Focus on growth

In Conversation With: Staying Focused Amid Today's Uncertainties

Mon, 10 Mar 2025 17:01:54 GMT

You may have noticed recent headlines focusing on trade tensions between Canada and the United States.

This news has created uncertainty for many Canadians, raising concerns about jobs, economic stability, and personal savings. As tariffs continue to make headlines, you may be wondering how this could impact your retirement plans and long-term investments.

Paul Punzo, Chief Investment Officer, IPC Private Wealth and Blair Setford, VP, Product Management, Investment Planning Counsel, share their views on tariffs and recent trade tensions in the following video and summary:

Understanding the Impact on Your Investments

While tariffs can present challenges for certain industries, it’s worth noting that sectors most affected—such as manufacturing—actually make up a small portion of the Canadian stock market. More broadly, trade uncertainty can contribute to market fluctuations, which in turn may temporarily slow the growth of investment accounts like your RRSP, TFSA, and pension.

During these periods of volatility, it will be important to remember that emotions can often influence investment decisions, leading to actions that may not align with your long-term financial goals. Trying to time the market in response to short-term geopolitical risks can result in costly mistakes to avoid, such as reducing exposure to certain asset classes at precisely the wrong moment - this is where professional portfolio management plays an important role. Your advisor is there is to assist you in making decisions that are aligned to your long-term strategy and to help ensure the best possible outcome.

The Importance of Diversification

Market movements often reflect current investor sentiment rather than economic fundamentals, and history shows that markets tend to look beyond temporary disruptions. The most effective ways to navigate today’s uncertainties is to maintain a well-diversified portfolio. This includes exposure to U.S. equities, which provide access to sectors that are underrepresented in Canada, such as Technology and Healthcare. These industries continue to experience strong growth and can continue to offer important investment opportunities over the long term.

Additionally, currency fluctuations can work in your favour. If the Canadian dollar weakens against the U.S. dollar, returns from U.S. investments can be amplified, helping to offset some of the effects of market volatility.

Staying the Course

The good news is that periods of market turbulence often present opportunities. Lower stock prices can allow long-term investors to purchase quality assets at attractive valuations. Professional investment managers actively seek out these opportunities to position portfolios for future growth.

The key to long-term financial success is patience. Staying invested and allowing your assets to compound over time will be critical to building and preserving wealth. While trade disputes and market fluctuations may create short-term noise, history has shown that a disciplined approach to investing remains the best strategy.

If you have any questions or concerns about how your portfolio is currently positioned, please speak with your advisor.

Trademarks owned by Investment Planning Counsel Inc. and licensed to its subsidiary corporations. Investment Planning Counsel is a fully integrated wealth management company. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation. Securities available through IPC Securities Corporation, a member of the Canadian Investor Protection Fund. Insurance products available through IPC Estate Services Inc.

This video may contain forward-looking information which reflect our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of March 7, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented, or revised whether as a result of new information, changing circumstances, future events or otherwise.

The content of this video (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

Diversifying During Uncertain Times

Fri, 07 Mar 2025 19:39:07 GMT

The recent imposition of U.S. tariffs on Canada has fuelled a surge in Canadian nationalism. In recent weeks, investors have increasingly asked, "How much of my portfolio is in U.S. equities?"

Historically, this question reflected concerns about whether their exposure was sufficient to capture the superior performance of U.S. markets. Today, however, the question is rooted in an emotional reaction to the U.S. administration’s policies and the growing wave of Canadian nationalism. While these concerns are valid, investment decisions require a clear, objective approach. Unlike choosing to buy Canadian produce from a grocery store, the answer for investment portfolios is: diversification remains essential.

The case for global diversification

Although Canadian investors’ temptation to reduce or eliminate U.S. equity exposure in response to political and trade tensions is understandable, it might not be strategically prudent. While we have confidence in the strength and resilience of Canadian equities, the reality is that the U.S. market provides diversification benefits that can’t be replicated within Canada’s equity landscape.

The Canadian equity market is heavily concentrated in a few sectors – financials, energy, industrials and materials – accounting for approximately 75% (1) of the S&P/TSX Composite Index. In contrast, the U.S. market offers a much broader exposure, particularly in technology and healthcare, two of the most dynamic and fastest-growing sectors globally. The U.S. is home to industry leaders such as Microsoft, Apple, Nvidia and Amazon in technology, as well as Johnson & Johnson, UnitedHealth and Pfizer in healthcare. These sectors provide structural growth opportunities that Canadian investors can’t access through domestic markets alone.

Technology, a sector in which Canada has had little exposure, has been a key driver of U.S. stock market outperformance. The same applies to healthcare, which benefits from aging demographics, innovation in biotechnology and advancements in pharmaceuticals. Without exposure to these sectors, Canadian portfolios risk being overly dependent on commodity price fluctuations and financial sector performance, both of which can be cyclical and vulnerable to external shocks.

"... diversification into U.S. equities acts as a hedge against currency risk. The U.S. dollar is the world’s reserve currency and often appreciates during periods of economic uncertainty."

Additionally, diversification into U.S. equities acts as a hedge against currency risk. The U.S. dollar is the world’s reserve currency and often appreciates during periods of economic uncertainty. For Canadian investors, maintaining exposure to U.S. assets provides not only sectoral diversification but also acts as a potential stabilizer in times of market volatility.

Canadian investors have an inherent home bias, with an estimated 82% of their total assets – including real estate, pensions, investment funds – tied to Canada. Real estate alone represents approximately 40.9% (2) of total household assets , while financial assets (including pensions, investment accounts and private businesses) make up another 41%. (3) The vast majority of these assets are invested domestically. Given this already high domestic exposure, reducing U.S. equity allocations would further increase concentration risk and reduce access to global growth opportunities.

While concerns over trade policy and geopolitical uncertainty are understandable, history shows that markets tend to look beyond short-term disruptions. Investors who attempt to time geopolitical risks often make sub-optimal decisions, reducing exposure at precisely the wrong moment. Instead, maintaining a long-term, globally diversified approach ensures access to the best-performing sectors and companies, regardless of political and economic uncertainties.

Investment strategy amid trade tensions

Recent developments, including the shift in the U.S. administration’s economic policy towards Canada, has added another layer of complexity to Canada-U.S. economic relations. The Bank of Canada has already acknowledged that trade uncertainty is weighing on business confidence and investment intentions. (4) While some sectors, such as steel and aluminum may face direct impacts from tariffs, we believe that broader economic growth will likely remain resilient.

At the same time, when comparing economic growth and productivity trends, the U.S. stands out as the most resilient and best-positioned economy for long-term investors. We believe that the country is expected to maintain a gross domestic product (GDP) growth rate of approximately 2.5% annually, outpacing both Canada and the Eurozone, which we forecast to grow at more modest rates of 1.7% and 1.2%, respectively.

Additionally, the U.S. has a clear advantage in productivity growth, driven by its leadership in technology, artificial intelligence (AI) and automation. We project that U.S. productivity growth will remain at an annualized rate of 1.8%, compared to just 1.0% in Canada and 0.8% in Europe. This productivity edge is further reinforced by substantial investment in research and development, an entrepreneurial culture and a regulatory environment that encourages innovation.

The AI-driven productivity boom is expected to bolster economic growth in developed markets, particularly in the U.S., which remains in the strongest position to capitalize on these advancements. The strong fundamentals of the U.S. economy, combined with its leadership in key industries, make it a critical allocation bucket for Canadian investors, despite political noise and trade uncertainties.

The long-term outlook

While political uncertainty and trade tensions may create near-term volatility, global economic megatrends are expected to continue to shape markets over the next decade. AI-driven productivity gains, shifting trade alliances and demographic changes will influence long-term investment returns. Canada’s economy will remain closely linked to the U.S., but diversifying beyond national borders remains the most prudent approach for Canadian investors.

Conclusion

Canadian nationalism is understandable in the current climate. When it comes to investment decisions, however, diversification remains a sound strategy. History has shown that concentrated bets on any single country – no matter how dominant it is at a given time – can lead to extended periods of underperformance. By maintaining a globally-diversified portfolio, investors can mitigate risks, capture opportunities across different markets and help ensure long-term financial stability. Any shift in bilateral trade policies may cause short-term turbulence, but they’re unlikely to derail the broader economic megatrends shaping the future. The U.S. will likely remain at the forefront of AI-driven innovation, while Canada’s economic resilience will continue to be supported by its strong trade relationships. In an unpredictable world, maintaining a balanced, diversified investment approach might be the best way to safeguard and grow wealth over time.

Sincerely,

Vice President, Asset Allocation & Chief Investment Officer

Canada Life Investment Management

Sources:

S&P/TSX Composite Index | S&P Dow Jones Indices .
The Daily — National balance sheet and financial flow accounts, third quarter 2024 .
The Daily — National balance sheet and financial flow accounts, third quarter 2024 . & INVESTOR ECONOMICS HOUSEHOLD BALANCE SHEET REPORT 2023
Monetary Policy Report—January 2025 - Bank of Canada .

This material may contain forward-looking information that reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of March 7, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.  Investment Planning Counsel Inc. is a fully integrated wealth management company. Counsel Portfolios are a family of funds managed by Canada Life Investment Management Ltd., a subsidiary of the Canada Life Assurance Company. Trademarks owned by Investment Planning Counsel Inc. and licensed to its subsidiary corporations. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation.

Home Ownership Plans

Mon, 03 Mar 2025 14:57:53 GMT

Wondering how the First Home Savings Account (FHSA) works with existing programs to help you save for a home?

Gain a better understanding of Canada’s government sponsored plans for supporting home ownership by downloading our timely new infographic.

U.S. tariffs on Canada, Mexico and China: A renewed trade war?

Tue, 04 Feb 2025 22:21:05 GMT

The proposed tariffs announced by the U.S. signals a significant shift in global trade dynamics, with 25% tariffs on Canada and Mexico to be imposed beginning in March and an additional 10% on China.

The proposed tariffs announced by the U.S. signals a significant shift in global trade dynamics, with 25% tariffs on Canada and Mexico to be imposed beginning in March and an additional 10% on China. While officially justified as a measure to curb fentanyl trafficking, in our view, since U.S. seizures of the drug on the Canadian border amounted to a trivial 43 pounds in the whole of last year(1), we believe this is just a pretext for Trump to employ the International Emergency Economic Powers Act (IEEPA) for the first time to levy tariffs. These tariffs appear to be part of a broader economic strategy. Imports from the European Union (EU) will likely be hit within the next month or two. Also, a universal tariff is expected in April.

Since exports to the U.S. account for around 20% of Canada and Mexico’s gross domestic product (GDP), if the proposed tariffs are implemented, they could push both the Canadian and Mexican economies into recession later this year. The resulting surge in U.S. inflation from these tariffs and other future measures is going to come even faster and may be larger than we initially incorporated into our macro views. The key questions now are how affected countries may respond and what this means for North American and global markets.

Macroeconomic implications: inflation, growth, and policy response

U.S. economy: Higher inflation, tighter monetary policy

In our view, if implemented, the most immediate consequence of these tariffs will be higher inflationary pressures in the U.S., as importers pass on increased costs to consumers. Historically, tariffs have proven to be a tax on domestic buyers rather than foreign producers, and this round would be expected to push inflation in the U.S. back above 3% by the second half of the year.

This complicates the Federal Reserve’s (Fed) outlook. While we believe the Fed is unlikely to raise interest rates in response, since tariffs create a one-off price shock rather than persistent inflation, this move effectively narrows the already slim window for rate cuts in 2025. A scenario where inflation stays elevated while growth slows could put the Fed in a difficult position, limiting its flexibility to support the U.S. economy.

Canada and Mexico: Recession risks rise

For Canada and Mexico, the impact could be far more severe. Their economies are highly integrated with the U.S., and the imposition of such significant tariffs would disrupt supply chains that have functioned seamlessly for decades. Canada has already signalled its intent to retaliate with tariffs on up to $155 billion worth of U.S. imports, escalating trade tensions further.

Economic forecasts now suggest that both Canada and Mexico could face back-to-back quarters of negative growth, effectively pushing them into recession. The energy sector in particular is a critical area to watch. While some Canadian energy exports may receive exemptions, the uncertainty surrounding trade policy could weigh heavily on investment decisions in the sector.

Market reaction and investor considerations

Currency and equity market volatility

In response to heightened trade uncertainty, the U.S. dollar has grown stronger and our expectation is it will continue to strengthen, driven by demand for safe-haven assets. A stronger dollar could weigh on emerging markets and U.S. multinationals, particularly those with significant exposure to Canada, Mexico and China.

Equity markets are also likely to experience heightened volatility. Sectors with deep exposure to North American trade, such as manufacturing, industrials, and consumer goods, will face margin pressures from increased input costs. Meanwhile, companies with domestic supply chains may be viewed as relative beneficiaries, though broad-based market sentiment is likely to turn more risk averse.

Fixed income and credit spreads

The bond market reaction will be equally important. If the outlook for U.S. growth deteriorates, U.S. Treasury yields could trend lower as investors seek safety. However, if inflation concerns dominate, the yield curve could steepen, reflecting expectations that the Fed will be constrained in its ability to cut rates. Credit spreads may widen, particularly for corporate bonds in industries exposed to trade disruptions.

Global trade war risks: Lessons from history

The parallels to the 1930s Smoot-Hawley tariffs are hard to ignore, but historical context is key. While trade protectionism contributed to the economic collapse of that era, it was not the primary cause. The Great Depression’s demand shock played a much larger role. However, the risk today lies in the response. If tariffs are ultimately implemented and major economies retaliate in ways that escalate tensions further, we could see a chain reaction that slows global trade growth significantly.

While China's initial tariff hit was lower than what may be imposed on Canada and Mexico (10% versus 25%), the broader expectation is that U.S.-China trade tensions will continue to escalate, potentially reaching a 60% tariff level on all Chinese imports. The geopolitical dimension adds another layer of complexity. This trade war is not just about economics but about broader strategic competition between the U.S. and China.

Investment strategy: Positioning for uncertainty

Given the macroeconomic and market implications, a disciplined approach to portfolio construction is critical.

Diversification remains key : Exposure to uncorrelated assets, such as private credit and alternative strategies, can help hedge against market volatility.
Focus on high-quality assets : Companies with strong balance sheets and pricing power will be better positioned to weather cost pressures from tariffs.
Selective fixed income exposure : While U.S. Treasury bonds may serve as a safe haven, credit spreads could widen, making credit selection crucial.
Opportunistic equity positioning : U.S. companies with strong domestic revenue streams may be relative beneficiaries, while multinational firms exposed to North American supply chains may face headwinds.

Final thoughts

Although tariffs on Canada and Mexico were paused for the next 30 days, the coming weeks will be pivotal. If tariffs are imposed in March and retaliation is measured, the economic damage may be contained. But if this escalates into a full-scale trade war, the implications for global growth and financial markets could be severe. All else equal, we believe tariffs are bad for U.S. equities, but in general worse for equities elsewhere. Longer term, Trump's latest tariff actions against Canada and Mexico, and his recent threats against the European Union and Taiwan, show that he is willing to damage those alliances over minor economic disputes. If he maintains this approach, it risks undermining global confidence in U.S. leadership and diplomacy. And while it is unlikely that Western countries like Canada or Denmark would switch sides and align with the Communist Party of China leadership in Beijing, some countries in the Global South may be inclined to lean more toward China after seeing how the U.S. treats its closest allies.

Over the short and medium-term, investors should prepare for increased volatility, balancing risk management with strategic positioning to navigate a more uncertain trade environment.

Sincerely,

Corrado Tiralongo

Vice President, Asset Allocation & Chief Investment Officer

Canada Life Investment Management

Source: [1] U.S. Customs and Border Protection. (2025). Drug Seizure Statistics. Retrieved from https://www.cbp.gov/newsroom/stats/drug-seizure-statistics.

The views expressed in this commentary are those of Canada Life Investment Management as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances. The content of this material (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. This material may contain forward-looking information that reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of February 4, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. Investment Planning Counsel Inc. is a fully integrated wealth management company. Counsel Portfolios are a family of funds managed by Canada Life Investment Management Ltd., a subsidiary of the Canada Life Assurance Company. Trademarks owned by Investment Planning Counsel Inc. and licensed to its subsidiary corporations. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation.