Canadian investors looking for returns in 2015 — and the next few years — are likely to have more luck looking beyond their own borders, according to BMO Global Asset Management 2015-2020 Secular Outlook Report.
BMO is recommending an overweight position in equities, particularly large-cap U.S. equities. “We believe that the most compelling opportunities continues to exist in common shares,” said Paul Taylor, chief investment officer – asset allocation, BMO Global Asset Management (Canada). “Although we would point out that certainly potential will be moderate going forward.”
While equities are no longer cheap, Taylor believes there is still value to be found in the earnings growth and dividend yield of companies. This is in contrast to the past few years where multiple expansion was the main driver of returns. Said Taylor: “We don’t feel as investors we should count on multiple expansion.”
In terms of sectors, BMO is bullish on non-commodity cyclical sectors such as industrials, consumer discretionary, financials, information technology and some health care.
While the U.S. is a focus for BMO it is by no means the only country where investors will find returns in 2015 or over the intermediate outlook. When looking for markets outside of the U.S., Taylor recommends focusing on countries with pro-growth policies such as Japan.
On the other hand, countries to avoid are those closely tied to commodities both economically and in their currencies — this would include Canada.
Whether investors are looking for opportunities in the U.S. or elsewhere it’s important to be selective. “Systemic risk has basically had its day and now it gets down to specific risk-taking,” said Sandy Lincoln, chief markets strategist, BMO Global Asset Management (U.S.). Investors will need to be selective in everything from the company to the sector to the country and even possibly the currency.
This investment outlook is based on the most likely economic and market outlooks out of a possible three that are discussed in BMO’s report. The most popular scenario calls for plenty of liquidity and a broader growth environment in Canada, the U.S. and the UK. Other countries, such as Japan, China and continental Europe will likely remain stagnant.