Many
investors
are
worried
about
the
year
to
come.
Nevertheless,
a
panel
of
experts
told
attendees
at
Morningstar’s
first
Executive
Forum
for
2024
yesterday
that
some
of
these
fears
might
be
overblown.
The
forum,
titled The 2024
Market
Outlook, addressed
inflation,
rate
hikes,
ESG,
The
Magnificent
7,
thematic
investing,
and
investment
opportunities
in
2024.
The
panellists
were
Judith Chan,
vice
president
and
head
of
multi-asset
portfolios
at
NEI
Investments;
Michael
Greenberg,
a
senior
vice
president
and
portfolio
manager
for
Franklin
Templeton
Investment
Solutions;
and
Michael
Gregory,
deputy
chief
economist
and
managing
director
at
BMO
Capital
Markets
Economics.
The
panel
was
moderated
by
Ian
Tam,
Morningstar’s
director
of
investment
research
for
Canada.
No
Recession,
But
Expect
Slower
Growth
Gregory
pointed
out
that
we
are
in
a
new
normal,
where
rates
stay
higher
for
longer.
“I
expect
for
the
next
few
months
the
central
banks
will
hold.
In
my
opinion,
the
Bank
of
Canada
is
closer
to
a
rate
cut
than
the
US
Federal
Reserve,”
he
said.
“Growth
is
lacklustre
in
Canada,
but
it’s
strong
in
the
US.
This
is
important.”
He
also
pointed
out
that,
with
the
2024
US
presidential
election
in
November,
the
Federal
Reserve
might
not
cut
until
after
the
poll.
Two
factors
now
impact
US
growth:
firstly,
the
multi-trillion
investment
in
industrial
policy;
and
secondly
strong
productivity
growth.
Greenberg
and
Chan
both
agreed
with
this.
“This
is
not
a
bad
environment
for
fixed
income;
you
get
both
diversification
and
good
yield,”
they
said.
“In
my
opinion,
2023
was
an
easy
year
for
central
banks.
Now
the
situation
is
not
as
easy.
In
2023,
the
banks
had
to
only
care
about
inflation;
now
they
need
to
balance
both
growth
and
inflation.”
For
Franklin
Templeton,
the
firm
likes
the
asymmetrical
returns
of
government
bonds.
“There’s
little
chance
of
losses,
but
the
yields
are
high,”
Greenberg
said.
“In
our
60/40
portfolio,
we
are
holding
higher
cash
balances.
We’re
currently
getting
5-5.3%,
it
is
hard
to
beat
that
for
now,
though,
of
course,
this
rate
will
fall
with
rate
cuts.
“We
could
offset
low
double-digit
gains
with
potentially
high
double-digit
losses
in
equities
should
we
go
into
a
recession.
To
be
clear,
our
base
case
is
not
a
recession.
We
anticipate
‘OK’
growth,
and
rates
coming
down.”
Chan
does
not
see
an
imminent
recession
either.
Rather,
her
base
case
is
a
moderate
slowdown.
“It
is
a
good
environment
for
equities
right
now,”
she
said.
“Inflation
is
coming
down
and
we
see
no
red
flags
in
growth.
Make
no
mistake,
growth
is
slowing,
but
we
don’t
see
any
red
flags.
Corporate
earnings
are
delivering
earnings
growth,
even
as
some
companies
are
belt-tightening.
“We
expect
moderation
to
come
in
sooner
rather
than
later
but
for
now,
we
are
in
a
good
spot
for
equities,
and
at
that
point,
company
fundamentals
will
become
even
more
important.”
‘Don’t
Give
Up
on
the
Magnificent
Seven’
Most
of
the
market
returns
in
recent
months
have
been
driven
by
the
so-called Magnificent
Seven –
Apple
(AAPL),
Microsoft
(MSFT),
Alphabet
(GOOGL),
Amazon.com
(AMZN),
Nvidia
(NVDA),
Tesla
(TSLA),
and
Meta
Platforms
(META).
Does
this
mean
we’re
in
a
new
dot.com
bubble?
No,
agreed
the
panel.
“We
are
seeing
froth
in
tech
valuations
just
like
in
1997
–
but
this
time
is
different,”
Greenberg
said.
“We
are
seeing
real
companies,
with
real
value,
taking
concrete
steps
like
buybacks.
The
valuations
are
high
but
can
be
justified.
These
Magnificent
7
companies
are
areas
of
long-term
exposure
in
a
portfolio.
We
look
at
the
theme
as
having
two
phases
–
AI
Enablers,
and
AI
Adopters.
“The
Magnificent
Seven
companies
are
the
enablers,
and
the
next
round
of
money
will
be
made
by
correctly
identifying
who
the
adopters
will
be.
Diversify
outside
of
the
Magnificent
Seven,
but
don’t
go
to
0%
exposure
on
them
either.”
Chan
goes
so
far
as
to
argue
this
time
could
be
considered
the
opposite
of
the
bubble
of
the
late
1990s.
Speaking
of
the
Magnificent
Seven
stocks,
she
said:
“The
earnings
delivery
for
these
companies
is
beating
expectations.
Growth
rates
are
being
revised
upwards.
In
the
short-to-medium-term,
it
is
a
winner-takes-all-situation,
because
who
will
compete
with
the
existing
behemoths?
“It
might
take
some
time
for
the
capacities
of
competitors
to
come
on
board,
so
longer
term
there
might
be
competition,
but
for
now,
the
growth
justifies
some
of
the
premium.
I
expect
the
dominance
to
continue.”
Going
ahead,
Greenberg
is
still
looking
at
the
US
market
for
equity
ideas,
albeit
with
a
difference.
To
him,
“the
US
is
the
least-dirty
shirt.
It
takes
a
long
time
for
the
interest
rate
action
to
get
into
the
US
economy.”
“For
now,
we
are
overweight
on
the
US
equities,
but
are
less
interested
in
large-cap
growth
stocks,
and
are
focused
more
on
small
caps,
and
value
players,
which
have
been
left
behind
in
the
rally
so
far.”
Investors
Still
Want
Dividends
An
investor
favourite
in
the
UK,
Canada,
and
elsewhere,
dividends
will
always
be
important
to
certain
investors
looking
to
make
an
income
from
their
holdings.
“Dividends
will
be
more
favourably
taxed
than
interest
income,
and
that
plays
into
the
popularity
of
dividends,”
Chan
says.
“For
us,
how
companies
allocate
capital
is
more
important,
as
we
focus
on
total
returns.
US
companies
are
now
buying
back
–
will
this
trend
come
to
Canada?
Maybe
–
but
dividends
will
stay
in
favour.”
Greenberg
agreed
but
added
that
the
high
interest
rates
on
cash
won’t
last
forever,
and
investors
will
have
to
seek
higher
yields
elsewhere.
But
where?
“General
portfolio
management
101
says
you
should
focus
on
total
returns,”
he
said.
“For
example,
I
could
get
20%
on
Zimbabwe
debt,
but
could
lose
half
my
money.
I’d
say
don’t
ignore
non-dividend
payers
–
companies
that
buy
back,
or
allocate
differently
–
just
to
chase
high
dividends.”
Finally,
a
Word
on
Liquid
Alternatives
Greenberg
and
Franklin
Templeton
are
considering
liquid
alternatives
in
2024.
“Investment
solutions
are
evolving,
whether
it’s
ESG,
liquid
alts,
or
crypto
or
other,”
he
said.
“How
investors
consume
their
content
is
also
changing,
and
so
is
how
they
buy
their
investments
–
whether
it
is
through
traditional
routes,
DIY,
or
robo-advisers.
“We
are
focused
on
building
the
same
or
similar
portfolios
for
all
our
clients,
but
we’ve
found
that
how
we
deliver
our
solutions
is
important.”
Liquid
alternatives
are
one
such
example
of
an
evolving
asset
class.
“Many
launch
liquid
alt
funds
that
invest
in
high
yield
instruments
or
listed
real
estate.
But
are
these
liquid
alts?
Or
are
they
just
stocks
and
bonds?”
he
asked,
adding
that,
when
you
buy
an
actual
liquid
alt,
you
get
true
diversification
–
but
you’re
also
making
a
major
bet
on
the
manager.
“You
might,
for
example,
pick
the
ideal
asset
class,
but
a
bad
or
wrong
manager
will
erode
all
your
gains.
You
need
to
make
both
an
alpha
and
a
beta
bet,
and
that
is
hard.
For
us,
we
like
semi-liquid
alts,
with
an
illiquidity
premium.
Some
of
our
investments
could
be
locked
up
for
10
years.
That
is
a
hard
sell
for
retail
investors.”
Finally,
whether
you’re
considering
liquid
alts,
cryptocurrency,
artificial
intelligence,
or
any
other
theme,
Morningstar
has
long
held
the
view
that
investors
in
thematic
funds
are
making
a
trifecta
bet.
They
are
betting
that
they
are:
•
Picking
a
winning
theme;
•
Selecting
a
fund
that
is
well-placed
to
survive
and
harness
that
theme,
and
•
Buying
in when
valuations
show
untapped
potential.
It
is
difficult,
if
not
impossible,
to
consistently
get
all
three
right.
This
article
originally
appeared
on
our
Canada
sister
site
and
has
been
adapted
and
republished
for
audiences
in
the
UK
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