Foresight is 20/20. When you know where to look.

Key Takeaways: Foresight is 20/20. When you know where to look.

Executive Summary

On July 24, NEI Investments' Chief Investment Officer, John Bai, and Vice President of Asset Allocation, Judith Chan, hosted a webcast attended by over 600 advisors. The discussion focused on the dynamic market conditions of 2025, characterized by sticky inflation, shifting central bank signals, and fluctuating client sentiment. Despite the volatility, NEI's investment team remains focused on navigating uncertainty and uncovering opportunities.

John and Judith provided a comprehensive review of the market performance this year, key asset classes, interest rate trends, and economic indicators. Key themes of their discussion included the impact of geopolitical uncertainty, the importance of staying invested, and the potential for positive short-term market momentum despite long-term headwinds. The session also highlighted the resilience of corporate earnings, the attractiveness of international equities, and the strategic use of dividend stocks and alternatives in portfolio construction.

“In times like this, we know your clients are looking to you for clarity and our goal is to help equip you with insight and resources you need to keep leaving with confidence.”

- John Bai, Chief Investment Officer, NEI

Speakers

John Bai, CFA, SVP & Chief Investment Officer, Aviso Wealth and NEI Investments
Judith Chan, CFA, VP and Head of Multi-Asset Portfolios, NEI Investments

Key Takeaways

1. Market Volatility 2025: The first half of 2025 has been marked by significant market volatility, driven by geopolitical uncertainty, sticky inflation, and shifting central bank signals.

2. Resilient Corporate Earnings: Despite the volatility, corporate earnings have remained resilient, with strong earnings in Q1 and a strong start to Q2.

3. NEI Portfolio Performance: NEI portfolios have performed well overall, with fixed income strategies outperforming in Q1 and equity strategies facing challenges in Q2 due to concentrated returns in mega-cap growth stocks.

4. A Balanced Portfolio : Looking ahead, NEI investment team is maintaining a balanced portfolio with neutral stances on equities, fixed income, and cash, while favoring short-duration government bonds and diversifying into international equities

5. Navigating Geopolitical Changes: The ongoing geopolitical and economic changes, including the impact of tariffs and the "one big beautiful bill," require advisors to stay nimble and communicate effectively with clients to navigate the uncertainty and capitalize on opportunities.

Want to read more about NEI’s outlook for 2025?

Check out John’s latest feature with Advisor.ca where he shares Where is the opportunity in markets dominated by uncertainty? | Advisor.ca

Webinar

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FAQs: Foresight is 20/20. When you know where to look.

Webinar Logistics

1. Is the webinar being recorded?
Yes, the webinar is being recorded. You can return later to review the content or download the materials using the same link you used to join the webinar.

2. How can I access the slides and additional materials?
You can download a copy of today's slides and access additional materials related to NEI, including fund commentaries, relevant articles, and summaries of top Morningstar-rated funds, from the resources box on your screen.

3. How can I ask questions during the webinar?
You can type your questions into the questions box on the screen, and the team will do their best to address as many as possible towards the end of the presentation.

4. Is this webcast CE credit eligible?
Yes, the webcast is CE credit eligible. For those live on the call, you should receive an email in approximately 30 days. If there are any issues or you don't receive the email, please reach out to your NEI sales team for support.

Market Overview and Performance

1. What have been the key themes driving market movements so far this year?
Key themes include sticky inflation, shifting central bank signals, and fluctuating client sentiment. Volatility has created both risks and opportunities, influenced by factors such as Canada's recent moves, the strong US job market, and ongoing geopolitical uncertainty.

2. How has the market performed in the first half of the year?
The market has experienced significant volatility, with a risk-off sentiment in the first quarter and a risk-on sentiment in the second quarter. Overall, equities have outperformed fixed income, with notable performance in sectors like copper, Bitcoin, and gold.

3. What is the outlook for the second half of the year?
The outlook suggests that short-term momentum in the markets could continue, driven by strong earnings seasons and positive economic indicators. However, there are long-term headwinds, including potential impacts from tariffs and inflationary pressures.

Investment Strategies and Portfolio Positioning

1. How should investors position their portfolios for the remainder of the year?
Investors should maintain a balanced approach, with neutral stances on equities, fixed income, and cash. Overweight positions in Canada and Europe are recommended due to better valuations and economic conditions, while being cautious with US equities and emerging markets.

2. What are the views on dividend stocks and low volatility strategies?
Increased volatility and lower expected equity returns make dividend stocks and low volatility strategies attractive. These approaches can provide income and protect portfolios in uncertain market conditions.

3. Should investors consider a 60/20/20 allocation instead of a traditional 60/40 portfolio?
Given the current environment, adding alternatives to a traditional 60/40 portfolio can be beneficial. Alternatives can provide different sources of return and help diversify risk, especially when stock-bond correlations are high.

Regional and Sector Insights

1. What are the regional allocation recommendations?
The recommendation is to be market weight in the US, overweight in Europe and the Far East, and market weight in Canadian equities. This is based on valuation metrics and economic conditions, with a focus on diversifying away from US overconcentration.

2. What is the outlook for oil prices over the next 6-12 months?
Oil prices are expected to remain volatile due to geopolitical tensions and changing global demand dynamics. While geopolitical risks can push prices higher, efforts by countries like China to reduce dependency on oil may dampen demand.

NEI Portfolio Performance

1. How have NEI portfolios performed in the first half of the year?
NEI portfolios have shown strong absolute returns, with fixed income-focused portfolios performing well in the first quarter and equity-focused portfolios facing challenges in the second quarter due to market concentration in mega-cap growth names.

2. What specific strategies or asset classes have outperformed or underperformed?
Canadian equity allocations and global dividend mandates have contributed positively to performance. However, underweight positions in mega-cap growth names and gold companies have led to underperformance in some equity funds.

Blog: Geographic Diversification and Strategic Portfolio Management

Navigating the financial markets in 2025 has been a complex endeavor, characterized by significant volatility and a mix of both risks and opportunities. Factors such as sticky inflation, shifting central bank signals, and fluctuating client sentiment have created a dynamic interplay. Financial advisors must stay informed and agile, leveraging insights and resources to guide clients through these turbulent times. The Bank of Canada's recent moves, a robust US job market, and ongoing geopolitical uncertainties have all contributed to the volatile environment. Japan's shift from deflation to inflation, prompting interest rate hikes, is affecting Japanese bonds and causing a ripple effect on global long-term bonds. This volatility, combined with potential rising inflation due to deglobalization and tariffs, is influencing investment strategies. Current models suggest a preference for short-term bonds over long-term bonds and federal bonds over credit bonds, reflecting a cautious approach in the face of economic uncertainty.

Geographic Diversification and Portfolio Management Insights

Asset class performance has varied significantly, with equities generally outperforming fixed income. European equities have shown notable strength, surpassing US and Chinese markets, emphasizing the importance of geographic diversification. In fixed income, government bonds have outperformed credit, with high yield credit returns roughly equal to investment grade. Currency movements have added complexity, with the US dollar weakening against most G10 currencies, except the yen.

The macroeconomic backdrop suggests continued short-term bullish momentum, driven by resilient corporate earnings and a healthy US economy. Significant headwinds include potential inflationary pressures and the impact of tariffs. The US economy is growing at a healthy 2%, but financial conditions are stimulative in the US and Canada while remaining tight in Europe and China. This mixed economic picture calls for a balanced approach to portfolio management.

For portfolio positioning, maintain a neutral stance on equities due to the balanced growth and inflation outlook. The short-term environment favors equities, but potential rising inflation in the second half of the year could pose challenges. In fixed income, focus on short-duration government bonds, as tight credit spreads indicate limited upside potential in riskier assets. Recent pressure on long-term bonds, particularly 30-year bonds, suggests a cautious approach to duration management.

Investment Strategies Amid Global Market Volatility

Canadian equities are significantly overweight compared to the US due to Canada's strong commodity base and gold reserves, making it a favorable investment during inflation and volatility. The US market, despite decent earnings growth, is considered expensive. European and Far East markets are overweight due to better valuations. Emerging markets are underweight due to regional issues, although a weaker US dollar could offer some relief. The focus is on managing risks and uncertainties, with tariffs and geopolitical tensions influencing market dynamics.

Dividend stocks are viewed as a strategic investment in a volatile environment. With policy uncertainties and geopolitical risks, investing in low volatility and global dividend stocks is a sensible approach. Equity returns, especially in the US, are expected to decrease from recent high growth rates, making dividends and yield a larger portion of returns. This strategy aligns with the belief that current high growth rates are unsustainable, advocating for a more conservative, income-focused approach.

The financial markets in 2025 demand a nuanced approach to portfolio management. Financial advisors must stay agile, leveraging comprehensive market insights to navigate volatility and position clients to mitigate risks and capitalize on opportunities. Maintaining a balanced and diversified portfolio is essential, with a focus on geographic and asset class diversification, while being mindful of the evolving macroeconomic landscape and potential inflationary pressures. Investment strategies are adapting to account for inflation, geopolitical risks, and shifting economic dynamics, favoring short-term bonds, dividend stocks, and alternative investments. Regional disparities, such as Canadian and certain international equities, are being leveraged to enhance diversification and resilience. The traditional 60/40 portfolio is evolving to include more alternatives, ensuring robust performance amidst market volatility. Staying informed and flexible remains crucial in these complex times.