April 09, 2025
Russian revolutionary Lenin once said, “There are decades where nothing happens; and there are weeks where decades happen.” For many, the past few weeks have felt something like that. President Trump’s tariff increases, which went into
effect at midnight on April 8, took United States (US) tariffs back decades — to World War II levels, by some estimates. And Trump's announcement on April 9 that many of those tariffs would be “paused” only highlights the uncertainty
that is destabilizing markets.
It bears remembering that the global economy entered 2025 in a healthy state with inflation easing and economic activity and labour strong, both in the US and beyond. However, US trade policy ambiguity and the introduction of tariffs has increased economic
uncertainty the world over. This, in turn, has sent the stock market reeling and has shaken investor confidence.
It is at such moments that the benefits of diversification become clear. And it is at such moments that the resilience of an investor’s plan — and their ability to stick to it — is truly tested.
Our approach to planning
At CC&L Private Capital, our model portfolios are carefully designed to withstand periods of market volatility. Our diversified asset mixes, which often include alternatives, aim to protect investors from large downside risks that
single stock concentrations would otherwise experience.
Additionally, we recognize that markets do not perform linearly. Instead of adopting a straight-line return assumption (i.e., 6% every year), like most traditional financial plans, we forecast 1,000 possible paths of return, representing a range of possible
future outcomes. In this way, short-term volatility and poor market outcomes have already been taken into consideration in your investment plan.
To demonstrate the dynamic nature of capital markets historically, we analyze returns of a Balanced benchmark1 since 1980. Over one-year rolling periods, actual performance ranged from 50.4% to -18.5%. With longer investment time horizons,
the volatility becomes much more muted.
Range of historical balanced benchmark1 returns
The active management advantage
We constantly assess our positioning to understand where we are exposed to potential negative outcomes, and if we believe we will be rewarded for the risks we take. We employ risk mitigation strategies to shield portfolios from the unfiltered movements
of the market, adjusting portfolios where necessary in order to reduce potential losses. Recently, we have become more defensive in our portfolio positioning by reducing our overweight to equities and, in particular, to those cyclical sectors which
we deem will perform more poorly. In addition, we have reduced exposure to companies that could be adversely affected by a prolonged trade war.
As an active manager, we are also able to capitalize on undervalued companies and industries, positioning ourselves to earn well when the market recovers. For instance, in our Canadian Value portfolio, we have chosen to hold companies in the crosshairs
of US trade policy. While the reasons are various, the overarching theme is that the market may have overestimated the impact on those companies, and the negative sentiment is overstated. To date, auto parts manufacturers and steel companies
haven’t seen a decline in orders from the US. The deeply integrated nature of the auto manufacturing supply chain, together with the US steel supply deficit (the US produces only 70% of total domestic demand), means that the US still needs
Canadian suppliers.
We have also noted, for instance, that global small cap stocks are currently trading at a significant discount to their 10-year average. The higher growth and dividend potential of this asset class makes it a compelling investment given the attractive
valuations and growth potential, in spite of current macro-economic risks.
The benefits of alternatives
Alternatives assets often have a low correlation with traditional stocks and bonds, which can help reduce overall portfolio volatility. Our clients have exclusive access to invest directly in alternative assets via pooled funds, giving us unique opportunities
for generating returns and lowering volatility due to portfolio diversification, even in poor market conditions.
We continue to find risk-adjusted returns in alternative asset classes like hedge strategies as well as in private market investments such as real estate, infrastructure and private loans. These asset classes tend to be less sensitive to quick changes
in investor sentiment, and the benefits of such holdings are becoming evident during this period of volatility.
Stay calm and carry on
In investing, uncertainty is unavoidable but manageable through a disciplined investment process. The importance of adhering to your long-term investment plan is seldom evident in the moment, but history shows us that those who remain committed to their
strategy emerge ahead of those who change course.