Mike Philbrick, chief executive officer, ReSolve Asset Management

FOCUS: Exchange-traded funds 

MARKET OUTLOOK:

The global economy is currently facing a complex intersection of macroeconomic headwinds and technology tailwinds, which has given rise to two major themes in today's investor zeitgeist. As globalization, automation, and other macroeconomic forces continue to shape our world, technology advancements, particularly in artificial intelligence, promise transformative impact across industries. However, amid this interplay, increased inflation volatility emerges as a critical factor, leading to heightened asset price volatility and dynamic changes in the investment landscape that may limit the potential actions of central banks.

Over the previous decades, globalization and automation have driven significant shifts, with manufacturing jobs moving to cheaper countries and productivity gains achieved through automation. These developments have fuelled company profits and deflationary pressures, allowing central banks to provide substantial liquidity to the global economy during times of duress without fear of creating inflation. However, the current environment presents a departure from this backdrop, as resilient and re-shored supply chains and changing energy policies towards de-carbonization create inflationary forces.

Conversely, the growth of AI presents technology tailwinds that offer disruptive potential across sectors and labour markets. AI's transformative power could reshape industries, boost productivity, and fuel economic growth. Estimates from OpenAI and Goldman Sachs highlight the far-reaching impact of AI on the labour market, surpassing the effects of globalization and automation. However, this technological wave also presents challenges, requiring businesses and investors to adapt and capitalize on the opportunities it presents.

In the midst of these macroeconomic and technological forces, the specter of increased inflation volatility looms large. Current market valuations are based on the anticipation of a modest economic slowdown and a return to more stable levels of inflation. However, central banks may face a different and intricate challenge of navigating monetary policy in a new paradigm where the persistent backdrop was deflation. This potential for heightened volatility in inflation adds complexity, as it becomes a pivotal driver of asset price volatility and a catalyst for dynamic shifts in asset class pricing.

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TOP PICKS:

Horizons 0-3 Month T-Bill ETF (CBIL TSX)

It invests primarily in short-term government of Canada T-bills, which are backed by the credit of the Canadian government and seeks to provide interest income through exposure to Treasury bills with remaining maturities generally less than three months. CBIL’s yield is generally anticipated to increase or decrease depending on the prevailing interest rate environment in Canada. Current yield is 4.23 per cent and is subject to change due to current market conditions.

 BMO Japan Index ETF (ZJPN.F TSX)

It has been designed to replicate, to the extent possible, the performance of the Solactive GBS Japan Large & Mid Cap Index, net of expenses. The ETF invests in large and mid-cap Japanese companies. The ETF invests in and holds the constituent securities of the index in the same proportion as they are reflected in the index. Currency is hedged back to Canadian dollars.

iShares MSCI Min Vol Global Index ETF (XMW TSX)

It seeks to provide long-term capital growth by replicating the performance of the MSCI All Country World Minimum Volatility Index (USD), net of expenses. The ETF tracks an index that measures the performance of equity securities in emerging and developed markets that have lower volatility relative to the equities included in the MSCI ACWI Index. Minimum volatility strategies have historically reduced losses during market declines, while still capturing gains in rising markets.