Why there are no good places to invest

Boston-based Jurrien Timmer, director of global macro at Fidelity Management & Research Co., made this statement at the Toronto Morningstar Investment Conference.

“If you’re in cash, your purchasing power erodes—at least in the U.S.,” he says. “If buy bonds, you’re losing the battle against inflation; high yield is risky and stocks are subject to deleveraging waves.”

Timmer, who maintains a long-term bullish outlook, says despite a poor yield environment, some pockets of the market can generate income.

“One is emerging-market debt, at least the external U.S.-dollar-based debt,” he says. “It’s a much-diversified pool, which includes solid investment-grade countries.”

These countries are generally receiving credit ratings upgrades, while the developed world keeps getting downgraded. This afternoon, Spanish banks were downgraded, adding to worries over the effectiveness of the country’s planned bailout.

Another strong area is floating-rate bank loans with yields of 3%, compared to zero in cash. Apart from these two, however, there aren’t many assets that offer risk-adjusted returns, says Timmer.

Home bias further limits options
The Canadian market lacks the same level of diversity, quality of issuers and liquidity as the U.S.

We simply don’t have many international brands, says Eric Bushell, chief investment officer of the signature global advisors division of CI Investments Inc.

“You’d be shocked at the number of [Canadian companies] that have been taken over by global multinationals as a result of ongoing mergers and acquisitions over the past few years,” he says.

As a result, our asset management industry—both on the institutional and retail side—is beginning to question the TSX benchmark as a sound reference base. And while the competitive strength of the country’s corporations keep getting diluted, their U.S. counterparts continue to bounce back from the 2008 crash.

The financial crisis gave U.S. corporates the single greatest opportunity to restructure and boost their competitiveness and profitability, says Bushell.

“The U.S. has pushed a massive competitiveness reset button,” he says. “This represents a major threat to central Canada; we’ve got a stronger dollar, we haven’t restructured, and our wage rates haven’t had a similar adjustment.”

Global economic shifts have also amplified Canada’s need to improve its competitiveness.

“Every time things get worse in Europe, commodity prices come down, [which is] enormously relevant to the Canadian stock market,” says Eric Lascelles, chief economist, RBC Global Asset Management.

He adds, “You can’t pretend that Canada’s unaffected; the endgame for our market will depend on whether or not the Eurozone breaks up and big banks fail.”

To complicate matters, Europe is nowhere near a resolution and money is flowing into perceived safe assets, like U.S. Treasuries, often at the expense of equities. Also, a hard landing in China would greatly affect Canada, a major commodities trade partner.