Asset Allocation

Amidst Trump 2.2

By Dave Makarchuk, WealthCo Chief Investment Officer

Our April 4th update summarized my investment perspective on the impact of the first few months of the Trump 2.2 administration.  Equity market volatility soared following Trump’s Liberation Day announcements as the breadth and magnitude of tariffs vastly exceeded market expectations.  

This article discusses our perspective regarding asset allocation in these very uncertain times for individual investors as well as context on recovery rates from previous market adjustments. 

Background 

The equity market’s reaction to Trump’s Liberation Day announcements has been severe.  Through April 4th, the S&P500(in $CAD) had returned -10.6% for the month and -14.5% year-to-date1.  While WealthCo’s equity portfolio has performed slightly better (-8.0% for the month, -12.5% year-to-date), relative outperformance in a negative market serves as little consolation for nervous investors. 

WealthCo has always reaffirmed the importance of diversification in its portfolio recommendations to protect against the risk of the rapid swings the equity market is currently demonstrating.  Our  average client allocation to Core Equities is 32%. Our most aggressive target allocation to equities is 40%.  With more than half of invested assets in securities other than Core Equities, WealthCo investors are weathering the storm relatively well. 

Through April 4th, our Fixed Income portfolio is up 2.2% for the year.  Each of our Alternative portfolios is down slightly (-1.1% for Alternative Growth, -1.3% for Alternative Income). 

Balanced Wealthco investor portfolios are down about 4% for the year (through April 4th) following an increase of 13.4% in 2024.

1. WealthCo fund performance figures are presented net of investment management fees but before advisory fees.

So what happens next?  

Our April 4th update summarized our investment perspective on the current situation.  This is truly an unprecedented situation and therefore difficult to forecast.  Opinions and perspectives from pundits, experts, and laypersons are plentiful.  As we discussed earlier, we generally see two plausible paths forward: 

• The resolve of the Trump administration is firm.  Regardless of the impact on financial markets, inflation and unemployment, they persevere in an effort to dramatically reorganize world trade.  Equity market performance continues to fluctuate. 

• Tariffs at this level are a short-term ‘means to an end’ and are negotiated to lower levels in trade-offs with various countries/sectors. Equity markets snap back, but take some time to recover to 2024 levels.  

How long will it take for my portfolio to recover?  

With the utmost of humility, the honest answer is that we don’t know how long recovery will take.  The situation is unprecedented and has shocked and surprised investors around the world.  But we do believe that on a relative basis, the WealthCo portfolios are well positioned and haven’t fallen as far.  Here’s some facts to support our perspective based on monthly performance data: 

WealthCo has been managing balanced portfolios for 129 months (since June 2014).  Looking at monthly data over that time period, cumulative performance declined from an all-time high on 20 separate occasions during that period.  The table below illustrates the number of months to recovery (i.e. a new all-time high):

More often than not, Wealthco Balanced portfolios recover quickly. In fact, 50% of the time they recover after 1 month.  Obviously this decline will be longer (the last high was established at the end of January).  Recoveries have taken more than 6 months only twice: 

1). 7 Months to recover from the March 2020 pandemic shock 

2). 15 months to recover from the Supply Chain/Ukraine invasion of January 2022. 

For comparison, here is the same assessment for our balanced benchmark2 (XBAL).  Quick recoveries are less frequent for portfolios without alternative exposure, and deeper recoveries have taken much longer to recover from: 

1). 15 Months to recover from in 2015/2016 

2). 23 months to recover from the Supply Chain/Ukraine invasion of January 2022. 

Why Pooled Alternatives Continue to Make Sense 

WealthCo remains committed to diversified allocations to pooled alternative investments.  Especially in volatile markets as we are seeing right now, diversified Alternatives provide investment exposure with low correlation to public equities with much lower volatility.   Their diversified nature ensure ample liquidity for the pool while participating in high quality underlying investments.  

Reaffirming our Asset Allocation Advice for our Clients 

Once again, we will reaffirm a few basic messages to our clients regarding their asset allocation: 

• We recommend avoiding exposure to financial markets for any capital expenditures coming due in the next 6-12 months or for any assets which you absolutely cannot tolerate any reduction in value.  The short-term is very uncertain. 

• For assets dedicated to long-term savings or long-term consumption (3 years or more), we continue to recommend broad diversification including a 50% allocation to alternatives.  While it might be tempting to some investors to market time the current situation, research very much indicates that individual investors mis-time these decisions much more often than not.   

For clients whose situation or risk tolerance has evolved (perhaps due to retirement, a career change, or family change), a review of their asset allocation may be warranted. If this is the case, please contact your financial planner and WealthCo Asset Management representative.   

In closing 

With over a decade of experience in managing pools that include bona fide Alternative investments, we remain confident that our disciplined and deliberate approach will continue to deliver the long-term results our investors seek. Our commitment to limiting short-term volatility while providing consistent returns underscores the strength of our model. We deeply appreciate your trust and support and look forward to helping you achieve your financial goals.  

Wishing you all the very best as we navigate these uncertain times. 

WealthCo fund performance figures are presented net of investment management fees. Our Global Equity Benchmark is the MSCI All Country World Index. This benchmark is the institutional standard for global equity benchmarking of diversified equity portfolios. It represents the market weighted performance of nearly 3,000 stocks (or approximately 85% of the global investable equity opportunity set). Our Fixed Income Benchmark is the FTSE Canada Universe Bond Index. This benchmark is the institutional standard for Canadian fixed income benchmarking of diversified investment grade portfolios. It represents the performance of the Canadian dollar denominated investment–grade fixed income market.

WealthCo Asset Management Inc. is a subsidiary of The WealthCo Group of Companies and is licensed to use the “WealthCo” trademark. WealthCo Asset Management Inc. (“WealthCo”) is registered as an Investment Fund Manager in the province of Alberta. It holds a Portfolio Manager registration in the provinces of Alberta, British Columbia, Manitoba, Northwest Territories, Ontario and Saskatchewan and an Exempt Market Dealer license in the province of Alberta. The information provided herein is for general information purposes and should not be construed as an offer to purchase, sell or trade in securities. The historic returns and their relative performance shown herein may not be indicative of future returns. Past performance is not indicative of future results. Performance cannot be guaranteed.