If there is a cliff out there somewhere, and there always is, it is best managed by having all of the tools in your shed as sharp as possible. As we approach the end of this amazing year, it is an excellent time to look at your overall asset allocation in the context of your long-term goals and objectives. Think about rebalancing regimens and consider how each element of your program contributes to the totality of your investment pool.

Ask yourself these questions:

• What role does fixed income play?
• Do you have sufficient liquidity or more than you need?
• Is your exposure to equity more than you have anticipated as rates have fallen and stock prices generally rose?
• Are there other areas of investing that you should consider that may help you achieve long-term targets while providing diversification?

What is our outlook?

Final third quarter results should improve with ongoing reopening plans. This improvement is supported by new jobs growth through the end of August. However, as with other global economies, labour shortages in Canada are a concern, with many organizations reporting difficulty hiring staff. Additionally, household debt continues to be a risk to the Canadian economy, with rising interest rates and payments adding headwinds now and in the near future. The Canadian dollar (vs. USD) fell to 0.788 by the end of September, continuing to demonstrate variability relative to higher valuations at the end of June. Energy continues to be the best-performing sector, supported by consumer staples, information technology and industrials. The Bank of Canada expressed concern regarding inflation and whether it could be structural vs. transitory. Canadian fixed-income markets were largely flat until turning negative during the last week of September.

We continue to be neutral to target on large-cap U.S. equity relative to our long-term capital market assumptions. Our views on both non-U.S. large and small cap stocks on an unhedged basis remain a notch below neutral.

With pressure on rates increasing, we believe it will be difficult to achieve expected long-term returns on traditional U.S. and non-U.S. fixed income and that the opportunity in this asset class is to stretch a bit, not too much, into more specialized areas, such as high yield, structured credit and emerging market debt.

Our overall near-term outlook for alternative investment remains favorable. Private equity, real estate, infrastructure and energy all continue to project continually improving fundamentals and positive momentum with near-term performance anticipated to meet or modestly exceed our capital market assumptions.

What does our outlook cover?

The Q4 2021 Investment Outlook includes tables that provide a snapshot of our forward-looking observations on the key macroeconomic factors driving markets and the direction of specific asset classes.

Global macro signals and outlook

We cover these global macro signals for developed markets and emerging markets:

• GDP growth
• Inflation
• Policy rate
• Currency
• Equity valuations

Asset class signals and outlook

For 24 asset classes, we select one of five outlook signals based on our 12–18 month perspective relative to our 10+-year CMAs. The signals range from an above-normal return outlook to a below-normal return outlook.

The asset classes include equities, fixed income and these alternatives:

• Hedge funds
• Multi-asset class strategies
• Private equity
• Real estate
• Infrastructure
• Commodities
• Energy
• Timber
• Farmland