PARTICIPANTS
Mark Brisley
Managing Director
Myles Zyblock
Chief Investment Strategist
PRESENTATION
Mark Brisley:
Hello, and welcome to On the Money with Dynamic Funds. I’m Mark Brisley, Managing Director of Dynamic, and joining me for today’s conversation is our Chief Investment Strategist, Myles Zyblock.
Our aim with today’s call is to provide access and insights into the investment management process and capabilities here at Dynamic Funds.
Myles joined Dynamic back in 2013, as our Chief Investment Strategist, working closely with the Dynamic Funds Portfolio Management Team. His experience spans across multiple asset classes and geographic regions. He’s a recognized strategist in North America, regarded for his investment insights that blend the tools of finance and psychology in order to capture major inflection points in financial markets. He has been guiding and advising on asset allocation for a diverse set of institutional and retail advisors across North America, Europe and Asia for over 20 years.
Myles, it’s great to have you with us today, and thanks for joining.
Myles Zyblock: Hey, it’s great to be here, Mark, and thanks for having me on On the Money series. I enjoy my time on this series.
Mark Brisley: Terrific. I’m going to jump right in with, obviously, you know, where we are in the world today and the unprecedented nature of the experience we’re all going through and ask you if you can provide us with where markets and the global economy are today, and your views on how policymakers have responded.
Myles Zyblock: Yes. You know, the spread of the coronavirus, that began in late 2019, it led to a subsequent and, I’d say, a very dramatic shutdown by March of this year of all but the most essential activities. Governments, they sent kids home from school, businesses were closed, and mobility was restricted. This generated massive, massive headwinds for corporate and consumer income, which then led to what was really the most volatile start to the year for financial markets in our lifetimes, really, comparable only to the turbulence seen during the 1930s Great Depression.
From mid-February through to March’s end, there were really very few places for an investor to seek shelter. I mean, stocks, corporate bonds and commodities, they were all tumbling in value. The stock market, itself, was down over that short period by about 35 percent. Government bonds and gold bullion, they held up okay, but that was about it.
Then, the reversal started, which started on March—it was March 23—was nearly as dramatic as the previous decline. Investors were encouraged by the flood of stimulus which was injected into the system by global policymakers, trillions upon trillions, really, of dollars, of supplementary income, tax relief, and lending backstops, they were herded into place, and this was joined by an equally aggressive interest rate reduction program, asset purchase programs, and the installation of liquidity facilities by so many central banks.
With so much policy stimulus entering the system, investors began to price out a worse-case economic scenario, asset prices of all shapes and colours started to rally, and it wasn’t too long thereafter that case load growth in some of the harder hit countries began to moderate. Italy, Spain, Germany, they joined a growing list of nations which appeared to be flattening the curve. This encouraged governments to reduce social distancing restrictions, thereby fostering increased mobility.
By mid-April, the data provided by several high frequency providers, like Apple and Google and OpenTable, they suggested that the worst for the global economy was now starting to appear in the rear-view mirror, and these positive data points encouraged investors to place even more money to work in growth-sensitive areas of the financial markets. Admittedly, the economies are still in very rough shape, but they are beginning to look a little better.
Mark Brisley: Myles, with that data and your view of how things have unfolded, what are the biggest risks and opportunities as we look here within the Canadian economy?
Myles Zyblock: Well, you know, Canada, it hasn’t been—the country hasn’t been immune to the transmission of the virus. Like we’ve seen everywhere else, the labour market, corporate profits, and the financial markets themselves, have been under immense pressure as a result of the shutdown in both the domestic and international economies.
The Canadian policymakers, they’ve approached this situation, I’d say in much the same way that we’re seeing everywhere else. The central bank’s been active in reducing interest rates and helping to ensure that financial markets continue to function reasonably well under stress. The government has offered billions of dollars in stimulus in order to bridge the gap, and they’ve focused a lot of their attention, the Government of Canada, on tools to help job retention, like emergency wage subsidies. All of this is important and necessary, but what it really boils down to for Canada is getting this virus under control and allowing both the domestic and international economies to reopen, and that is starting, but it’s still very early days.
Mark Brisley: What are some of the signs that an investor should be looking out for right now, as signs of improving markets and economies?
Myles Zyblock: Well, you know, I think it’s a mistake at this stage to conclude that the all-clear signal has been sounded, even though markets are doing well. I think there’s a window of time, that’s now opening up, where investors will look to the daily viral case load growth with some apprehension, you know, can we open our economies without igniting a renewed wave of contagion.
Placing large swaths of the global economy back into lockdown, I think would lead to a lot of concerns about an even larger cycle of lost income, loan delinquencies, and consumer and business insolvencies. I think it would place the economy, which is barely crawling out from the deepest, deepest depths of a monster-sized recession, on an even darker path.
But, you know, of course, there’s so many research scientists and healthcare professionals around the world working on this problem, so there’s a real possibility of a sooner than anticipated medical breakthrough. So, I still think much is up in the air.
Mark Brisley: Yes, and, you know, while all this is going on, people are still trying to save, invest and plan for the future, raising all kinds of questions around building portfolios and continuing to stay invested. What are some things for our listeners to remember when considering portfolio positioning in these kind of times?
Myles Zyblock: You mentioned, or alluded to uncertainty, and uncertainty is, admittedly, very high today, but it’s always been that way. What do we think the investment conversations were like, you know, throughout the 1918 pandemic, or World War I, or the 1930s, or the oil crisis in the ‘70s, or the Cold War, or even 9/11? I don’t think they were all that much different than today. Sure, they’re about different topics, but the world was most likely shrouded in as many unanswerable questions as there are today, and I think it’s actually impossible to predict with certainty what today’s challenges or opportunities mean for stocks, bonds and other assets. It’s precisely because of this appreciation about an uncertain future which makes portfolio diversification so important. Uncorrelated sources of performance, risk mitigation and volatility dampening, these are the tools necessary to navigate an uncertain future path. That’s been the way it was through time and it’s the way it’s likely to be going forward.
Mark Brisley: Hearing those comments, it’s obvious that no matter what happens in the world opportunities continue to emerge, risks continue to be present, investors trying to stay the course or wondering which direction to take. There’s all kinds of variables to think about and this just adds another one, but what are some of the things that investors may not have considered up till now, but should be?
Myles Zyblock: I’ve been in the investment business for well over 20 years, and through that I’ve noticed that the biggest mistakes investors make is forgetting about, or even abandoning, their long-term investment plans, to effectively scrap them just as markets get volatile.
For example, investors might sell the majority of their stocks and move that money into cash, but people don’t consider the risks that this subsequent change introduces. Now you’ve opened yourself up to the risk that inflation erodes your purchasing power, or at near zero percent interest rates you run the risk of not having enough capital to fund those goals you have that might be 10 to 15 years down the road, and do you even have a plan that will get you back into the market, is it reliable?
We made our investment plans during calmer times, knowing full well that financial markets have been very volatile in the past and are likely to be very volatile at some point in the future. Those are when we made our plans. It’s critical that we stick to our long-term plans.
I think that people might not fully appreciate the role that alternative assets can play in those diversification plans. These assets lie outside of the domain of traditional stocks and bonds. They can include things like real estate, infrastructure, precious metals, or they can be—you know, take the form of a strategy, like an absolute return strategy, that can go long and short various assets.
Part of the reason, I think, that these have been ignored is because we, in the retail community at least, didn’t have very easy access to them, but now we do, with the regulatory changes that took place in Canada, I guess it was about a year-and-a-half ago. They go by the name of liquid alternative investments. Now, like I said, we can gain much easier access to these liquid alternatives.
Pension funds, endowment funds and other large sorts of institutional investors have been involved in these alternative assets for decades now. The pension industry, which includes well known names, like Ontario Teachers, the Canada Pension Plan, they treat alternative investments as a third critical asset class, in addition to stocks and bonds. Today, most pensions—and remember that pensions are long-term conservative money—most of these pensions have 30 percent of their assets allocated to alternative investments.
Alternatives, I think they offer an important source of diversification to portfolios, in addition to traditional stocks and bonds. They’re a necessary diversifying asset and probably should represent an important part of most investment portfolios.
Mark Brisley: Myles, that’s really insightful, and I love the concept of the third asset class being added to the discussion.
Myles Zyblock: Yes.
Mark Brisley: I’d encourage any of our listeners that are looking for information around that type of a portfolio construction add-in to reach out to their financial advisor.
I want to thank you for joining us today. Myles, as always, it’s a pleasure to discuss these topics with you
Myles Zyblock: It’s been great to be here On the Money with you, Mark, thanks.
Mark Brisley: And thanks to everyone for listening us today on another edition of On the Money with Dynamic Funds. If there are any questions that you have or would like to ask, please reach out to your financial advisor, or you can visit us at dynamic.ca.
Until next time, on behalf of everyone here at Dynamic Funds, we wish you continued good health and safety. Thank you for joining us.
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