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How to adapt portfolios in a low-rate world – Investment Executive

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Government bonds provided reliable ballast earlier this year when equity markets tanked in response to the Covid-19 pandemic. Government of Canada seven- to 10-year bonds returned 9.5% in the first three quarters of the year, and long-duration (20+ years) Government of Canada bonds returned almost 20%, according to a report from FTSE Russell.

Seven- to 10-year U.S. Treasuries returned 11.5% as of Sept. 30, while long Treasuries returned 20.8% (in USD).

“It’s going to be really hard to extrapolate that going beyond this,” Taylor said, since he doesn’t see North America moving to negative rates anytime soon.

Phil Mesman, head of fixed income with Picton Mahoney Asset Management in Toronto, said strategies need to shift now, even though the 40% fixed income part of portfolios served investors well this year.

Replicating the benefit from government bonds this year would require a -10 basis point U.S. Treasury yield, he said.

“All of the backward numbers look great in fixed income,” Mesman said. “The typical advisor portfolio looks amazing but, at current yields and current duration, it makes sense to be a little more creative.”

Taylor said investors can look to investment-grade corporate bonds to find yield through active management. Beyond that, he said investors will have to consider alternative strategies such as options writing and private debt, as well as hard assets such as real estate, infrastructure and precious metals.

“We think there’s going to be a rework of the traditional 60-40 portfolio,” he said.

Mesman said he’s focused on long and short opportunities in developed-market BBB- to B-grade bonds.

The Federal Reserve’s willingness to purchase corporate bonds has made the market more expensive and masked credit risk, he said. This has created opportunities on the short side to both protect the portfolio and provide alpha in cases “where the real economy’s impact on financial assets has yet to be felt,” he said.

Jonathan Hausman, managing director and head of global strategic relationships with the Ontario Teachers’ Pension Plan, warned about the risks of wading into high-yield credit.

“That works until it doesn’t,” he said earlier this month on a panel at the Global Risk Institute’s summit.

Rating agency Moody’s warned investors this week that a record number of companies are in danger of slipping from investment grade to junk territory due to the uneven economic recovery.

Speaking on a webinar earlier this month, FTSE Russell director of fixed income research Robin Marshall also expressed concerns about a “high-yield value trap.” Canadian credit spreads were wider during the economic downturn in 2015-16 than they are now, he said — a “conundrum” given the depth of recession investors are now facing.

High-yield valuations have moved to “demanding” levels relative to current default risks, he said.

Hausman also pointed to strategies such as infrastructure and real assets to provide protection as well as some return on the fixed income side, which is hard to come by.

“That requires some creativity,” he said, “but not much creativity because that’s how folks get into trouble.”

A report from Richardson GMP this month also warned against relying on government bonds and made the case for long-short credit strategies. It pointed to Japanese and German bonds, which started the year with lower yields and “provided nearly no ballast at all” in March.

“With the U.S. and Canada yields now at similarly low starting points, it is unlikely that they can provide anywhere near the same historical hedging properties as in previous downturns,” the report said.

Rather than diving into lower-quality assets to find yield, the report recommended long-short strategies for investment-grade credit.

Mesman also warned about duration risk on government bonds.

“I think the risk of government bond yields going higher, particularly in the long end of the market — longer-dated government bond yields — that’s something that’s underappreciated,” he said.

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Almost £10m has been lost to investment scams since March lockdown – Yahoo Canada Sports

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The Canadian Press

Montreal Impact use options on 10 players, including striker Quioto, ‘keeper Diop

MONTREAL — The Montreal Impact have elected to hang on to some of the club’s top talent, including striker Romell Quioto and goalkeeper Clement Diop, but may soon be parting ways with midfielder Bojan Krkic. The club announced Friday that it has exercised options for 10 players on its roster and opted not to pick up options for another four. Deals on five other players are set to expire at the end of 2020.“All of these decisions are about the financial and sporting sides, and we need to be better,” Impact sporting director Olivier Renard said on a video call. “We need to make the jump.”Some of the options weren’t picked because the club is looking to make space for new players, he added.“We have space to make movement and we will make that as soon as possible,” Renard said.In addition to Quioto and Diop, Montreal is keeping goalies James Pantemis and Jonathan Sirois, defender Karifa Yao, midfielders Clement Bayiha, Mathiew Choiniere, Tomas Giraldo and Amar Sejdic, and forward Mason Toye. The club previously extended loans for defender Luis Binks and midfielder Lassi Lappalainen through 2021.The club did not exercise options on four players, including Krkic, midfielders Steeven Saba and Shamit Shome, and forward Anthony Jackson-Hamel. The decision doesn’t necessarily mean Krkic won’t wear an Impact jersey next season, however. Renard said the club is interested in bringing the 30-year-old Spanish midfielder back, but decided not to pick up his option “for many reasons.” He said the Impact have made Krkic an offer, and the decision is now up to him.Krkic played in 17 regular-season games for Montreal this year, tallying four goals and two assists.Four other players will be out of contract at the end of December, including defenders Rod Fanni, Jukka Raitala and Jorge Corrales. A loan agreement for midfielder Orji Okwonkwo is also set to expire at the end of the year.Raitala, Montreal’s captain, and Corrales will not return next season, Renard confirmed, but the club is still waiting to see if Fanni, 38, wants to continue playing professionally. The moves come after the Impact finished ninth in Major League Soccer’s Eastern Conference (8-13-2). Montreal was eliminated from the post-season with a 2-1 loss to the New England Revolution in the play-in round. The Impact still have at least one game to play in 2020. The team is set to face Honduran club Olimpia in CONCACAF Champions League action on Dec. 15. Players who did not have their options picked up are not required by MLS to play in the game, but Renard said he is hopeful they will join anyway. This report by The Canadian Press was first published Nov. 27, 2020. The Canadian Press

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Brazil's Oil Giant Slashes Its Five-Year Investment Plan – OilPrice.com

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Brazil’s Oil Giant Slashes Its Five-Year Investment Plan | OilPrice.com

Charles Kennedy

Charles is a writer for Oilprice.com

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Brazil’s state energy giant Petrobras has cut its five-year investment plan by 27 percent to $55 billion, driven by the effects of the coronavirus pandemic. Reuters reported, citing a regulatory filing, that the company will focus its efforts on developing deepwater oilfields in the pre-salt zone that is estimated to contain billions of untapped barrels of oil. The pre-salt fields are Brazil’s main point of attraction for foreign energy firms, too.

Of the $55 billion Petrobras plans to spend over the next five years, most will go towards exploration and production. Still, at $46 billion, the sum to be allocated for exploration and production until 2025 is down from $64 billion planned a year ago.

The company also said it will only develop fields where it could break even at international oil prices of $35 per barrel.

As a result of the spending revision, Petrobras will produce less oil and gas next year, the company said, aiming for a daily average of 2.75 million barrels of oil equivalent. This is down from 2.84 million bpd this year. Related: EIA Sees WTI Crude Averaging $44 In 2021

However, going forward, production will increase, reaching 3.3 million barrels of oil equivalent in 2024. The boost will come from the pre-salt zone, which will also drive the company’s output this year. Petrobras said at the release of its third-quarter results in September that it had originally expected an output of 2.7 million bpd of oil equivalent for this year.

Crude oil production from the pre-salt fields marked a quarterly increase of 8.1 percent to 1.651 million bpd in the third quarter of this year, mainly due to higher operational efficiency of the platforms in the Búzios field and the ramp-up of production platforms in the Tupi and Atapu oilfields. Compared to the third quarter of 2019, Petrobras’ crude oil output in the pre-salt area jumped by 20.8 percent.

By Charles Kennedy for Oilprice.com

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Scammers fool Britons with investment firm clones, says trade body – TheChronicleHerald.ca

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LONDON (Reuters) – More than 200 British retail investors have lost nearly 10 million pounds ($13.4 million) in total to sophisticated investment scams since a government lockdown in March to fight the COVID-19 pandemic, a trade body said on Saturday.

Fraudsters cloned genuine investment management firms’ websites and documentation, and advertised fake products on sham price comparison websites and on social media, the Investment Association said.

Greater financial uncertainty and more time spent online have likely contributed to the increase in scams, industry sources say.

Losses amounted to 9.4 million pounds ($12.56 million) between March and mid-October, the IA said, based on information it got from member firms which had been cloned.

“In a year clouded in uncertainty, organised criminals have sought opportunity in misfortune by attempting to con investors out of their hard-earned savings,” Chris Cummings, chief executive of the Investment Association said.

The investment management industry was working closely with police and regulators to stop the scams, he added.

Britain’s Action Fraud warned earlier this month that total reported losses from all types of investment fraud came to 657 million pounds between September 2019 and September 2020, a rise of 28% from a year ago. Reports spiked between May and September, following Britain’s first national lockdown, the national fraud and cyber crime reporting centre added.

(Reporting by Carolyn Cohn; ediitng by Emelia Sithole-Matarise)

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