Equity markets have rebounded from its February lows, but market sentiment continues to be fragile. Global economic growth concerns, uncertainty surrounding the pace of Federal Reserve interest rate hikes, unstable commodity prices, weakness in corporate earnings and an uncertain U.S. presidential race remain as challenges to equity markets. Given this backdrop, it’s likely that equity markets will remain range-bound and higher levels of volatility will persist in the coming months.
In our portfolios, we remain cautious with above-average levels of cash and continue to take a very tactical and nimble approach to stock selection. With our active approach, we continue to survey the market to take advantage of near-term opportunities and to sidestep hazards as they arise. We prefer large-cap, high quality North American companies with strong balance sheets, reliable earnings streams and positive growth attributes. We favour U.S. equities over Canadian equities (along with the U.S. dollar over the loonie) as the S&P/TSX Index appears still entrenched in a downwards pattern.
We have moderately rotated some of our equity positions to more defensive sectors including consumer staples, telecom and health care as these areas tend to provide lower beta and outperform in uncertain economic environments.