When markets give you volatility, invest

Long held back by scary headlines, Canadian investors are now starting to realize that volatility and opportunity are two sides of the same coin.

Almost half (47%) of Canadians now see the volatility that’s plagued global markets over the past year as a signal to invest, says a BMO Financial Group survey.

Read: The difference between volatility and risk

The study found that while 28% of investors see the current investing climate in a negative light, the vast majority (84%) have altered their investing habits to adapt to the new, changing environment.

Read: Informed investors create better markets

And Canadians are right to assume that market volatility is here to stay, said Rajiv Silgardo, Co-CEO of BMO Global Asset Management, at a luncheon at the Art Gallery of Ontario, in downtown Toronto.

He was one of three money managers who shared their outlook for the global economy and investing opportunities, at a media roundtable held on the sidelines of the BMO-sponsored Picasso exhibition.

“Several factors lead us to conclude that volatility will continue to characterize the financial markets for the foreseeable future,” he said. “These include ongoing pressures in the Eurozone, higher inflation rates in China, tensions in the Middle East and a tentative U.S. economic recovery.”

Read: Market panic leads to opportunity

As more investors come around to the view that unstable markets are the new norm, BMO’s asset managers say the need for portfolio diversification in the investment process is steadily increasing.

“During times of market volatility, it’s critical that investors maintain a well-diversified portfolio, which balances risk and return,” said Stephane Rochon, vice-president and managing director, BMO Nesbitt Burns.

Rochon asserts there’s a great need for Canadian investors to overcome home bias and look for opportunities in equity markets south of the border.

Read: Uncertainty bolsters home bias

“We definitely like the U.S. market. To date, in Canadian dollars, the US market has beaten the TSX by 20 to 200 basis points in 2012,” he said. “We don’t expect that kind of performance to continue long term, but Canadian investors need increased exposure to the U.S. market. It offers depth and investment opportunities not present in the Canadian market.”

His U.S. stock picks are highly visible blue chip companies such as Pepsi, Microsoft and Apple. And, while he recommends investors keep a healthy cash cushion, Rochon favours investment-grade and high-yield corporate bonds in the fixed-income landscape.

“We’re not saying they’ll necessarily provide great returns, but on an after-inflation basis, they might generate positive returns on a three-to-five year horizon,” he said.

In an environment of low growth and high political risks, sector selection assumes greater importance, says Paul Taylor, CIO, BMO Harris Private Banking and BMO Global Asset Management.

“The current market conditions should prompt investors to take a look at specific sectors for their strong-yield and defensive total return characteristics,” he said. “These include consumer staples, telecom, utilities and health care.”

Admitting that money management is increasingly difficult in the current environment, Taylor says equities, although not great, are “the best horse in the glue factory” and offer some interesting opportunities if your clients are willing to take part in both “defensive” and somewhat “recession proof” sectors.

Read: May: worst month of 2012 for global equities