Tips for a recession-ready portfolio

For investors taking advantage of the prolonged global expansion and subsequent positive equity market, Fiera Capital says there’s plenty of life left in the party—for now.

In its latest outlook report, Fiera Capital expects the global economy to continue to grow this year and next.

As the business cycle ends, however, capacity constraints will likely push inflation over 2%. In response, the firm expects central banks to take “a timid approach” to rate hikes, what with the financial crisis still being a fresh memory. Fiera says this will be a period characterized by “low albeit still positive returns for equities, losses for bonds, increased volatility and rising commodity prices.”

The firm forecasts a recession in late 2020 or early 2021 as inflation fears mount, rates continue to increase and credit conditions deteroriate.

Read:

Recession a possibility by end of 2020: U.S. biz economists

Rising rates and dividend-paying stocks

After reaching a plateau for overnight rates (4.5% in the U.S., forecasts Fiera), central banks will then rapidly cut interest rates to boost credit.

This period will be characterized “by plummeting equity values, positive returns for bonds, high volatility and lower commodity prices,” says the report. “The recession is relatively mild, interest rates remain positive and asset purchases are not part of the monetary policy toolkit.”

The subsequent recovery will be characterized by a rallying stock market that reaches new highs and by recovering interest rates at levels closer to historical norms.

In a release, François Bourdon, Fiera’s global CIO, notes the importance of non-traditional investing strategies as investors prepare their portfolios for what’s ahead.

“At present, traditional strategies including fixed income and equities generally do not rate too highly,” he said in the release. “We think that asset classes such as infrastructure, agriculture and hedge funds, however, are looking more interesting. We believe a greater focus on these assets will position portfolios more favorably for the future.”

For full details, including forecasted returns for various asset classes, the firm’s formula to calculate an asset’s attractiveness and key economic drivers over the next seven years, see the full Fiera outlook report.

Also read:

Tilting away from cyclicals: Are we there yet?

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.