2024 Market Update Webinar

Hosted by Angela Maitland, Investment Solutions Executive in Sun Life Canada’s Group Retirement Services, the webinar featured the following investment managers:

• Tiffany Wilding, Managing Director, North American Economist, PIMCO
• Ashwin Gopwani, Managing Director, Head of Retirement Solutions, North America, SLC Management
• Jafer Naqvi, Vice President & Director, Lead of Institutional Asset Allocation Team, TD Asset Management

Highlights

Hard vs. Soft vs. No Landing 

The possibility of different economic scenarios, including hard, soft, or no landing, was a focal point of discussions. A year ago, expectations leaned towards a hard landing - or recession - being the most likely outcome. That recession never came, despite less growth in Canada compared to the robust US market. In fact, GDP per-capita fell in Canada in 2023, with only immigration led population increases tipping growth into positive territory. 

The balance of market opinions suggests that a soft landing scenario is more likely this year, with expectations of gradual interest cuts from both the Bank of Canada and US Federal Reserve. The market is currently pricing in the first cuts to begin in Canada by the middle of this year. 

No landing refers to the possibility of high inflation remerging, placing central banks in the uncomfortable position of maintaining or increasing already high interest rates. While this is deemed a less likely scenario, it must nonetheless be considered a tail-risk.

Diversification

Diversification- between and across asset classes and geographies- was an oft repeated theme of the session. The balance of data suggests that a diversified approach could lead to better weathering of market volatility.

Navigating Market Volatility 

Technological advancements and their transformative potential have dominated the discourse of equities markets in the last year. Much of the US market returns came from The Magnificent Seven, the most influential tech firms: Nvidia, Meta (Facebook), Amazon, Microsoft, Alphabet(Google), Apple and Tesla. These stocks make up about 30% of the S&P 500’s total weighting, although they make up just 1.6% of the stocks in the index.

Active managers have faced challenges in recent years, struggling to keep up with benchmarks and the dominant tech giants. The key takeaway was the importance of balance across market outcomes to avoid being caught offside by rapid changes.

Real Assets

Real Assets are tangible assets that are fundamentally connected to the real economy, serving essential functions such as housing, workplaces, retail spaces and infrastructure. They include assets like real estate, roads, airports, and renewable energy grids. Real assets are an important component in diversified investment strategies for group plans, as they provide a hedge against inflation. With the inclusion of real assets in Target Date funds, plan members gain exposure to this class of investments. 

Member Market Reactions 

Despite market conditions, member withdrawal transactions remained low, indicating a preference for professional management and well-diversified portfolios. Sun Life data suggests a link between target date fund utilization and superior member outcomes over longer horizons. 

Eclipsing Market Complexity 

Inspired by the impending solar eclipse, the complexity of the market was compared to a three-body system in astronomy, where the introduction of a third body leads to chaotic modeling. The analogy shows the difficulty in determining the future course of market outcomes, emphasizing the unpredictability of the current economic environment.