For Canadian investors, 2017 has provided plenty of potential worries, with an erratic U.S. president given to Twitter eruptions being arguably the largest.
The real danger for investors is that it can freeze them into immobility or prompt them to overreact to short-term, transient events.
Despite the unpredictability of the Trump White House, investors need to put emotions aside and focus on the fundamentals, says Sadiq Adatia, Chief Investment Officer and Portfolio Manager with Sun Life Global Investments in Toronto. “You still have to look at the U.S. as a whole and ask, `Is it in good shape?’ and the answer is yes.”
Canada still well positioned
President Trump seems to have the backing of a Republican Congress that is expected to support the “business-friendly” agenda on which he campaigned. “He should be able to put through some of the things that should stimulate the U.S. economy, whether it is tax cuts or additional infrastructure spending,” says Adatia. “They should happen, though maybe not to the extent he wants or as quickly as he wants them to happen.”
The Trump pro-growth economic policies should provide a boost to the world’s largest economy, Adatia says, and provide a leg up for the Canadian economy.
“It means that Canadian exports will probably increase,” he adds. “As long as the protectionist threats Trump has made against Canada don’t materialize in a meaningful way.”
Given the dependence on commodities such as energy and metals in the Canadian economy, the general upswing of commodity prices in 2016 and into this year has to be looked at as a positive for markets.
The energy sector, particularly crude oil producers, has benefitted from measures by OPEC and other international energy powers to trim supply, notes Adatia. “OPEC and non-OPEC members have both agreed to cut production and we do foresee that to continue,” with world demand expected to rise faster than supply.
The wild card will be U.S. production, as independent producers in the U.S. shale oil regions tend to increase production as crude prices rise and idle drilling operations when prices fall.
Overall, production cuts by major international energy powers are expected to more than offset any increase by opportunistic U.S. drillers, he adds.
Canada’s energy sector might also receive a boost from a Republican government that is viewed as more pro-energy and pro-pipeline than the prior Obama administration, with Alberta’s landlocked oil sands poised to be the biggest beneficiary.
Given Canada’s status as a major gold producer, the unpredictable investment climate of 2017 is also expected to be a boon, given gold’s status as a prized hedge against inflation, currency movements and stock market uncertainty.
“Definitely gold is a great protection if Trump can’t get things done,” says Adatia. “The expectation is for all these things to happen and if it does not happen, then you get the potential upward movement of gold prices.” Bullion prices received a boost recently when President Trump “talked down” the U.S. dollar, stating that it is likely overvalued compared with other leading world currencies.
“Gold has had a great run up already, so there may not be as much room going forward, but I still think it is a good thing to hold onto for protection in case things don’t turn out as expected from a Trump administration,” Adatia says.
Avoid news overload
Gail Bebee, a Toronto-based investing teacher and author, suggests another option for investors who may not want to stay glued to the 24-hour news cycle. While some will wish to stay current with the latest developments that could affect their portfolios and retirement planning, most will not. And that is not necessarily a bad thing, she says.
“Get on with your life and don’t obsess over that kind of stuff,” says the author of No Hype: The Straight Goods on Investing Your Money.
For most people, a well-thought-out investment strategy with a fairly long time horizon should mean that what happens over the next few months or years will not greatly affect their retirement goals when it comes to mutual funds or other investments. The exception is those Canadians who are expecting to retire relatively soon. “If you are going to need the money in a couple of years I think you might want to pay more attention,” says Bebee.
For those with a retirement and investment horizon more than 5 years off, a steady approach should pay dividends, she advises.
“If you don’t have a plan and you have not figured out your risk tolerance, then you need to figure it out. But if you have done your homework and have an investing plan and are on track, I would not do anything.
“That is the one thing I have learned over time. People tend to overtrade and overthink and they do too much of that.”