Why long-term investment focus pays off despite short-term pain

For investors not used to seeing negative numbers on their statements, the sell-off across equities and fixed income has been chastening. The S&P 500 has fallen 21% so far this year (as at June 16, 2022, in CAD), its worst start to a year since 1932, while the U.S. Federal Reserve’s recent 75 basis points hike was its highest since 1994.

With both risk assets and fixed income struggling, Leonie Mac Cann, Senior Multi-Asset Portfolio Manager in the Multi-Asset Solutions team at Irish Life Investment Managers, believes this is a particularly challenging time for investors, with a traditional 60-40 portfolio, by her calculations, down about 12% as at June 16, 2022.  Despite a lot of the rate increases being priced into the market, and supply issues caused by the pandemic and exacerbated by the war in Ukraine expected to ease, she believes things could get even worse before they get better.

“Central banks still feel a soft landing might be possible,” she said. “But there is potentially going to be [more] pain. Hopefully, we should see inflation start to come down towards the end of this year and into next year but still remain high, and higher than target.

“There are challenges ahead, and there is potential for more downside, but over the longer term, we would still have a positive view on equity markets, and we still think they offer attractive returns over that longer term versus other asset classes. However, given the move we’ve seen in rates and the pullback in equities, the relative attractiveness of equities over bonds has reduced.”

While we are in the middle of a tough period, Mac Cann urged investors to retain a sense of perspective after a decade of strong equity and fixed-income performance. And given that markets are cyclical in nature, and will invariably go through recessionary periods over time, she stressed the need for long-term positioning. It’s this philosophy that informs the Canada Life Risk-Managed Portfolios, a single-fund solution that brings together risk management strategies and traditional and non-traditional investments. These portfolios are specifically designed with a core focus on reducing volatility while still delivering capital growth over the long term.