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Posted by Greg Taylor on Sep 1st, 2022

Don’t Be a Hero

For many, flipping the calendar over to September is centred around the kids heading back to school; however, for investors, it’s also good opportunity to take a look at your portfolio and make sure you are set up for some volatility. Looking at seasonality for the last 50+ years, the period of September through October has historically been one of the worse for equity markets.

Many of the most dramatic events in stock market history have occurred during these months (think 2008 and 1987), and while we aren’t forecasting anything of that magnitude this year, it is never a bad idea to make sure you are prepared.

So far 2022 has been a year many investors would rather forget as both bonds and stocks have lost money at the same time, which is not often the case. The main reason for this, of course, has been the dramatic moves from global central banks that are in the process of removing pandemic stimulus programs to try to put the inflation ‘genie’ back into the bottle.

By the numbers August 2022 markets total return

The battle against inflation was never going to be easy but add on that the effect on commodities as a result of the Russian invasion of Ukraine and continued tension with China, and we could see a tricky few months ahead. In July, investors were able to breathe a sigh of relief upon seeing the Q2 earnings reports as companies did an admiral job of controlling expenses to maintain earnings growth, but as many companies get ready to meet investors again for “conference season,” the updates we get in the next few weeks may be less optimistic.

Another event that will be front and centre for American markets will be the U.S. midterm elections in November. U.S. politics have become very polarizing and as polls swing this may add to volatility. It’s not a huge sample size but September/October markets during midterm elections have an even worse track record.

For us, this means that it’s not the time to be a hero and take undue risk in your portfolio. For those who have weathered the storm so far this year, consider becoming a little more defensive until some of these events pass or markets become more comfortable with the direction. That will give you optionality to reassess in a few months heading into year end, which is normally a much stronger time for equity markets.

As always, we would point to being tactical and seeking active investment strategies. As we’re heading through earnings season, remember not every company will handle these changes as well as others, and similarly, not every asset class will do as well as others.

We are entering one of the most difficult periods of the year for markets, but it’s also important to remember that equity indices have recovered from every historical event, and we were at all-time highs as recently as earlier this year. But you don’t need to ride through every move, and this could be a good time to move to a more defensive positioning.

— Greg Taylor is the Chief Investment Officer at Purpose Investments

Sources: Charts are sourced to Bloomberg L.P.

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Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Greg Taylor, CFA

Greg Taylor is the Chief Investment Officer of Purpose Investments. A data-driven manager with a focus on managing risk through active-trading strategies, Greg specializes in finding and exploiting pockets of volatility in the market to drive returns. He spent more than 15 years managing pension and mutual fund assets at Aurion Capital Management. He also held a role of senior portfolio manager at Front Street Capital and LOGiQ Asset Management before coming to Purpose Investments.

Greg serves on the investment committee for the MS Society of Canada and advises the finance program’s portfolio management course at Bishop’s University. He has won numerous Brendan Wood International “TopGun” awards and is a regular host and guest on BNN Bloomberg and Toronto’s all-news radio station, 680News. Greg is a CFA Charterholder and has a BBA in Finance from Bishop’s University.