Tactical investing can provide opportunities and help you avoid “blind spots” in an uncertain environment, explained Sadiq Adatia, chief investment officer of Sun Life Global Investments, at a recent lunch presentation.
Looking at factors such as economic indicators, market confidence, volatility and foreign exchange rate movements, among others, Adatia said institutional investors should take on risk “when there’s a lot of risk aversion in the markets,” since a passive approach during such times could mean a missed opportunity.
Bearish on Canada
In Canada, interest rates will go up—but not in 2015, said Adatia. “The Canadian economy just doesn’t have the strength for a rate hike.”
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He’s bearish on Canada because of headwinds such as fluctuating unemployment numbers—which are making investors nervous—and housing inventory. Nova Scotia, Quebec and New Brunswick have a housing oversupply; British Columbia and Ontario “have a valuation problem but not necessarily a supply problem,” Adatia explained.
On average, 30% to 35% of your gross income should go toward your mortgage, he said. In B.C., that figure is currently 83%. “If we do see a housing meltdown, it’s going to generally be across the board,” Adatia added.
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He also cited high consumer debt levels as a concern, noting that Canada is the second most indebted country in the developed world.
Bullish on U.S.; undecided on eurozone
The outlook’s a bit brighter in the U.S. While skittish investor behaviour may continue to affect markets, the U.S. is showing continued job growth, and consumer net worth is almost back to 2008 levels. “If the consumer has strength, the economy has an opportunity to add growth,” said Adatia.
He’s neither bullish nor bearish on the eurozone because growth in this region is stalled. His biggest concerns are Germany—which he called the “powerhouse” of the eurozone—Italy and Greece.
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The eurozone is still showing high unemployment, at about 11.5%. And, as in Canada, consumers still have high debt levels. “A lot of debt means they can’t spend on the economy without fiscal stimulus,” Adatia explained.
Adatia believes a tactical approach can help investors get ahead of volatility, take advantage of opportunities and remove risk at the right times. While he expects November and December to be positive for equities, “this is still a stock-picking and bond-picking environment,” he added.