy is still recovering and can’t afford to lose momentum. The EU could also find itself in a bind if other member states decide to leave. China’s growth is declining and will have an impact on any country doing business with it, especially resourced-based countries like Canada. As for the U.S., if Democratic candidate Hillary Clinton is elected we’ll potentially have the best chance to continue the economic momentum set by President Barack Obama. But with Republican candidate Donald Trump, you have to be worried about changing course. Needless to say, all of this has created a lot of uncertainty in the market.
And yet, the market has just continued higher. These are unusual times, with equity markets hitting new highs while bond yields have been crushed, and in some cases gone negative. Normally, yields are supposed to go up when markets are strong, but in today’s market we’re getting two extremes.
Positioning managed portfolios for long-term growth
Given everything we know about the ups and downs of the market, today, I’d rather be more defensive and hold more cash as we wait for the market to pull back. Then I can redeploy some of that cash. For example, Sun Life Granite Conservative Portfolio is holding about 15% cash, 25% stocks and 55% bonds. And the Sun Life Granite Balanced Portfolio has about 10% cash, 35% bonds and 55% equities.
We’re structuring our Sun Life Granite Managed Solutions to reduce risks for investors – including those in retirement. We’ve been employing derivative strategies including selling put options, which allow us to collect a premium, in exchange for buying a particular market at a pre-determined lower price if the markets drop within a certain time. As a result, we can wait patiently for a pullback, but still get paid. We’ve taken this approach with Sun Life Granite Managed Solutions. Instead of staying in cash and getting nothing, we’re saying: ‘let’s find a way to utilize that cash and get some value, while sticking to our strategy to buy back into the market when it drops.’ This gives us potentially better value than owning cash, equities or bonds at current valuations.
Do funds with a tactical component make sense for retirees?
To answer that question, we need to look at recent market history. It shows us the potential gain from investing in equity markets has declined steadily since 2012, while risks have been increasing.
This decline in returns contrasts with periods when markets were performing rationally and people thought, ‘I’ll make 4-5% return in the bond market and 8-9% in equities.’
So with bond yields extremely low, your clients are probably not going to get 4 or 5% returns on their bonds for the next decade. As a result, they have to look at the risk-reward balance and ask themselves, ‘does my strategic mix make sense in this environment? Or do I need to tactically adjust to what’s going on today in the markets?’
Sadiq S. Adatia is Chief Investment Officer for Sun Life Global Investments (Canada) Inc. and a key member of its executive team. In this role, Mr. Adatia is accountable for bringing clients the best in asset management and innovative solutions from around the world. He will also leverage his investment expertise to provide investment commentary to clients and media. Mr. Adatia joined Sun Life Global Investments in July 2011, bringing with him over 15 years of experience in the investment industry. Prior to joining Sun Life Global Investments, he was Chief Investment Officer at Russell Investments, a position he held since 2008. Mr. Adatia was responsible for all domestic and foreign investment funds sold in Canada and was also the portfolio manager for the Canadian equity, dividend and small cap products, as well as balanced portfolios. Prior to that Mr. Adatia was the Business Leader for Investment Consulting for Central Canada at Mercer Investment Consulting. Mr. Adatia is a member of the annual Up the Down Market Event for Down Syndrome Foundation and the Education and Examination Committee for the Society of Actuaries. Mr. Adatia holds an Honours Bachelor of Mathematics degree in Actuarial Science & Statistics from the University of Waterloo. He is also a CFA Charterholder, a Fellow of the Society of Actuaries (Investment Specialty Track) as well as a Fellow of the Canadian Institute of Actuaries.