Skip to main content

October 13, 2021

The Case for Equities 

As we entered the second half of 2021, investors were focused on three main concerns:

  • The COVID-19 Delta variant
  • Peak growth rates, money supply and valuations
  • The easing of government subsidies.

This month we’re sharing our thoughts on why—despite these concerns—it still makes sense to overweight the equity exposure in our portfolios.

The race against Delta

The Delta variant is responsible for the majority of new COVID-19 cases. While it is an obstacle in our return to normal, it’s unlikely to trigger lockdowns (which would be a set back for economies). Large percentages of the population in Canada and other developed countries are vaccinated. Those who are vaccinated and contract COVID-19 either have no or mild symptoms. In Canada, approximately 70-80% of new cases are found in unvaccinated individuals who make up 30% of the overall population. These cases will likely decline as the unvaccinated either contract COVID-19 and develop herd immunity or choose to get vaccinated. The reality is we will have to live with this virus and adjust our lifestyle (which likely includes receiving vaccines regularly).

The markets occasionally bring up the Delta variant as a cause of volatility. We disagree. Even though economies may grow below full potential for 2021 as people slowly return to their normal lifestyle (and spending habits), the pent up demand backed by savings will be unleashed in the coming quarters. This should support a more durable recovery.

The ups and downs

Economic growth

Even though growth rates have peaked, we’re still in the early stages of recovery and economies continue to grow. We anticipate both Canada and U.S. will see growth around 6% this year, followed by another above-average rate of at least 4% in 2022. Some of the recent growth constraints have been supply related and will improve overtime, such as what happened with lumber earlier this year. You may have also heard about the global chip shortage, which could continue into 2022. Chips—used in consumer electronics and even automobiles—had shortages caused by skyrocketing prices. This, in turn,  has resulted in “weaker” demand as some consumers choose to wait.

Central banks and fiscal stimulus

Central banks globally grew their balance sheets by 62% (US$10) trillion since December 2019* (through the increase of money supply in the market). This will not continue forever. We anticipate central banks will start pulling back in 2021 (note the Bank of Canada has already started) and money supply will peak globally sometime in 2022. The good news is money velocity will continue to increase as it is not only saved but spent. This means the positive impacts will be lasting impacts.

Stock markets and interest rates

Stock markets are trading at higher than normal valuations. And it’s not the only outlier:

  • Interest rates are close to zero
  • Bond yields are below inflation across the curve
  • Investors are earning nothing by leaving money in their savings accounts.

On the other hand, borrowing is extremely cheap. In the U.S. you can get a 30-year fixed-rate mortgage for less than 3%, versus above 7% in other periods. More importantly, corporate earnings are growing. Valuations are measured by two variables: prices and earnings. If prices grow but earnings don’t, that’s a problem. We anticipate earnings to grow at a faster rate than prices, bringing valuations to below 20x (above 20x is considered high for many investors).

On the job front

As job conditions improve, governments will begin cutting subsidies. It is normal to assume people need to return to work to get paid. While subsidies will be cut, their cash flows will be replaced by payrolls. We are seeing a pretty hot job market as many companies are raising wages to retain and hire.

The role of government

We’ve seen extraordinary situations in the last 12 months and expect more of the same in the next 12. Stocks will remain the preferred investments, driven by growth and continued accommodative policy. Growing our capital is not an option as inflation is expected to stay at elevated levels.

Politics rarely have long-term impacts on performance, but it is worth monitoring. In Canada, the federal election saw the Liberal’s past the post first for another minority government.  The markets have largely ignored the election, both in the lead up and following, as investors see very little changes in fiscal policies with either party. We continue to have a large portion of our portfolio invested outside of Canada for diversification and to gain access to certain sectors and individual quality companies.

Obviously, government is not equal to the economy and the economy is not equal to corporate earnings. However, this may be less true for China. The central government has recently announced a new “common prosperity” theme for guiding wealth distribution in the country. It is all logical for a socialist/communist regime but is a potential nightmare for capitalists/investors. We have seen the government launching policies targeted at education, property and tech sectors, dramatically reducing their earnings power—cutting profits for investors (“the rich”) and subsidizing consumers (“the poor”). It remains a black box how far earnings will be hit, which is why we currently hold an underweight to China.

Tactical asset allocation

We take a long-term view when it comes to constructing our portfolios. But the past two years have reminded us that tactical adjustments can occur when you least expect it. As the world begins to shift back to normal (or a revised version of it), we’ll take advantage of the flexibility within our mandates to keep your investments on track and seeking new opportunities. 

About the Author

Alfred Lam

Alfred Lam, CFA

SVP, Head of Multi-Asset
CI Multi-Asset Management

Alfred has more than 18 years of experience specializing in portfolio design, asset allocation, manager and fund selection, and risk management. While at CI Global Asset Management, Alfred has brought unique ideas and processes to the management of the team’s multi-asset strategies, including a mean-reversion currency management strategy, the concept of investing in concentrated and benchmark-agnostic portfolios, and a new approach to risk management. In addition to the Chartered Financial Analyst (CFA) designation, Alfred holds an MBA from the York University Schulich School of Business, and is a member of the CFA Institute and the Toronto CFA Society.

About the Author

Marchello Holditch

Marchello Holditch, CFA, CAIA

Vice-President and Portfolio Manager
CI Multi-Asset Management

Marchello Holditch, CFA, CAIA, Vice-President and Portfolio Manager, oversees CI's multi-manager, multi-asset investment programs. He is responsible for managing CI’s institutional and private client multi-asset portfolios and is a member of the CI Multi-Asset Investment Committee. Previously, Mr. Holditch led CI’s portfolio manager research and oversight function, where he was responsible for evaluating the investment managers of all CI funds. Prior to joining CI, Mr. Holditch worked at a major global consulting firm, where he assisted a wide variety of institutional clients with risk budgeting and asset liability modelling, as well as investment manager research and selection. He holds an Honours Bachelor of Mathematics degree in actuarial science from the University of Waterloo and is a CFA charterholder.

*Calculation includes data from the U.S. Federal Reserve, Bank of Japan, European Central Bank, Bank of England, Bank of Canada, Royal Bank of Australia and Swiss National Bank.



This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication.  Market conditions may change which may impact the information contained in this document. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. 


The opinions expressed in the communication are solely those of the authors and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed.


Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “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 herein are based upon what CI Global Asset Management. and the portfolio manager believe to be reasonable assumptions, neither CI Global Asset Management nor the portfolio manager can 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 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.


Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.


CI GAM | Multi-Asset Management is a division of CI Global Asset Management. CI Global Asset Management is a registered business name of CI Investments Inc.


©CI Investments Inc. 2021.  All rights reserved.


Published October 13, 2021.