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Bonds, A Comeback Story

January 23 to 27, 2023


Bonds, A Comeback Story

January 23 to 27, 2023

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Weekly Commentary

Market Recap

  • Equity markets struggled this week, as a soft run of economic data stoked slowdown concerns, while the U.S. ran into the debt ceiling, setting up possibly months of headlines and negotiation while extraordinary funding measures are used.
  • The S&P 500 finished down 0.7%, with industrials, utilities and consumer staples lagging.
  • The TSX added 0.7%, outperforming on the back of higher energy and technology sectors, and much better results across the rest of the spectrum.


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

Recently, we’ve seen flows rotating into Emerging Markets (EM). This can be chalked up to China’s reopening, and we view it as an encouraging sign—we were early on this trend, but were still cautious in an effort to avoid head fakes. China is only now getting to a stage of reopening that Canada, the U.S, and other Western countries reached around 18 months ago. This means the potential for upside, given pent-up demand could provide a boost to spending and consumption. Our expectation is a strong surge. Another aspect of the EM story is that investors are moving from expensive markets to ones with better valuations. But in this case, there’s no need to rush. Opportunities will be there for some time, because China’s rebound will not happen in a straight line—there will be starts and stops due to COVID outbreaks and policy changes and implementation.

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.


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.


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.

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