The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
Bonds, A Comeback Story
January 23 to 27, 2023
Bonds, A Comeback Story
January 23 to 27, 2023
Sadiq S. Adatia, FSA, FCIA, CFA
Chief Investment Officer (CIO)
Market Recap
Bonds
We’re finally back to an attractive point on bonds. After last year’s severe decline in the fixed income market, we’re now seeing a normalization, with strong yields coming through. And there may be additional upside on top of that. If markets and the economy have a bad year, interest rates will likely be lowered. Typically, a 1% decline in interest rates translates into a 5-6% increase in bond prices. Though we do not necessarily expect that kind of rate decline in 2023, it nonetheless adds an element of defensive positioning to fixed income investments. Even without such a rate decrease, however, we think that a 5-7% return on bonds this year is likely. But where, exactly, are the opportunities? At this stage, there’s no need to get unnecessarily aggressive—best to stay with Investment Grade and Quality bonds. And with the yield curve likely to be unpredictable, we’d also advise staying neutral on duration.
Bottom Line: Owning good, quality bonds is the best course—because the safer you go on risk, the less likely it is that they’ll be affected by an economic slowdown.
Emerging Markets
Bottom Line: With China and EM, the best bet is to start your position and then add to it on the dips.
Real Estate
Are we at an attractive entry point for real estate investing, or is the market likely to be depressed for an extended period of time? It’s a tough question, and the answer depends on which segment of the market you’re in—residential, multi-family, or commercial. On the commercial side, businesses are moving away from large, full spaces and toward shared or flexible spaces, in part because of the number of people choosing to work from home. But as they always say in real estate: location, location, location. Even with current trends, spaces in prime locations will still be able to command higher prices. On the residential and multi-family side of things, homeowners have been hit hard because of rising interest rates. But most of that damage was done in 2022. Looking ahead, as rates start to stabilize and eventually cool down, buyers will be incentivized to return to the market and we could see a recovery.
Bottom Line: 2023 could be another tough year, but overall, the next five years won’t necessarily be a bad environment for real estate investing.
Positioning
We’re confident in our current positioning and haven’t made many recent changes. We’re continuing to sell covered calls on our Energy ETFs and have picked up some attractive premiums along the way—that will continue into February. Our Healthcare allocation has proven to be a good defensive play. And so has buying puts—they give us the added benefit of providing downside protection should the earnings situation prove to be negative or unexpected economic headwinds emerge—but still allow us to participate in any rallies.
Disclosures:
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
Insights
Chipmakers Soar, Interest Rates Stall
Seeing the Forest through the Trees – How Investors Can Assess Biodiversity Risk
Readying for a Real Estate Rebound
Is It Game Over for the Greenback?
Defense Wins Championships
Why Climate Action Matters for Investors