Canadian Quarterly Investment Outlook - January 2020

The article above is Aon's latest quarterly investment outlook for Canadian markets in January 2020. Download the article above to learn more.

Summary

The strength in both risky and safe asset prices last year reflected a large easing in monetary conditions as central banks cut interest rates sharply and grew balance sheets once again. The Bank of Canada was an outlier but may join the monetary easing party soon.
Fears for the global economy have eased, Coronavirus notwithstanding, but we should keep perspective. Trade uncertainty remains and the limited interest rate cuts that were possible spell only a modest economic rebound.
The ‘lower for very much longer’ interest rate environment looks to be more deeply embedded than ever.
Credit spreads are again on the wrong side of our fair values. With yields on corporate bonds now low, the margin for comfort on returns is thin. We suggest some coping strategies.
The secret sauce of the bull market, record high profit margins in the U.S., is not going to be as supportive of markets looking ahead.
Central bank actions have brought a respite for markets but it is still just a matter of time before unsettled conditions return. Portfolio actions need to remain focused on higher market risk and lower returns that will likely follow this period of strength.

^{1 Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect fees or expenses. Please see appendix for index definitions. Past performance is no guarantee of future results}

^{Market data source Factset}

^{The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.}

^{Legal Disclosures and Disclaimers}

^{This document has been produced by Aon Hewitt’s Global Asset Allocation Team, a division of Aon plc and is appropriate solely for institutional investors. Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. Consultants will be pleased to answer questions on its contents but cannot give individual financial advice. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances. The information and opinions contained herein is given as of the date hereof and does not purport to give information as of any other date and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto. The information contained herein is derived from proprietary and non-proprietary sources deemed by Aon Hewitt to be reliable and are not necessarily all inclusive. Aon Hewitt does not guarantee the accuracy or completeness of this information and cannot be held accountable for inaccurate data provided by third parties. Reliance upon information in this material is at the sole discretion of the reader.}

^{This document does not constitute an offer of securities or solicitation of any kind and may not be treated as such, i) in any jurisdiction where such an offer or solicitation is against the law; ii) to anyone to whom it is unlawful to make such an offer or solicitation; or iii) if the person making the offer or solicitation is not qualified to do so. If you are unsure as to whether the investment products and services described within this document are suitable for you, we strongly recommend that you seek professional advice from a financial adviser registered in the jurisdiction in which you reside. We have not considered the suitability and/or appropriateness of any investment you may wish to make with us. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction, including the one in which you reside.}

^{Aon Hewitt Limited is authorized and regulated by the Financial Conduct Authority. Registered in England & Wales No. 4396810. When distributed in the US, Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a registered investment adviser with the Securities and Exchange Commission (“SEC”). AHIC is a wholly owned, indirect subsidiary of Aon plc. In Canada, Aon Hewitt Inc. and Aon Hewitt Investment Management Inc. (“AHIM”) are indirect subsidiaries of Aon plc, a public company trading on the NYSE. Investment advice to Canadian investors is provided through AHIM, a portfolio manager, investment fund manager and exempt market dealer registered under applicable Canadian securities laws. Regional distribution and contact information is provided below. Contact your local Aon representative for contact information relevant to your local country if not included below.}

^{About Aon Global Asset Allocation}

^{Where are we in the economic cycle? What is the relative value of different asset classes? How are technical factors, such as regulation, impacting prices? Aon’s Global Asset Allocation team continually asks and answers questions like these. We use our findings to help clients make timely decisions about asset allocation in their schemes’ portfolios.}

^{With over 160 years of combined experience, the team is one of the strongest in UK investment consultancy today.}

^{Our experts analyse market movements and economic conditions around the world, setting risk and return expectations for global capital markets.}

^{The team use those expectations to help our clients set and, when it’s right to do so, revise their long-term investment policies.}

^{We believe that the medium-term (1–3 years) has been under exploited as a source of investment performance. Maintaining medium-term views that complement our long-term expectations, we help our clients to determine when to make changes to their investment strategy.}

^{About Aon}

^{Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.}

^{For further information on our capabilities and to learn how we empower results for clients, please visit http://aon.mediaroom.com.}

^{This document and any enclosures or attachments are prepared on the understanding that it is solely for the benefit of the addressee(s). Unless we provide express prior written consent, no part of this document should be reproduced, distributed or communicated to anyone else and, in providing this document, we do not accept or assume any responsibility for any other purpose or to anyone other than the addressee(s) of this document.}

^{Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a rating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation’s systems and controls or operations.}

^{This document and any due diligence conducted is based upon information available to us at the date of this document and takes no account of subsequent developments. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything.}

^{Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we can not research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard.}

^{Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of data and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events. Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales. Registered No: 4396810. Registered Office: The Aon Centre The Leadenhall Building 122 Leadenhall Street London EC3V 4AN}