The global trade war launched by the U.S. has evoked the “elbows up” rally cry in Canada.
It’s most often associated with NHL legend Gordie Howe but any small kid playing hockey knows what it means when they square off against a big kid in the corner. Elbows are the best line of defence and can deliver a few offensive jabs.
It also applies to small Canadian retirement investors backed into a corner right now with a world of big players. The current market volatility is mostly a reaction to theatrics for now, but a good long-term defensive strategy and a few opportunistic jabs can keep your portfolio on track if it gets worse.
Another crisis to put in perspective
If you’re thinking of cashing out, this trade war is not the end of the world.
Whenever an “end of the world” market event occurs, U.S. based Ritholtz Wealth Management often circulates a long-term chart of the benchmark S&P 500 Index marking historic “reasons to sell” events.
The tragic events highlight the 2010 “Flash Crash,” the 2011 earthquake/tsunami in Japan, the 2013 “Taper Tantrum,” the Ebola virus of 2014, The Brexit vote in 2016, and the 2018 global trade war.
It also includes the global pandemic in 2020, the storming of the U.S. Capital in 2021, and the second wave of the pandemic shortly after.
In all those events, the S&P 500 regained its losses and advanced to record territory 100 per cent of the time.
Earnings from the S&P 500 have not been this strong since the COVID-19 recovery and most major corporations are not revising their current outlooks as a result of the trade war.
Stay defensive by staying diversified
When it comes to long-term investing the best defence is diversification. The current market volatility seems broad, but not all sectors and asset classes will perform the same as the trade war unfolds.
The right mix of asset classes, sectors and geographic regions can hedge your portfolio against isolated downturns.
For investors who are skittish on equity markets, fixed income guaranteed investment certificates (GICs) are yielding about four per cent annually.
Stocks also have the ability to generate income in any market climate through dividends. Large companies with strong track records for dividend payouts can exceed bond yields even when their stock prices are down.
It’s not easy to properly diversify an investment portfolio but a qualified financial advisor should have the experience and know-how to match the risk tolerance and return expectations of a client. They don’t always pick winners, but the winners should far outpace the losers.
A really good advisor will build a portfolio that rides the market when it goes up and stems the losses when it goes down.
Opportunistic elbow jabs
A healthy weighting in cash can help fend off a prolonged trade war - especially if you are retired or close to retirement - but it can also open up a world of bargain-hunting opportunity when markets over-react.
Dylan Bell, chief investment officer of U.S.-based CalBay Investments told Bloomberg this week he sees that opportunity in big technology stocks swept up in the panic such as Tesla Inc.
“Large tech stocks in particular have crushed earnings repeatedly for the last couple years and I think that’s what gives us confidence going forward,” he says.
For investors with portfolios heavily weighted toward the U.S., Susannah Streeter, head of money and markets at Hargreaves Lansdown in the U.K. suggests undervalued European equities.
“What the U.K. index offers is more defensive qualities, so a mix of pharma, finance, utilities, big consumer giants and also lots of dividend paying stocks,” she told Bloomberg.
Accessing overseas stocks can be difficult for the average investor but there are several exchange traded funds (ETFs) available on any trading platform that track specific countries, regions or sectors.
