Franklin Templeton delivered a sneak peek of its latest Global Investment Management Survey to members of the media in Toronto on Tuesday, highlighting three additional rate cuts to come from the U.S. Federal Reserve and a steepening yield curve over the next year, representing a fresh round of investor optimism.
“That is a dramatic change from where we’ve been over the last two or three years,” said Michael Browne, global investment strategist, Franklin Templeton Institute. “That suggests a majorly different tone within markets.”
The study is released twice a year, based on a survey of portfolio managers across multiple asset classes.
Also on-hand was Franklin Templeton’s Michael Greenberg, head of Americas portfolio management. Nevermind worries about elevated stock valuations, he sees investment opportunities inside and outside Canada.
“We still want to maintain some exposure to Canadian equities,” he said. Greenberg said Ottawa’s efforts to strike deals with a host of global partners and promote interprovincial trade are positive signs. “Who knew Alberta and the Liberals would get along so well?”
He likes energy and infrastructure investments, primarily.
Multiple countries around the world are taking steps to diversify their portfolio of trade partnerships and become less reliant on the U.S. Canada’s interests are aligned with countries around the world, to the extent that they want to strike deals that make their economies more resilient.
“That’s going to create a growth dynamic,” Greenberg said.
“Don’t get too negative,” he advised investors. “Equities are probably still what you need to have growth in your portfolio long term. But diversify. Look for opportunities in Europe and emerging markets.”
The Bank of Canada probably has just one or two rate cuts ahead of it next year, Greenberg said.
Defence spending and AI
Besides trade, the defence sector is positioned to benefit from a growing sense among world leaders that Washington is no longer a reliable partner.
“Europe will triple its defence expenditures over the next six or seven years,” said Browne.
AI is another key theme, but look beyond companies active in the sector itself. Expand your focus to organizations that are executing with the new technology most effectively, and gaining a competitive advantage in the process.
“The next phase of AI is which retailer is going to be the best at implementing AI to be a better buyer, a better inventory manager, to spot consumer trends quicker,” Greenberg said. The companies that do it best “are going to probably have better profitability, better margins, lower costs.”
Greenberg wouldn’t forecast a timetable for this next phase, but said the theme will apply in multiple regions and industries. “If you’ve done extremely well in some of the obvious AI plays, perhaps it’s not a bad time to take some of that off the table. … Look for opportunities. Maybe it’s mid-caps, maybe it’s in Europe, maybe emerging markets.”