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Is shifting retirement investments into safe havens a good idea?

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Selling out of equities can have tax implications. Even if holdings are down in any given year, it doesn’t mean clients are facing an overall capital loss.FatCamera/iStockPhoto / Getty Images

Equity market volatility tends to send investors fleeing for fixed income. But with stocks and bonds suffering in tandem this past year, advisors say clients are beginning to ask about long-maligned guaranteed investment certificates (GICs), which have become an appealing proposition as interest rates have risen.

“I haven’t been using GICs [for] a long time because rates have been so low. They haven’t been attractive,” says Ian Calvert, vice-president and principal, wealth planning, at Highview Financial Group in Oakville, Ont. “But now … they’ve become more attractive for short-term needs.”

Jennifer Tozser, senior wealth advisor and portfolio manager with Tozser Wealth Management at National Bank Financial Wealth Management in Calgary, says she has also seen clients’ desire for safety lead to inquiries about GICs.

“People are [saying], ‘If I own fixed income, I want to own something where I don’t have to deal with price fluctuation because the market is volatile,’” she says.

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“For people who aren’t used to this [volatility], the frustration is that what’s supposed to be a stable part of their portfolio has shown price movement.”

Rona Birenbaum, certified financial planner and founder of Toronto-based Caring for Clients, says her firm normally gets inquiries from clients looking to reduce their equity exposure and pile into bonds during times of market turbulence. (She counsels them against doing so.)

But this past year, the firm saw fewer of those inquiries as rising interest rates have depressed bond returns.

“That has scared some investors away from bonds,” she says.

Ms. Tozser says she has cautioned her bond-wary clients against worrying about price risk – pointing out that governments and companies continue to make their bond payments, and investors will still receive the bond’s face value at the end of its term. She also sees opportunities in longer-term bonds as the yield curve has inverted to lock in a higher interest rate before interest rates start to fall again.

Ms. Birenbaum says she also thinks investors are set up for good bond returns in the next couple of years. Any money going into both stocks and bonds is now “generating a much higher yield than it was a year ago” as prices have fallen.

“For new money and new savings, the future looks brighter than it has for the past couple of years,” she says.

Approaches to preserving capital

GICs, at current rates, can be “very useful tools” for clients in retirement or those who are approaching that stage of their life, providing capital stability and a reasonable yield, Ms. Birenbaum adds.

She’s begun building a laddered portfolio of GICs for retiree clients to fund their next three to four years so they don’t need to consider withdrawing from more volatile assets and can benefit from the eventual market recovery.

“That brings some peace of mind to clients and it’s also just a smart thing to do,” she says. “If we do experience a painful recession next year and stocks fall, these retirees won’t be selling equity investments at that time.”

They might not be in the position to add equities, she says, which would be the “icing on the cake” if they could, but at least they don’t touch them.

Ms. Birenbaum says clients’ GIC purchases are being funded by new cash deposits, which might have otherwise gone toward other bond strategies.

She may also move money from clients’ existing fixed-income positions, but is “doing that more cautiously, because if we’re nearing the end of the interest rate cycle, bond [mutual] funds and [exchange-traded funds] returns could easily outperform GICs. Plus, they have liquidity.”

However, she says this may be a worthwhile trade for more anxious clients who want peace of mind.

“The risk is just the opportunity cost if bond strategies outperform GICs, but it’s just [an] incremental difference,” Ms. Birenbaum says.

When shifting investments makes sense

Ms. Tozser says buying GICs or shifting toward a more conservative asset allocation right now can make sense for clients who are well into retirement and/or have exceeded the financial goals they’ve set for themselves.

“We’ve had a lot of good years [recently], and even though we’ve had a negative year, they might be further ahead in their financial plans than they thought they’d be,” she says. “So. if they want to have GICs they can.”

However, she says clients should never eliminate stocks as a long-term asset allocation strategy.

For those who are on the cusp of or just entering retirement, Ms. Tozser says she emphasizes their long-term goals and encourages them to stay the course. She also points out that selling out of equities can have tax implications. Even if their holdings are down on any given year, it doesn’t mean they’re facing an overall capital loss.

Mr. Calvert advises only moving assets that were in savings into GICs, rather than selling out of equities – and potentially locking in losses – to fund those investments.

He notes GICs may do well over the next two years but come with re-investment risk if interest rates are no longer as high.

“It can be a good place to park funds in the short-term, there’s no doubt,” he says. “But if these are longer-term funds, obviously it’s going to be challenging to keep renewing at higher interest rates, and you will absolutely lose out on a market rebound, whenever that happens.”

To get around GICs’ challenging lack of liquidity, Ms. Birenbaum says she designs clients’ portfolios in conjunction with their cash flow projections to ensure they also have some capital that’s more liquid.

When GICs mature, putting the funds into a high-interest savings account with set monthly withdrawals works well for clients who have registered accounts like a registered retirement income fund. Those without registered accounts typically receive the full amount, which they can put into their own savings account and withdraw as needed.

 

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OMERS names capital markets head as next chief investment officer – The Globe and Mail

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Ontario Municipal Employees Retirement System (OMERS) has named capital markets head Ralph Berg as its next chief investment officer, succeeding Satish Rai.

Mr. Berg starts as CIO on April 1 after two years as global head of OMERS Capital Markets, where he oversaw the public-market investments that make up more than half of investment assets at the pension plan.

In April, Mr. Rai will move to an advisory role and plans to retire from OMERS late in 2024. He has been CIO since 2018 and also led OMERS’ capital markets arm during his eight years at the pension plan, while helping guide its expansion into Asian markets. He was previously CIO at TD Asset Management, a division of Toronto-Dominion Bank.

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Mr. Berg has been at OMERS since 2013. He joined the pension plan as global head of its infrastructure arm after a career in banking at Credit Suisse Group AG and Deutsche Bank AG.

“Ralph is a proven investor and a seasoned executive,” said OMERS chief executive officer Blake Hutcheson, in a news release.

Mr. Berg’s successor as head of capital markets has yet to be announced.

OMERS had $119.5-billion of assets as of June 30 last year. Over Mr. Rai’s tenure as CIO, it has shifted more of its assets from public to private markets, which helped OMERS post steady results in the first half of last year, losing only 0.4 per cent despite difficult market conditions.

That came after two volatile years in the COVID-19 pandemic that included an 11.4-per-cent loss in 2020 – when OMERS marked down real estate and private equity holdings that were affected by strict public health measures – and a rebound in 2021 that saw the plan’s assets gain 15.7-per-cent.

As Mr. Rai prepares to step down, Mr. Hutcheson said: “I look forward to his continued commitment and counsel” in his advisory role.

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Ark Invest Cathie Wood: artificial intelligence chatGPT – CNBC

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Forget ChatGPT — an AI-driven investment fund powered by IBM's Watson supercomputer is quietly beating the market by nearly 100% – Yahoo Canada Finance

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The Watson-powered ETF is beating a total market fund by nearly 100%.PhonlamaiPhoto/Getty Images

  • While the language bot ChatGPT has gone viral, a Watson-powered ETF is making nearly double the returns of the broader market.

  • The AI Powered Equity ETF is up 10.4% in 2023, whereas the Vanguard Total Stock Market Index is up 5.67%.

  • IBM’s Watson supercomputer helps balance the fund’s portfolio holdings.

The popular language bot ChatGPT has shown a humanlike ability to render articles, emails, and even dating-app messages. But if you ask it to generate a portfolio that can beat the market, it spits out boilerplate information and reminds you it doesn’t have access to live stock data.

Yet, the $102 million AI Powered Equity ETF (AIEQ), which launched in 2017, has been quietly fulfilling that request so far this year. Issued by ETF Managers Group in partnership with the fintech firm Equbot, the fund leans on IBM’s Watson supercomputer to balance its portfolio.

That 114-holding portfolio is up 10.4% so far in 2023, while the Vanguard Total Stock Market ETF is up 5% over the same stretch.

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Still, as ETF.com highlighted, the former is actively managed, and thus more expensive than the benchmark fund, cutting into actual returns to investors. The AI-powered ETF charges 0.75%, whereas Vanguard’s costs 0.03%. Both funds include JPMorgan and UnitedHealth Group in their top-10 holdings.

Chris Natividad, the chief investment officer of Equbot, said the Watson-powered fund can look beyond standard market data and cull information from tweets and earnings calls, according to ETF.com.

“We’re focused on investment related data, looking at how these different types of signals impact security practices across different time horizons,” Natividad said, per ETF.com.

“The best days of the fund are still ahead of it,” he added. “And just as you’ll see ChatGPT’s responses change and evolve with time and data, so will our fund.”

Meanwhile, ChatGPT’s parent company, OpenAI, this month secured a $10 billion investment from Microsoft this month, and the technology continues to make waves across sectors.

Online media outlet BuzzFeed announced last week it plans to leverage the technology to create content, educators are warning about the bot’s repercussions in schools, and chipmakers are poised to cash in.

Read the original article on Business Insider

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