Despite a lackluster December, 2024 was a stellar year for global equities. Annual returns registered in the double digits for North America, Europe, Asia and emerging markets in Canadian dollar terms. But divergence amongst regions was stark. The US S&P 500 Index delivered a staggering 36% return, which was more than double most other country and regional stock markets. 

After back-to-back years of over 20% returns for US equities, how sustainable is this torrid pace? Earnings have been strong, profit margins are wide and US firms are seen as the “winners” from the AI boom. But all of this is well known and arguably “in the price” of US equities already. The clear and present danger for US equities is that because expectations are so high (and their corresponding valuations), any misstep (pick your poison: AI revenues start to decelerate, the monetization of massive AI investments disappoints, nationalist policies backfire or have unintended consequences, etc.) could lead to a sharp roll-over. 

That is not to say that one should not own US equities. Our strategies own plenty. But managing the inherent risks is critical. Performance has been highly concentrated amongst the largest US companies; making market capitalization-weighted indices such as the S&P 500 increasingly “top heavy”. We have elected to layer in positions in US banks and US mid-caps to take advantage of a likely re-steepening of the US treasury yield curve, tailwinds from Trump’s pro-business agenda (deregulation and tax cuts) and limit exposure to the mega-cap stocks which are priced for near-perfection.

We also see plenty of opportunities outside of the US. Japan’s industrial-centric economy has become extremely competitive with the Japanese yen at depressed levels, capital investment in Southeast Asian economies is flourishing and a long-awaited credit cycle looks to be taking hold in India. Countries in Latin America are priced for near-disaster, with a number of nations’ equity markets trading on single digit price-to-earnings multiples and offering lofty dividend yields. A recovery in Chinese demand (supported by a rapidly shifting policy environment) could provide a significant boost to Latin America’s export (and earnings) outlook.

But opportunities aside, in an investment environment which has been characterized by very narrow market leadership from a handful of US companies, global diversification is more important than ever. If the US continues to surge, a globally diversified portfolio should do just fine, but it will likely underperform. But if US stocks fail to meet expectations, a globally diversified portfolio should offer significant downside protection. This is a favourable trade-off. Ultimately, we are paid to grow our clients’ capital, while managing the risks associated with doing so. We firmly believe that an opportunistic, but widely diversified approach offers the best foundation from which to deliver successful outcomes for our clients.    

Maintaining cash underweight

• Falling short-term Canadian yields continue to weigh on the attractiveness of holding excess cash.

• Hedges against equity risk are still well-warranted, but we have opted to initiate a position in gold bullion (see below) rather than increase cash holdings.

• Cash remains below benchmark in client portfolios.

Decreasing equity overweight

• Global equity earnings should be well supported by continued growth momentum, easing monetary policy and firming global trade.

• However, after a period of rapid gains since the US presidential election, a “cooling off” phase is likely as markets reduce expectations for future US Fed rate cuts.

• Equity exposure remains overweight but has been modestly decreased this quarter.

Trimming European equity exposure

• We remain more upbeat than consensus on the prospects for European equities, given their inherent pro-cyclicality.

• However, we believe that the capacity to deliver fiscal stimulus will be critical in the period ahead, as countries and regions will need to be tactical and nimble to compete against the “America First” policies of the incoming Trump administration.

• With the French budget deficit facing growing scrutiny from the EU and the German “debt brake” unlikely to moderate, we have moderated our exposure to European equities this quarter.

Staying short duration

• A combination of easing monetary policy from most major central banks and resilient growth should lead to a steepening yield curve for global bonds.

• With minimal (if any) additional yield to compensate for taking on the additional interest rate risk of longer-term bonds, we see little reason to extend duration.

• Overweight exposure to short-term bonds (below benchmark duration) remains a key facet of our fixed income approach in client portfolios.

Adding to US bond exposure

• We continue to expect US growth and inflation to be resilient, which should keep a floor under longer-term US bond yields.

• However, after a very sharp rise last quarter, we expect US yields to soften in the months ahead.

• US bond exposure remains underweight, but has been brought closer to benchmark in client portfolios.

Switching from gold miners to physical gold

• We have elected to take profits on gold miner equities, following a run of exceptionally strong performance this year.

• We continue to like gold as a portfolio hedge against equity and geopolitical risk.

• Viewed in this context, gold bullion should provide a more effective hedge than gold equities, which necessitated a switch between the two asset classes this quarter.

Disclaimers:

The information contained in these materials is for general informational purposes only and is intended to provide only brief comments on broad market, industry or sector trends, or other general economic or market conditions. It is not intended to provide an overview of the terms applicable to any products or funds managed or sponsored by Forstrong Global Asset Management Inc. (“Forstrong”). Views expressed regarding a particular company, security, industry, investment, or market sector are the views only of that individual as of the time expressed and do not necessarily represent the views of Forstrong or any other person in the Forstrong organization.  These materials contain information and views as of the date indicated and such information and views are subject to change at any time without notice, based upon market and other conditions, and Forstrong disclaims any and all responsibility to update such information and views.  These views are not and may not be relied upon as investment advice and, because investment decisions for a Forstrong fund or product are based on numerous factors, are not and should not be relied upon as an indication of trading intent on behalf of any Forstrong fund or product.  Any opinion or assumption may contain elements of subjective judgment and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by Forstrong of any future action or performance. Neither Forstrong nor any of its affiliates, businesses, or representatives make any representation or warranty, express or implied, as to the accuracy, reliability, completeness, appropriateness, or sufficiency for any purpose of any information contained herein. Forstrong and its affiliates and related entities disclaim any and all liability relating to the information herein, including, without limitation, any express or implied representations or warranties for, statements contained in, and omissions from, the information.  Forstrong and its affiliates and related entities are not liable for any errors or omissions in any information herein or for any loss or damage suffered, whether direct or consequential, resulting from the use of these materials.

The information contained in these materials is strictly for general illustrative, educational, or informational purposes, and is not intended to provide legal, investment, accounting, or tax advice, and should not be relied upon in that regard. These materials contain information and views as of the date indicated and such information and views are subject to change at any time without notice, based upon market and other conditions, and Forstrong disclaims any and all responsibility to update such information and views.  These views are not and may not be relied upon as investment advice.  Any opinion or assumption may contain elements of subjective judgment and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by Forstrong of any future action or performance. Neither Forstrong nor any of its affiliates, businesses, or representatives make any representation or warranty, express or implied, as to the accuracy, reliability, completeness, appropriateness, or sufficiency for any purpose of any information contained herein. Forstrong and its affiliates and related entities disclaim any and all liability relating to the information herein, including, without limitation, any express or implied representations or warranties for, statements contained in, and omissions from, the information.  Forstrong and its affiliates and related entities are not liable for any errors or omissions in any information herein or for any loss or damage suffered, whether direct or consequential, resulting from the use of these materials. 

Any specific companies, issuers, funds, ETFs, or indices mentioned are for illustrative or educational purposes only and are not and shall not be deemed to be a recommendation to buy or sell any securities.  Any companies, issuers, funds, or ETFs mentioned do not necessarily represent current or future holdings of any Forstrong funds or products. Any strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Commissions, fees, and expenses all may be associated with investments in Forstrong funds, ETFs, and/or other investment products.  Please read a fund’s offering memorandum or ETF’s prospectus, as applicable, which contains detailed information, and speak to an advisor before investing.  Funds and ETFs are not guaranteed, their values change frequently, and investors may experience a gain or loss.  Past performance may not be repeated.  

Certain statements in these materials may contain forward-looking statements or forward-looking information that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “plans”, believes”, “estimates”, and similar forward-looking expressions or negative versions thereof.  Such forward-looking statements are based on current expectations and projections about future general economic, political, and other relevant market factors, such as interest, and assuming no changes to applicable tax or other laws or regulations.  Expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable and, accordingly, may prove to be incorrect at a future date.  Forward-looking statements are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any forward-looking statements.  A number of important factors can contribute to these differences, including, but not limited to, general economic, political, and market factors in Canada and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, and catastrophic events.  You should avoid placing any undue reliance on forward-looking statements.  Past performance is no indicator of future performance and the materials are not intended to forecast or predict future events. Forstrong disclaims any and all responsibility to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as specifically required by law. 

The index returns are shown for illustrative or informational purposes only.  Indexes are unmanaged, and index performance does not include the impact of fees, commissions, and transaction costs and expenses that would be payable by investors in investment products that seek to track an index.  Such costs would lower performance. It is not possible to invest directly in an index.  Past performance does not guarantee future results. Index performance does not represent actual fund performance.

The allocation information shown above is for general informational purposes only and is intended to provide only a summary overview of Forstrong’s historical allocation methodologies over the indicated periods shown above.  The above information is not meant to illustrate specific allocations or exposures within any particular Forstrong fund or product, including Forstrong exchange-traded funds (ETFs).  The above information is historical in nature only and is not indicative of future results or actions.  These materials contain information and views as of the date indicated and such information and views are subject to change at any time without notice, based upon market and other conditions, and Forstrong disclaims any and all responsibility to update such information and views.  Graphs and charts are used for illustrative purposes only.  The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

Commissions, fees, and expenses all may be associated with investments in Forstrong funds, ETFs, and/or other investment products.  Please read a fund’s offering memorandum or ETF’s prospectus, as applicable, which contains detailed information, and speak to an advisor before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Funds and ETFs are not guaranteed, their values change frequently, and investors may experience a gain or loss.  Past performance may not be repeated. 

The information contained herein is presented solely for illustrative purposes and should not be construed as a forecast or projection. While some information used herein has been obtained from various published and unpublished third-party sources considered to be reliable, such information has not been independently verified by Forstrong (and Forstrong disclaims any obligation to verify) and Forstrong does not guarantee its accuracy or completeness and accepts no liability for any loss or damage suffered, whether direct or consequential, resulting from its use. It should be noted that data provided may be approximate numbers. 

©2025 Forstrong Global Asset Management Inc.  All rights reserved. 

Forstrong Global® and the Forstrong Global® logo are trademarks or registered trademarks of Forstrong Global Asset Management Inc. in Canada.