While the coronavirus pandemic is in the world’s rearview mirror, institutional investors are continuing to navigate a post-recovery period rife with uncertainty.
Indeed, five years after the World Health Organization declared the pandemic on March 11, 2020, world markets are contending with a host of new challenges, including a raging Russia-Ukraine war, a budding tariff war with the U.S. and waning consumer confidence.
Over the last few years, global markets have been in a steady recovery period, with inflation ticking down (albeit slowly) and interest rates declining. But a second Donald J. Trump presidency has suddenly thrust the market back into a period of upheaval.
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“The magnitude of looming 25 per cent tariffs with the possibility of reciprocal action from Canada can’t be understated,” says Benjamin Jang, portfolio manager at Nicola Wealth Management.
He says much of the uncertainty echoes those that resulted from the pandemic, such as supply chain issues, inflation and high interest rates. Institutional investors can look to the same defense mechanisms to help them weather the current storm.
“The plumbing [behind] the financial system was being questioned [during the pandemic] and that was the largest concern. Once people realized that [wasn’t the case], we saw an almost immediate recovery. I think longer term, it highlights the necessity to have proper strategic allocations across the board. For Canadian institutional investors, that means not falling into an approach of home bias.”
He says a key lesson learned from the pandemic is the importance of diversification, both geographically and among asset classes, ensuring exposure in both public and private sectors, including in real estate.
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Jang adds that in order for investors to be nimble when market shocks occur, they need to build flexibility into their investment mandates, without being too constrained. For instance, office real estate suffered during the pandemic, industrial was less impacted, so investors shouldn’t paint the whole sector with the same brush.
He says multi-family residential housing is an attractive area for institutional investors looking to ride out the upheaval long term, as well as some forms of retail and industrial. “Industrial has this risk in terms of . . . [potential] trade wars upcoming, but those look to be fundamentally well supported.”
Jang notes the future of the office sector is still largely up in the air, but a select part has potential. “While there’s . . . continued headwinds in the office space, overall, on the commercial real estate side, I think the narrative has changed. . . . People haven’t found their footing in terms of market pricing yet, and that’s leading to this holding pattern and kind of lower transactional volume. But in this type of environment, I think that’s healthy and it provides the opportunity to acquire new assets at attractive prices.”
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