Q1 Outlook: Asset Allocation in the Year Ahead | Mackenzie Investments

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2017 Q1 Outlook

Asset Allocation in the Year Ahead

2016 was characterized by a rise in populism, but returns from stocks and bonds have been quite good. Alain Bergeron, Head of the Mackenzie Asset Allocation Team, details his asset allocation for Q1.

Q1 Outlook: Asset Allocation in the Year Ahead

Alain Bergeron, Head of the Mackenzie Asset Allocation Team, discusses the influences behind his Q1 asset allocation.

Show transcript

Well looking back on 2016, it was characterized by a big rise in populism.  But interestingly, the returns of both stocks and bonds have been quite good. Looking ahead in 2017, we are coming in with a moderate overweight to stocks versus fixed income. We believe fixed income securities are overvalued and market sentiment has been deteriorating. When we look at equities, yes, they are also expensive, but not as much and the macro sentiment assessment we're making is more supportive.

In terms of relative equity, a very important input is our proprietary intrinsic valuation model and that gives us an expected return for the next seven years. It's a strong anchor, much more powerful than a simple price earnings ratio and based on that anchor, we're finding the best expected return for the next seven years are European Stocks, Canadian stocks and UK stocks; but if we have a rise in the shorter term, let's say a quarter or a year, then it's important to overlay the other type of inputs such as the macro-economic environment and sentiment and that Europe is not scoring as well. So, when you put it altogether, the best opportunities we see are U.K. stocks, Canadian stocks.

In terms of currencies, we see less opportunities than usual. There are more conflicting forces than historically. We only have one small view right now and it's to underweight the Canadian dollar versus the U.S. dollar. We think the macro conditions are more supportive to the U.S. dollar - think of the action of the Fed - which has tightened rates versus the Bank of Canada, but it's only a slight negative view on the Canadian dollar and if you take a longer-term perspective, we think that after the depreciation, the Canadian dollar will appreciate because the intrinsic value is about $0.83.

For more information, please see our January edition of the Mackenzie Express.

Key Points

  • Fixed income securities are overvalued and market sentiment has been deteriorating.
  • The best opportunities that we see are in UK and Canadian stocks; we see less opportunity in currencies.
  • Macro conditions are more supportive to the USD.