Empire Life Blog In a slowing economy, the right investment strategy plays a key role in downside protection

A message from Paul Holba: SVP and Chief Investment Officer

In a recent video, Paul HolbaCIO, reviews the key market events of 2022 and outlook for 2023. He also shares how the team’s investment strategies reflect our cautious view of the environment, but with some positive outlooks and opportunities.

Summary:

2022 Review:

If you read the headlines, 2022 was a challenging year – high inflation in developed countries, a rising interest rate environment and continued geopolitical challenges driving up commodity prices.

In addition, we saw bond yields skyrocket as most asset classes took a hit. The MSCI World Index was down over 25% at its lowest point. Canadian bonds, usually a good hedge against stocks, had their worst year since 1980, falling 12%. Housing prices are falling everywhere. Bitcoin crashed. Gold didn’t do well either because of higher rates and a strong US dollar. Essentially, there were few places investors could hide.

Through it all, our investment strategy played a significant role in the success of many of our investment mandates. According to Morningstar’s preliminary stats, islandoverall, 85% of Empire Life’s segregated fund assets performed better than the average of their corresponding peer groups in 2022.1 Empire Elite Equity fund, American Value Fund and Asset Allocation Fund all finished the year in at least the top 13 percentile of their categories, continuing their track record of protecting on the downside while capturing the upside. In an environment where you read that the S&P 500 was down over 19% and the NASDAQ was down over 33%, your Empire Life American Value fund lost just 2%. That’s what we mean by protecting on the downside.

2023 Outlook:

As we head into 2023, we expect that the economy will still deal with high (but easing) inflation and a global slowdown that could lead to a mild recession. We believe that we’re closer to the end of the current interest rate hike cycle than the beginning, especially in Canada. So, some challenges might ease up in the year’s second half if inflation calms down and monetary policies loosen up as we expect. But the significant challenges of nationalism, de-globalization, and geo-political divisions will probably keep causing much of the volatility in financial markets.

Our investment strategies reflect our cautious view of the environment. Right now, we’re taking a defensive stance by keeping more cash and diversifying our investments across different asset classes, sectors, and regions. We’ll keep focusing on picking the right companies to invest in that can handle the slowing global economy.

The investment team will also use market volatility to buy shares in some high-quality companies “on sale” because their valuations have dropped to levels we haven’t seen for many years.

January 2023 marks Empire Life’s 100th year of helping Canadians build wealth and protect their financial security. Leveraging Empire Life’s investment expertise and experience, plus our segregated fund contract features will help our investors navigate the new year, where monetary policy is less accommodating, and markets are more volatile than we are used to.

Thank you for your continued support, and we look forward to serving you for the next 100 years.


1 Empire Life analysis based on AUM as at Nov.30, 2022 and Morningstar Research Inc. preliminary 2022 performance ranking report as at
January 2, 2023.

Empire Life will endeavor to ensure the information presented is accurate and updated, but will not be held liable for inaccuracies.

Segregated Fund contracts are issued by The Empire Life Insurance Company (“Empire Life”). Empire Life Investments Inc. is the Portfolio Manager of the Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Past performance is no guarantee of future performance. All returns are calculated after taking expenses, management and administration fees into account.

This video/document includes forward-looking information that is based on the opinions and views of Empire Life Investments Inc. as of the date stated and is subject to change without notice. This information should not be considered a recommendation to buy or sell nor should it be relied upon as investment, tax or legal advice. Information contained in this report has been obtained from third-party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. and its affiliates do not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and does not accept any responsibility for any loss or damage that results from its use.

January 2023

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