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In today’s episode, Dave is joined by Sarah Riopelle, Vice-President and Senior Portfolio Manager, RBC Global Asset Management. They look at how conservative portfolios are faring in this period of volatility, and discuss why diversification across all asset classes is key to staying the course. (Recorded on April 6, 2020)


Hello and welcome to the download. I'm your host, Dave Richardson. This is RBC Global Assets Management's daily podcast, looking at issues in financial markets and how you can respond as an investor. And today, I'm really pleased to be joined by Sarah Riopelle, one of the lead investment managers at RBC Global Asset Management. And Sarah has published a piece this morning that is available on rbcgam.com that talks about the experience that conservative investors are having in this financial crisis and how diversification has helped portfolios navigate very volatile markets. Sarah, it's an extremely interesting piece. Thanks for joining us today.

Thanks for having me.

And I think one of the key pieces, the key charts in the content is that if we look at 2020 thus far — and we're not very far into the year — and this has really been over the last, say, 20 days of market activity, we've had 19 days where the market has moved in one direction or another, more than 2 %. But it's a very different experience for conservative investors. Maybe you could highlight that for us.

Yes, that's correct. And we've been getting a lot of questions around the conservative portfolios and asking about how they have done through this period of volatility. So equities have certainly been very volatile, as you said, 19 days with moves of greater than 2 % so far this year. That's more than we've seen in many other years through history, even through the financial crisis. The conservative portfolios have fared quite a bit better, have not been as volatile. We've only had seven days so far in 2020 where we've had movements of the value of the fund greater than 2 %. The last time we saw volatility of that magnitude was during the financial crisis in 2008 and 2009. And every year since then, we've had no periods where those conservative portfolios have moved greater than 2 %. And I think that's because of the way that it's structured. They're well-diversified portfolios. They have a significant allocation to fixed income. And that helps to provide the ballast in a multi asset portfolio to offset some of that equity market volatility when we go through periods like this.

And just to clarify, when we're talking about a conservative portfolio, we're talking about what percentage in stocks and what percentage in bonds?

Well, it varies. It's sort of 70/30 fixed income and equities. Or we have different profiles across for different client groups, very conservative or conservative balance. And so as you get more towards a conservative end of the scale, it's going to be more fixed income, like 80 %, and as we shift down the risk spectrum, you get a little bit more equities in a little bit less fixed income.

But the key point that you would be emphasizing to investors who are watching all the really dramatic moves in equity markets day after day, is that diversification is a strategy we talk about all the time as being valuable and it's paying off for more conservative investors in some way this time.

Absolutely. And it's not just diversification at the top asset class level. So we talk about cash, stocks, bonds, but within each asset class, we have to consider that as well. So within fixed income, we have sovereign bonds, we have corporate credit, we have been building our high yield bond positions as well, as valuations in that space have become very attractive over the last couple of weeks. Within equities, we don't just own the S&P 500 or are a US benchmark. We have equity allocations in five or six different regions around the world. We also have large and small cap. We have dividend paying and growth. And so we have a lot of different ways to diversify the portfolios to try to create these strong and consistent returns over time. So the key takeaways, I think, from that piece are probably that the portfolios have produced strong and consistent returns over most timeframes. The variability of those returns is very low compared to the overall equity markets. And like I said, it's a very rare occurrence for the value of any of these funds to move more than 2 % in a day.

And, so important as you point out: it's not just the diversification of cash bond stocks, it is that diversification in all categories across geographies and risk levels. And you think of what's happened with the oil market around the world, the impact it has on an economy like Canada. That diversification is valuable. Sarah, thank you so much for joining us today.

Great. Thanks for having me.

And we'll look for you tomorrow on The Download.


Recorded April 6, 2020

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