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About this podcast

In today’s episode, Sarah Riopelle, Vice President and Senior Portfolio Manager, Investment Solutions, joins Dave to talk about her strategies to rebalance and reposition portfolios for success in both credit and stocks, as well as exploring the hidden opportunities within.

Transcript

Hello and welcome to the download. I’m your host, Dave Richardson. And I’m joined today by Sarah Riopelle, portfolio manager who manages a suite of portfolio solutions at RBC Global Asset Management. A real important part of the construction of any portfolio is fixed income. And a lot of the headlines around markets relate to the stock market and what’s going on in stock markets around the world. But most Canadians have more fixed income in their portfolio than stocks. And so, I thought I would check in with Sarah today and find out: in the portfolio she’s managing what’s going on with the fixed income portion? And Sarah, welcome! We touched on this briefly a couple of weeks ago, but perhaps we’ll go into some more detail today on what you’ve been doing inside of portfolios on the fixed income side, in advance of the crisis and then as we move through?

Sure. So the movements in fixed income for us have been driven somewhat by the equity weight as well, because we’ve been addressing drift in the portfolios and also because there’s been opportunities within the fixed income market that we wanted to take advantage of. So we’ve been selling bonds and buying stocks to address drift in the portfolios. But because credit spreads were widening and we saw an opportunity in credit markets to add to positions there, when we were selling bonds to address drift, we were focusing ourselves on universe and government bonds, and we were avoiding selling some of the credit positions because that would gradually work those credit weights up over time, if we were avoiding selling those pieces. The other thing we’re doing is we’re actively adding to some of our credit positions. So, for example, we have an allocation to European high yield; but we were underweight, so we were adding to European high yield during this to reduce that underweight position. But the key here is that we have to be careful not to add too much risk to the portfolios because we’re buying both stocks and credit positions. So it’s really important that we control the amount of corporate risks that we have within the portfolios because you get that on both the equity and the bond side. So as we were building credit positions, we actually slowed our pace of equity buying to make room for more credit positions. So the net effect of that is: we’re buying more credit and buying a little bit less equities. And so, we’re increasing our overall corporate risk in the bond portion of the portfolios rather than through the equity side of the portfolio. So it’s really important to make sure that we have good look through capabilities on the portfolios, understand what all of our positions are, what our overall risk appetite is, and make sure that we’re actively adjusting the decisions that we’re making on a day to day basis, to make sure that we’re comfortable with the risk positions. So overall, we’ve been buying stocks. We’ve been buying credit. We’ve been adding to high yields, emerging market bonds, as well as investment grade corporate bonds, and really just trying to position the portfolios for the recovery.

Yes. And I think there are a couple of important points there for all investors who are managing their own portfolios: that they need to be conscious of rebalancing. As markets are moving around as much as they are right now, that rebalancing is critical. And then, as you’re rebalancing, you want to make sure that you’re positioning your portfolio for success as markets recover, both credit and stock. Would that be a good way of positioning it Sarah?

Absolutely. And it’s also important to not just think about bonds and stocks exclusively. It’s about what are all the opportunities inside both of those asset classes. So what are the options inside equities? Where are the opportunities inside fixed income? And make sure that you’re using all the levers that you have available to you?

Yes, it’s like anytime markets are going well, you want to think about where you want to be positioned. And then in the midst of a crisis, sometimes opportunities are presented that normally wouldn’t be there for you. So it’s an important time to be active, right?

Absolutely.

Great. Well, thanks, Sara. Thanks for your time again. And we’ll look forward to chatting with you soon.

Great. Thanks for having me.

Disclosure

Recorded April 20, 2020

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