For years, investor attention has been fixed on the AI build-out and tech firm dominance, but the real opportunity may be building for Canada. In this video, Jennifer McClelland, Senior Portfolio Manager of RBC Canadian Equity Income Fund, reflects on how the Canadian equity market has evolved over the last two decades – how it has transformed in many ways, yet is remarkably similar in others. She also examines Canada’s unique opportunity moving forward. With a government committed to competitiveness, a supportive world-class banking sector and a wave of real infrastructure projects getting green lit, Canada is uniquely positioned to benefit from the next decade's demand for power and commodities. Despite inevitable bumps in the road, it’s a compelling path ahead for Canadian equities. Watch to learn more.
Key Takeaways
History rhymes: Today's TSX shares striking similarities with 2006 given its dominant commodity and financial sectors and an environment of rising rate concerns, but with a deeper, more investable set of names.
The narrative is shifting: As uncertainty grows around the AI and data-centre build-out, there is no question Canada's commodities, power generation and infrastructure will be an integral part of the equation.
Policy tailwinds are building: A Canadian government focused on competitiveness and removing barriers to innovation, combined with a strong banking sector, creates a powerful foundation for growth.
Real projects, not hype: The era of ‘easy money’ on low rates and infinite growth is over; what's replacing it is tangible investment in green lit projects across the Canadian economy.
Watch time: 6 minutes, 28 seconds
View transcript
Jennifer McClelland, CFA - Managing Director & Senior Portfolio Manager, North American Equities
What’s your outlook for the Canadian market going forward?
It's an interesting time for the TSX. You know, we've had a period of time where so much focus has been on the rollout of AI and the build out of data centres, and not a lot of exposure directly within the Canadian market. I think now that there's a little bit less certainty as to what that path looks like, I think what we have within the Canadian market in terms of our opportunity for growth, alongside the growing need for power and the underlying commodities that provide power that's going to be needed over the next couple of decades, I think Canada as a country is really well positioned here. We also have a government that is very committed to increasing the relative competitiveness of Canadian companies and to removing barriers to innovation.
So, a lot of those things combine together, along with the support of a very strong banking sector and a very strong capital base within the Canadian banks that are there to fund this growth - there’s just is a lot of opportunity out there. And I think these opportunities are getting more attention from outside the market.
I think the easy money on capitalizing on lower rates and infinite growth is gone. And I think that the focus on real opportunities and a lot of real projects coming off - getting greenlit and getting off the ground - and where within the Canadian economy there's going to be benefit, is going to bring a lot more attention to the Canadian market. I don't think it's going to be a smooth path, but I do believe that we have an interesting path higher for our market. I think that we are going to participate in the volatility that's out there. It's hard to see when that's going to end. But if you take a two, three-year view and start to see what's happening under the surface, there's real projects that are being greenlit.
There's a lot of investment opportunity that's coming together. There's a really good temperature out there with our government and supporting various sectors within our economy. And I think that's good for Canada. It's good for economic growth within Canada.
A lot of the activity that's going to take place is very much going to underpin our various commodity sectors within Canada. So, when you wrap it all together and you look at an economy with maybe an improving culture, I think that looks pretty good going forward in the TSX.
And I think the broadening out of various areas that will benefit from what's going to happen over the next few years should bring a lot of attention to our market, as a lot of more difficult things are happening elsewhere. So I feel pretty positive.
How has investing changed over the past 20 years since the launch of RBC Canadian Equity Income Fund?
It's changed a lot. I'm going to kind of click that in specific to the Canadian equity market and maybe the Canadian equity income market. It's interesting, it's changed significantly, but in a lot of ways it's very similar. You know, taking a snapshot and looking at what was happening in 2006 when this Fund was launched, we had a Canadian equity market that had started to go through a period of gradual increase in rates. Concerns over rising rates were starting to be talked about. Similar to what we have today - we have a commodity market that is a really dominant theme. Similarly in 2006, the energy market and the gold market were a big part of investor attention for lots of reasons. So, the dominance of those sectors, as well as the financial sectors and the makeup of the TSX were very similar between 20 years ago and today, which is quite interesting.
There was a lot of differences, though, from looking back then to today. The individual sectors themselves were different, with different players, and a lot, more interesting names to choose from in terms of core names in an income portfolio like the one we manage, and companies in the commodity side: really large, high quality dividend payers that understand the benefit of a strong, stable cost of capital and a supportive shareholder base, and companies that are not trying to chase commodity prices like they were in the early 2000 and continue to expand production, not taking into account costs. There's a lot more discipline out there today, and it creates a much more attractive set of companies to invest in and on the financial side, the dominance of the Canadian banks and the strength as they went through a very difficult period over the financial crisis, which would have happened just after a couple of years after the fund was launched.
The learnings that came out of that have created the Canadian banks that are five times bigger in terms of market cap today, much more well diversified in terms of their business models and much more resilient in the face of difficult periods like we're having and in fact are well positioned to take advantage of a lot of things that are going on today.
And then in terms of what the investor universe looked like, investors have way more choice today in the income space. It's almost very overwhelming in terms of the opportunity set that they have. They have a lot more information in front of them, as do we.
But interestingly, in the stock market, I would say, the information is a lot, even though we have a lot more information, I think the dislocation in the stock market and the public equity market is a lot higher today than it was in 20 years ago, and that's saying a lot because it was a pretty volatile time then as well.