Insight is Capital™ Podcast AdvisorAnalyst.com

In this episode, our conversation with Aubrey Basdeo, Head of Fixed Income at Guardian Capital LP, we focus on the fixed income landscape and the outlook for interest rates in the US and Canada, the Federal Reserve's approach to inflation and interest rate cuts, as well as the differences between the US and Canadian economies, the impact of mortgage rates on consumer spending and the potential for rate cuts by the Bank of Canada. Overall, the conversation highlights the importance of maximizing optionality and the challenges of monetary policy in a changing economic environment, various topics related to central banks, portfolio construction, and fixed income investing. Our main themes include the shift in central bank narratives, the impact of inflation on monetary policy, the changing dynamics of portfolio construction, the shifting climate in holding duration for the sake of hedging portfolios, and the critical importance of using active management in fixed income. Our conversation also touches lightheartedly on the challenges faced by different generations in the current economic environment.

In this conversation, Doomberg (https://doomberg.substack.com/) joins Pierre and Mike to discuss various topics including Bitcoin, the parallel between Michael Saylor and Hugo Stinnes, speculative mania, the parallels in the borrowing strategy of Hugo Stinnes and Michael Saylor, pumpamentals driving distortions in the market and the flywheel effect, the geopolitical implications of the Russia-Ukraine conflict, the dangers of do-gooders and climate newspeak, and the natural gas situation and its unexpected impact on the economy.

This is one of the trickiest times in investing history marked by heightened uncertainty, distorted valuations, regime change and increased volatility in both equity and bond markets. For good reason, advisors have increasingly turned to shifting parts of the portfolios they manage away from traditional equity and bond assets in return for exposure to structured note and investment strategies that provide structured investing outcomes from those same asset categories.

In this conversation with Bill Bamber, CFA, Chief Executive Officer at BMO Global Asset Management, we are treated to a behind-the-scenes look at how and why BMO GAM developed and launched its innovative Strategic Equity Yield Fund (SEYF) solution (in June 2023). What was the thinking behind innovating this?

Investors face unforeseen risks, eroded correlations, as well as unprecedented decision-making challenges due to the proliferation of choices of individual structured products in the marketplace. SEYF is an elegant, actively managed, one-ticket solution for investors, the likes of which were once only available to large institutional investors, via the capital markets desk.

We discuss the rationale and strategic thinking behind BMO GAM launching this type of actively managed capital markets-based solution for accessing the best ideas and best strategies in the structured note market, in the form of a mutual fund. Now accessible to all investors, this is a milestone unto itself, to solve what have become some quintessential problems for investors desiring structured outcome solutions for their portfolio, in an always-on, always available format.

Bill Bamber, CFA, brings 3 decades worth of expertise in the capital markets space to BMO GAM. As CEO, he is leading this drive to bring wide investor accessibility to structured capital markets investing strategies for everyday investors. This solution provides the enhanced yield plus capital appreciation potential and liquidity investors are seeking, along with the sophistication of stability, structured downside protection and price-seeking power, owing to the economies of scale of the firm’s substantial global trading operations.

Thank you for listening!

About Bill Bamber, CFA
Chief Executive Officer
BMO Global Asset Management

Bill Bamber joined BMO Wealth Management in April 2022 as Head of Synthetic Asset Management and is currently the CEO of BMO Global Asset Management. Bill has more than 30 years of experience in the Financial Services Industry, including extensive experience in International Capital Markets, most notably in exotic derivatives spanning all asset classes as well as global structuring and structured products.

Prior to joining BMO, Bill oversaw Structured Products and Quantitative Investment Strategy businesses globally and led many ground-breaking initiatives and innovative indices. He has held senior positions at International and North American financial institutions including a focus on equity derivative structuring in the Americas.

Bill is well-known as an innovator in the investment industry with an outstanding track record for product firsts around the world. This includes pioneering the world’s first Emerging Market ETF (STX40 SJ Equity) and creating the first MLP-linked security both inside (AMJ US Equity) and outside of the U.S. He was also the first to create a listed trading platform for zero-coupon South African gilts.

Bill is a Chartered Financial Analyst (CFA) and holds both a Master of Management Analytics and a Master of Business Administration from Queen’s University.

This episode with guest Mario Cianfarani, Head of Distribution at Vanguard Canada kicks off delving into 2024's First Challenge: Bond yields and the importance of re-positioning cash for the long term given the likelihood of central banks shifting towards rate cuts in 2024.

- It’s time to consider how to put money back to work, to shift from a defensive market stance to a more opportunistic investment approach, and its implications on advising with regard to 60/40 portfolios and bonds. We discuss the challenge posed by having funds on standby in short-term instruments and cash equivalents, and emphasize sticking to or revisiting long-term investment strategy despite today’s uncertainty and market fluctuations.

- Challenge Two: We discuss the importance and challenge of investors being able to stick to their predetermined plans emphasizing the value of guidance provided by advisors. Do they have plans THEY can stick to? How can you properly get them to that state? The nature of markets has always required the necessity of portfolio diversification, and HOW you diversify is even more important, now, as is the ability to adhere to long-term investment strategies. Mario makes the point that advisors should communicate their value by widening the scope of their client discussions. That goes far beyond selecting stocks or managing portfolios, demonstrating their role, in financial planning, behavioural coaching, estate and tax planning. It’s very important to consider context when making investment decisions and utilizing viewpoints and data, for managing portfolios.

Pierre highlights the considerable value-add of tapping in to (such as) Vanguard’s deep experience and resources to enhance portfolio construction and bolster investor trust in the quality of the source of guidance, in the context of the reintroduction of interest rates, i.e. the impact and gravity of that. Our discussion sheds light on how the zero interest rate environment has influenced now distorted valuation models and investment strategies, highlighting a return to investing principles in response to effects of higher interest rates.

The conversation touches on the increasing professionalization and personalization in wealth management, Mario references Vanguard's seminal research into Advisors Alpha and the significance investors attach to services.

Challenge Three: The conversation wraps up by discussing the impact of wealth transfer on succession planning for advisors suggesting it's high time to consider the notion of promoting a multi-generational approach, to managing family wealth, OR face the high risk being traded out, replaced, as their key advisor at succession. How can you strategically begin to approach this problem?

Thank you for watching and listening!

Ilan Kolet, Institutional Portfolio manager in Fidelity's Global Asset Allocation Team, joins us to discuss the most important questions he and his team mates, David Wolf and David Tulk have been fielding at the start of 2024. We delve into the unexpected shifts in monetary policy led by the Federal Reserve and mull over the repercussions of potential rate cuts on inflation volatility, weaving through the intricacies of the Fed's data-driven stance and 'pivot' toward a less restrictive monetary environment.

In the context of historical reflections and economic projections, Kolet elaborates on the team’s optimism regarding the US market, supported by a belief in a productivity boom that dallies with the possibility of economic prosperity, low inflation, and equity strength. We get into Canadian fiscal policy, where Kolet voices concerns about Canada's macroeconomy potentially trailing in equities and fixed income, and how the team is allocating to Canada. Kolet sheds light on the team’s investment strategy, from high-conviction underweights and overweights to the complexities and nuances of handling asset allocation.

Throughout the episode, it's clear that the core of the discussion isn't merely the transactional aspects of investment but relates to the broader challenges advisors face when reconciling market complexities with client needs. The episode provides Fidelity's highest conviction global asset allocation guidance through the labyrinth of 2024's financial mixed and uncertain landscape.

John De Goey, Portfolio Manager and Investment Advisor at Designed Wealth Management joins us to discuss and explore the current investment landscape and the choices available to investors. He highlights the importance of managing risk and staying on the short end of the yield curve, for time being where fixed income is concerned. We also delve into the topics of optimism and pessimism, with a focus on the potential challenges and uncertainties in the market. We talk about the shifts in real estate markets, particularly the shift happening that's favouring the US Sun Belt, and the potential impact of climate change on investments. De Goey urges investors to be prepared and take proactive measures to balance risk in their portfolios. He also cautions against unrealistic expectations for future returns. Is your portfolio equipped to handle unknown variables and tail risks?

Our chat wraps up with a nudge to uphold a diverse and balanced portfolio, mindful of the effects of surging interest rates. Remember, Balanced Asset Allocation and Balanced Funds are not the same - risk management is key. Unlike a traditional 60/40 'balanced fund', a balanced asset allocation approach ensures apt risk distribution.

We explore the perils of unchecked optimism in the finance sector and how to construct a resilient, well-equipped portfolio. We ponder the withdrawal effects of quantitative easing and the necessity to confront market realities. We also investigate the financial industry's positivity bias and the knock-on effects of negativity.

De Goey's "dumbest thing he's heard" takes a jab at data manipulation to bolster a narrative. We delve into the need to anticipate potential pitfalls and the importance of diversification as a safety net. Our dialogue concludes with a conversation about managing expectations, loss aversion, and the task of keeping clients invested for the long haul. Certainly, plenty to contemplate.
Takeaways

Stay on the short end of the yield curve for now, and manage risk in the current market.
Be cautious of excessive optimism and be prepared for potential challenges and uncertainties.
Consider investments in real estate, traditional inflation hedges, and diversified portfolios.
Recognize the changing investment landscape and adjust expectations for future returns. Blind optimism in the financial industry can be dangerous, as it can lead to a lack of preparedness for potential risks.
Quantitative easing has created withdrawal symptoms in the market, and it is important to face the reality of the current situation.
The financial services industry has a commercial imperative to be optimistic, but it is crucial to consider both the positive and negative aspects of investing.
Cherry-picking data to support a narrative is not a reliable approach, and it is important to consider the full picture.
Proper diversification is like insurance for a portfolio, and it is essential to mitigate potential harm.
Expectations management, loss aversion, and maintaining perspective are key in keeping clients invested for the long term.

Timestamped Highlights:

[00:00] Introduction

[01:01] Investment Choices in the Current Market

[03:31] Optimism and Pessimism

[06:07] Shifts in Real Estate Markets

[06:56] The Sun Belt and Financial Centers

[08:20] Concerns and Pessimism

[10:32] Preparing for Uncertain Times

[16:06] Lowering Expectations for the Future

[21:12] Balancing Climate Obligations and Economic Growth

[26:04] Preparing for a Lower Standard of Living

[31:05] The Danger of Optimism Bias

[35:47] The Importance of Being Prepared

[41:49] Diversification and Balance in Portfolios

[46:16] The Impact of Rising Rates

[48:40] The Danger of Blind Optimism

[49:14] The Withdrawal Symptoms of Quantitative Easing

[50:20] The Commercial Imperative of Optimism in the Financial Services Industry

[51:18] The Cascading Effect of Pessimism in the Market

[52:16] The Dumbest Thing Heard: Cherry-Picking Data to Suppo