Transcript of the Hebb Advisory Group’s December 2025 Conference Call

[00:00:03.15] - Derek Hebb

Good morning, everyone, and welcome to this month's conference call. I'm Derek Hebb, Senior Wealth Advisor with CIBC Wood Gundy, and my guest is Adam Ditkofsky of CIBC Asset Management in Toronto. Adam is one of the firm's senior portfolio managers, overseeing the Core and Core Plus Fixed Income team and their mandates. He has more than 15 years of experience at the firm, and as part of his role, he specializes in duration management, yield curve positioning, sector allocation, and security selection. Prior to becoming a portfolio manager, Adam was a Senior Credit Analyst at CIBC Asset Management, or CAM as it's known, covering both investment-grade and high-yield companies across multiple sectors and regions. Prior to joining CAM in 2008, he was a Credit Analyst at CIBC World Markets. Adam holds an MBA degree from the University of Western Ontario, and a Bachelor of Commerce degree from Concordia University. He's also a Chartered Investment Manager and CFA Charter holder, and is a member of the CFA Society of Toronto. Adam, thank you for joining us this morning.

 

[00:01:14.00] - Adam Ditkofsky

It's my pleasure to be here. Thank you for having me today.

 

[00:01:16.09] - Derek Hebb

Oh, you're welcome. It's great to have you on the call. Just to get us started, Adam, what do you think the Bank of Canada will do around rates over the next, say, one to two years?

 

[00:01:30.00] - Adam Ditkofsky

So, Derek, I think this is such an interesting conversation to have, especially right now as we get right before the holidays, because I think right now for Canada, we are in a period where we've just seen a bunch of rate cuts that have come down. We're now sitting at 2 1/4% for the policy rate or the overnight rate in Canada. The Bank of Canada earlier, a few weeks ago with their last cut, their last meeting said, this is probably it unless we see something of a surprise or things come in below expectations. And things have played out actually, I have to say, to be honest with you, is we're starting to see actually some improvements in Canada, at least from my standpoint, from the things that I've been looking at. So, if you look at the themes that I've been looking at for this year, I had been focusing on three key themes for me. The first being, and we were all supportive of what was causing rate cuts. The first being was the jobs market, the second was the trade situation, and the third was the real estate market. And, if we look for most of the year, the employment situation was a mess.

 

[00:02:35.13] - Adam Ditkofsky

We were getting to the point where unemployment in the country was getting quickly, springing higher and higher and higher to the tune of 7%. A couple of factors from that perspective was, of course, the large immigration situation that we were having, and it was outpacing the ability for this country to absorb new employment. So, that's actually what we've actually been seeing in the last few months is that it's actually been turning from the labour force survey but we still need a little bit more data. But if we look at the most recent numbers that we got, we actually saw that the unemployment rate has now come back down to 6 1/2%, and we've actually been seeing close to 60,000 jobs created per month in this country for the last three months. Now, it doesn't mean that this is over, but I have to say that... And typically the Canadian numbers are quite volatile, but what we've actually been seeing is this is actually pretty good from that perspective. So, I think that's something that's really interesting and has been supportive for the Bank of Canada to say, now it makes sense to be on hold, which is what they just did, obviously.

 

[00:03:41.03] - Adam Ditkofsky

The second aspect was that we did see some revisions to GDP, saying the productivity was better from 2022 to 2024 than they had previously calculated, and they made some adjustments to their GDP numbers to the tune of about half a percent per year on an annual basis. That's pretty good, and actually, what that does potentially, and some of the economists from various different banks across the country have been highlighting, is it actually takes that output gap that has been negative in this country, and it actually brings it closer to neutral. Now, the Bank of Canada this week in their statement, said they're not making any changes to their assumptions in the output gap. So, what that means is the economy has been, initially when they thought it was growing below potential, it's actually growing at potential. And that means that the policy rate either has to be neutral, above neutral, or below neutral. And now what they're saying is probably they haven't made any changes to their assumption, but they can't ignore the positive aspects of that. So again, supportive of them being on pause for now. And then lastly, it's the real estate situation, which has been stagnant. I don't think this comes as a surprise to anybody.

 

[00:04:47.09] - Adam Ditkofsky

And what we've actually been seeing is that the affordability index, because rates have been coming down, housing prices have been coming down from those aspects, demand has, of course, pulled back as well, particularly in the condo sector. But we are seeing affordability also improve. It's still elevated from where it was pre-pandemic and post-early days of the pandemic where we saw affordability really deteriorate in Canada, but it has been improving. So, I'd say that we've actually been seeing it consistently now improving for seven quarters. But this still is obviously a stagnant aspect of the market. But I think we're at a point now where the Bank of Canada's comments, where they're saying that they feel that the policy rate is appropriate, at two and a quarter, I think their statement is consistent with our outlook, and we're shifting. So, if you actually looked at what we've been saying for a lot of the years, we thought there would be more cuts into next year. But the fact that the economic data has been pretty good, and at least on these factors, there's still, of course, the wild cards of what happens with tariffs, what happens with trade in the US, and that's going to be uncertain; there's still a lot of uncertainty there.

 

[00:06:00.00] - Adam Ditkofsky

And then in terms of the consumer that hasn't been that strong, but it's still holding up quite well, we're shifting our views now to the point where you'll see in our next outlook that we're likely leaning to a base case scenario with no cuts over the next 12 months. So, we typically don't provide more than a 12 month scenario, but that's our view. Now, what's interesting from that perspective, too, is that the market has actually been pricing in hikes for 2026, more in the second half of 2026. I want to be very clear, we're not in that camp. We still believe that the Bank of Canada is probably at the appropriate level at the moment. So it probably makes sense for it to be staying at two and a quarter. So we're not ruling out, in essence, we're taking away our expectations of additional cuts, at least in the next 12 months. But we do not think that there's going to be any hikes in that period as well.

 

[00:06:59.00] - Derek Hebb

Thanks, Adam. So, expanding on that, what do you see for the Canadian economy and as a result, credit spreads?

 

[00:07:06.12] - Adam Ditkofsky

Yeah. So, from the Canadian economy, I think there's a couple of things that we still have to think about. The first thing is what's going to happen with trade. So, there's a lot of still uncertainty with regards to we have the expiration of the Canadian US-Mexico Trade Agreement, or CUSMA, that agreement with the US. I think that there's still a lot of unknowns with regards to what's going to happen, but if we can look at the trading partners across the globe, and I think what we can get a sense is, tariffs are here to stay, at least while President Trump is in office. I think we can assume that a lot of the base cases that we've been seeing is probably closer to 15%. That being said, he comes out, makes statements saying, I'd like to get a deal with Canada, or I think we can get a deal with Canada. So, there's still a lot of uncertainty there, but I think that Canadians have to be prepared that there is going to be tariffs are here to stay. It's definitely had implications for investment, but we're starting to see other aspects, too, of other investment.  The government has been investing in military spending, there's incentives to continue to expand energy investment and infrastructure across the country, and we're also hearing about AI investment as well; we can't ignore that. And Canada is going to be part of the picture as well and I think it's important that we try to make sure that we're involved with that from a data center standpoint because on a global basis, we have cheap clean energy. The climate's pretty cool. It's good. Those are all attractive aspects for data centers and processing power. So, I think that can be a positive implication as well for GDP, too. To the tune, I've actually been reading recently a lot of expectations that even AI would probably likely have potential implications for Canada, call it 0.2% growth in 2026. Now, in the US, there's still a lot of debate about how much is going to be spent next year. I've read, globally over the next five years, we can see AI spending to the tune of $5 trillion; even more. The numbers for next year, close to 600 billion, 700 billion, depending on which economist or which group or which public economist you look at or which expert you hear from.

 

[00:09:17.14] - Adam Ditkofsky

But ultimately, the underlying message is AI is going to see a lot of investment. There's this skepticism of it. Even though there is still a lot of debate about who's going who's going to be the winners, who's going to be the losers, the hyperscalers, and those are the names like Microsoft, Google, Meta, the names where they have cash flows from other sources of business, they're going to continue to spend. They're also not fully dependent, like OpenAI, on AI sensitivity and sales growth, because they have their other aspects. So they're going to continue to be investing, and that's going to be very good for the economy over the next 12 months. The question that means also, though, is we're also expecting to see a lot more issuance into the credit markets from AI because a lot of it's being funded now in the bond market. So that could increase supply next year. And this is talking about specifically the US market. But ultimately, US credit spreads are what drive Canadian credit spreads to an extent. We think that that could potentially cause credit spreads to move wider in the near term from a technical standpoint. But demand is very strong for credit.

 

[00:10:27.11] - Adam Ditkofsky

So, I think there's a push and pull. The supply aspect, there is, I'd say, risk that spreads can move wider from the supply standpoint, but demand is there. And the reason why we say that is we still know that there's a lot of cash on the sideline. Every bond portfolio manager that you talk to will say the same message to you, to every investor. Credit spreads are tight and the credit curve has gotten very flat, so the focus is on shorter dated credit. And we are all defensive, but we are saving ammunition or saving our bullets for when spreads widen. That gives me the sense of the prisoner's dilemma, where you have to think about saying, if we're all waiting for credit spreads to widen, then one investor is going to break before the... Investor A is going to break before Investor B, and they're going to say, Oh, now it looks attractive, or I'm just going to start buying now. So, that is also supportive for credit spreads. So, demand is still very much there. And then there's also the factors that we have to think about from a net supply basis, which is where is supply going after maturities, after coupons.

 

[00:11:33.03] - Adam Ditkofsky

And last year, we'd argue really up until the end of this year, I'd say, or up until the last quarter, it was fairly negative on a net supply basis. It's actually turned positive because we have seen a lot of supply in the last few months, but demand, again, is still very much there. And then I suspect that next year, again, will be positive, but not to... When we hear these numbers about how much supply is going to come into the market, for instance, let's call it in the US market on average, corporate supply and investment-grade credit is about one and a half trillion dollars. We're a 10th of the size here in Canada. So 150 billion per year in typical credit. If those numbers go up and down, we have to keep in mind is that that's really what can easily be absorbed into the market because there's maturities, there's coupons. So, I think we could see spreads widen in the near term because they are very tight, but it's going to really depend on what does the stock market do, what overall risk assets do. But I will say the demand factors are still very supportive for credit spreads.

 

[00:12:31.07] - Adam Ditkofsky

So, I think potentially at this stage now, it's safe to say that a carry story, at least in the near term, will be appropriate. Now, the other question to ask is, what are we doing? We're defensive in our portfolio. We're still overweight credit. We like credit. We think we're doing bottom up analysis in the names that we like. We think we're focusing on the names that we think makes sense in the portfolio. Good credit fundamentals in our portfolios. But we also have a lot of, I call it bullets or ammunition for when spreads do widen, and we're going to take advantage of those opportunities.

 

[00:13:05.05] - Derek Hebb

Thanks, Adam. What new fixed income exposures or products are increasingly being introduced to individual investors? And what are your thoughts around how to access them?

 

[00:13:17.09] - Adam Ditkofsky

Yeah, so there's definitely been a lot of talk this year about the private space or the alt space, and those seem to be the in vogue fancy terms this year. Private credit is attractive because of two aspects. One, it's been a growing market. There's a lot that's not coming to the public market. There's competition. You've got multiple private credit managers that are growing and growing and seeing demand for their products materially increase. And we actually have gotten into the private credit space where we have actually brought on a team of very experienced private credit managers from the capital market side and we're actually launching an institutional fund with regards to several institutional funds, one in the high-yield space and one in the high-quality investment-grade infrastructure space. What's attractive about this space is that the spreads are obviously wider than what you can typically get, or the returns are typically wider than you can get in the public bond markets. For instance, the lower quality stuff, which I wouldn't even say lower quality, just smaller scale companies that we're looking at, they're more mid-scale companies. Those returns we're talking about are looking in 9% to 11% returns or yields and returns selectively.

 

[00:14:34.07] - Adam Ditkofsky

And then on the investment-grade side, spreads for high-quality infrastructure, in many cases, backed by governments, where the spreads could be even potentially closer to 200 basis points. And these are 2% on top of government bonds, but these are for high quality. In both cases, we're talking about bond terms of about five years, the shorter dated credit. The one aspect of this is that it's not very liquid. It's not typically available to the retail market. You can't buy and sell it every single day. There's lockups in these environments and there's less information. But that's where it makes sense to be investing with someone, say, like a CIBC Asset Management or myself, because we have our funds, so like the CIBC Canadian Bond Fund or the fixed income pools that we manage, and we're able to take advantage of these types of opportunities and allocate a small portion within our portfolios, one, that doesn't impact our liquidity, and two, we have access because we have large scale capital, we can take advantage and get access to these institutional opportunities that make sense for retail clients. So, it really adds that new level of diversification, new aspects of low correlation to the overall market, of course, higher returns.

 

[00:15:46.00] - Adam Ditkofsky

And yes, there's less liquidity, but frankly, we have a lot of liquidity in the portfolios that we don't necessarily need them. So that's the type of stuff you're seeing from the private side. Then there's the CLOs or collateralized loan obligations. Now, this is more of a syndicated loan. This is a little bit more of a... It's historically been more of an institutional market. It has really become trendy in the bond market across North America, across retail investors in the past few years, and I'll explain what it is. CLOs are essentially portfolios of loans, syndicated loans and secured loans. They're smaller in scale, so typically have ratings (and they have ratings, all of them), in the  double B category. But they're smaller scale, but they tend to be in high cash flow, stable businesses. A lot of them are in the healthcare sector or in the technology sector. But from an industry standpoint, they're very well diversified. So, what happens is these loans are then pooled or accessed by managers or CLO managers. And think of names like BlackRock, KKR, then Ares that are CLO managers. And what they do is they create portfolios of these loans.

 

[00:17:01.04] - Adam Ditkofsky

And what they effectively do is they create a structural aspect of subordination. So, they basically tranche them and say, we're going to have some of our investors at the highest quality level, and then we'll have them at various different tiered levels of investors. So, we can control the risk from that basis and say, we're going to focus... They'll be an equity investor, so if there's defaults in the portfolio, they'll be the ones to see those defaults. When we have a triple A tranche or the highest quality tranche - and those are investors that have a lot of credit enhancements, significant over-collateralization - there's more loans in the portfolio than there is debt. So, you have those types of credit enhancements that essentially enhance the overall portfolio and create an investment opportunity that we would say is extremely stable from a credit standpoint and high quality and well diversified. So, you're getting managers that are extremely well-experienced private debt managers or loan managers, and they're creating portfolios and then adding layers upon layers of credit enhancements to provide higher quality to various levels of different investors. What we've done is we've created a fund or an ETF, the CCLO ETF.

 

[00:18:21.06] - Adam Ditkofsky

And what it does, essentially, is it invests into CLO managers directly or into CLO bonds, but we're only buying the highest quality. So, our portfolio, if you look at the portfolio, it's right now over 95% AAA credit rating. That's the highest quality rating that you can get in the entire world from any rating agency. And that's what the portfolio is. It can go up to 20% into single A, which is if you look at the rating scale, goes triple A, double A, and then single A. Those are the highest quality. And it keeps going down. It goes to triple B, then it goes to double B, and then it ultimately goes to equity. So, we're only focused on the highest quality portions of the portfolio. We're diversifying by CLO manager, and we're diversifying by the various loans, of course, within those portfolios, which are not fixed, and they are constantly enhanced within those portfolios as well. So it creates a very diversified portfolio of loans. And what we like about it, too, overall, is that the spreads in this space are wider than typical investment grade credit. But also what it's done is it's created an opportunity for us, and they're less volatile.

 

[00:19:32.10] - Adam Ditkofsky

From that standpoint, we see this as an opportunity to also enhance yields and diversify our portfolios, and there's no sensitivity to interest rates because these are all floating rate loans. So, it's essentially if yields are rising the market, it's really the focus is just the credit spread itself. It doesn't mean there isn't risk. If we are in a risk off period, you do see spreads widen, but to a lesser extent from that standpoint. But we see this as an attractive diversification tool for the portfolios. And again, this is only a smaller portion. Of course, we have these offerings available for retail as well, for a typical client. But in our portfolios, we're adding these as smaller allocations to diversify portfolios and enhance yields. So, typically we actually see smaller allocations in the fixed income pools. So, lots of different aspects of what we're doing in terms of the portfolio, but a lot of enhancements in terms of trying to enhance yields and increase diversification.

 

[00:20:28.03] - Derek Hebb

Thanks, Adam. So, is there anything else that you're doing with the fixed income pools to position for risks and opportunities?

 

[00:20:37.01] - Adam Ditkofsky

Yes, I am. So, the fixed income pools, which I love, and why I love the fixed income pools, because I think these are probably one of the most attractive products that CIBC Asset Management has produced in fixed income in a very long time. And what they are essentially is funds. They're essentially funds of funds, but they're all fixed income investments. There will be multiple fixed income strategies within one pool. We have three pools, the Conservative Pool, our Core Pool, and our Core Plus Pool, each of them with a little bit more risk, getting a little bit more return. So, that means more allocation to, say, high yield, more allocation to emerging markets, more allocations to various different alternatives based on the different risk tolerances. But what we really like about them is they're kind of in the sweet spot because right now, if you look back, call it a few years or last year, even, the yield curve was inverted. Today, we don't have an inverted yield curve, and that's really a reflection of the fact that the Bank of Canada and the Fed have cut rates, the Bank Canada more aggressively, and we have a normal yield curve.

 

[00:21:44.04] - Adam Ditkofsky

What that means is, as you go out and you buy a longer term bond, you get more compensation. What we were actually seeing last year is you were actually getting less compensation for going out longer, and the focus was better off parking your money in cash from that standpoint. This is where our target date maturity funds were extremely successful because the lower yields in the front end, what we call the yield curve, were higher than the longer dated yields. Today, that's not the case. You get a term premium. But what we like about the pools, it's exactly in the sweet spot. The terms of these pools, we call it duration is the sense, is really the average term of the portfolio, is about 4-5 years depending on the various different strategies. And, what we like there is that our yields are higher than that of the overall government bond universe, which has a much higher duration. So better yields, less sensitivity to changes in interest rates, which we see as less volatility in those portfolios, and they're efficient. So because they're diversified into different strategies, it's not just CIBC Asset Management within these portfolios. We've added third-party managers that we think are some of the best that we've seen in generating niche strategies.

 

[00:22:58.11] - Adam Ditkofsky

So we have some Canso funds in ours, we have PIMCO funds directly as investments. We even recently included one of the newer RPIA funds into the funds. And all of this to enhance returns and to increase diversification of the portfolios. But we think it makes a lot of sense from an actively managed standpoint, too. Because, for instance, I will go in with my team and we will actually do the allocation to the various different funds. I'm meeting with all the managers for all the third-party managers. Many of them are managed by my team, many of them are managed by myself. But we're making those allocations. So, for instance, if we think that high yield is too risky or looks too expensive right now, we'll go in and we'll lower the weights actively across all three strategies in high yield and put it into a lesser, more focused into government bonds. If we think that duration, if we think yields are about to fall, we'll tilt the duration a little bit higher within the mandate. We have those capabilities, but it's not just a tactical asset allocation team that's doing those allocations. It's fixed income experts like myself, and I'm leading the charge in this case with my Chief Investment Officer, Jean Gauthier, and we're making those decisions into where we should be allocating capital.

 

[00:24:10.13] - Adam Ditkofsky

And that's what we really like about these strategies. We're actually focusing on enhancing these strategies. We're also looking at also revisiting this stage as well, the structural asset allocation to make sure it's the most efficient strategy in the market right now because we're constantly viewing enhancements to our portfolios as critical. But overall, I'd say we like the yields in these portfolios. The returns have been fairly good. The yields, again, in that 4-5%, depending on the various different risk strategies, but with low duration. So lower volatility than the typical bond market, but with better returns. So, a lot of enhancements coming in at the moment, I would say.

 

[00:24:49.08] - Derek Hebb

That's great. Thanks, Adam. This has been a valuable and timely discussion, especially given your outlook for the Canadian economy and the insights that you've just provided regarding the bond portfolios that you and your team manage. In the interest of time, this will conclude today's call. If anyone has questions about the information that Adam just discussed, please contact me. Thanks to everyone for listening in, and Adam, thank you again for joining us on this month's call.

 

[00:25:21.04] - Adam Ditkofsky

It's my pleasure, Derek, and any time. And thanks for having me.

 

[00:25:24.11] - Derek Hebb

Thank you. Take care.

 

[00:25:26.00] - Adam Ditkofsky

Yeah. Bye-bye.

 

[00:25:27.03] - Derek Hebb

Bye.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclaimers

 

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2025.

 

Adam Ditkofsky is Senior Portfolio Manager, Global Fixed Income at CIBC Asset Management. The views expressed in this conference call are the personal views of Adam Ditkofsky of CIBC Asset Management and do not necessarily reflect those of CIBC World Markets Inc.

 

The contents of this document are for informational purposes only and are not being provided in the context of an offering of a security, sector, or financial instrument, and is not an endorsement, recommendation, or solicitation to buy, hold or sell any security.

 

Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.

 

“CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

 

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.

 

 

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[October 2025 Conference Call – Featuring Michael Keaveney]

 

[00:00:03.840] - Intro

All participants, please stand by. Your conference is now ready to begin. Good afternoon, ladies and gentlemen, and welcome to this month's conference call with Derek Hebb from CIBC Wood Gundy. Please be advised that this call is being recorded. I would now like to turn the call over to Derek Hebb, Senior Wealth Advisor at CIBC Wood Gundy. Please go ahead, Mr. Hebb.

 

[00:00:31.060] - Derek Hebb

Thank you, Paul. Today, we're joined by Michael Keaveney, Vice President of Managed Solutions at CIBC Asset Management. Michael is responsible for representing the activities of the Total Investment Solutions team in the field, and works with internal and external partners to develop effective investment solutions for clients and advisors. He leads thought leadership initiatives for Managed Solutions with a particular focus on strategies for successful client outcomes. Michael has over 29 years of investment industry experience. Prior to returning to CIBC Asset Management in 2024, he was a Multi-Asset and Canadian Equity lead Portfolio tanager at a competitor firm. From 2011 to 2014, he was Director of Investment Management Research on CIBC Asset Management's Investment Management Research Team. Michael holds a BA in Economics from the University of Waterloo and an MSc in Financial Management from the University of London. He is a CFA Charter holder and a member of the CFA Society of Toronto. Michael, thank you for joining us this afternoon.

 

[00:01:44.000] - Michael Keaveney

Thanks, Derek. Great to be here.

 

[00:01:45.980] - Derek Hebb

It's great to have you on the call. Just to get us started, what is the overarching investment philosophy that drives the ICS Total Solution Portfolios?

 

[00:02:00.980] - Michael Keaveney

So, remaining well-diversified, so constructing well-diversified portfolios and taking an active approach to the overall long-term management is what guides the Solutions. We use our own investment management capabilities and carefully selected third party managers to meet the overall objectives in a way that might be reminiscent of the practices of large pension managers who have their own well-defined goals, their own capabilities, but also the ability and willingness to partner with other managers to meet those goals. Now, risk and returns to the portfolios are going to be governed primarily by the asset allocation to the broad asset classes we think about. So, we pay a lot of attention, long before we think about any individual managers, to the characteristics of those asset classes and how they interact together to determine how they might be purposeful to include in a particular portfolio. And then at the margin, we believe that well chosen active managers can add some incremental return over the course of a market cycle, but there's going to be some volatility in that return along the way. We look for managers with different and complementary styles for additional diversification, and then we closely monitor to make sure that they're continuing to do the things that we think that they are good at.

 

[00:03:25.800] - Derek Hebb

Thanks, Michael. So, can you speak about changes made in the ICS Total Solution Portfolios this year? Can you summarize them and speak to the thought process behind them?

 

[00:03:37.740] - Michael Keaveney

Sure. And this is an example of the ongoing active management within the portfolios. We made a number of changes this year in a couple of tranches. We started earlier in February and then finished off that particular set of tranches in September of this year. Overall, if I can summarize, there was a modest increase in equity positioning by about 2% across the overall portfolios. We moved downwards in our Canadian equity exposure with much of that going to the US, because over the longer term, we wanted to reduce our home equity bias. We believe Canada is a great place to invest, but also wanted to realign our long term exposures to reflect where we think opportunities will arise over the longer term. And for us, that meant shifting towards the US a bit. I should note that we did that particular trade over the course of a couple of tranches this year, so we still had some considerable benefit from Canada's performance this year. We also reallocated some equity assets to international markets. Some of that came from Canada. Some of it actually came from fixed income as we upped our overall equity exposure. And then some of that came from removing dedicated exposure to a real assets pool that we formerly had in the portfolio.

 

[00:04:54.740] - Michael Keaveney

Once again, that was reflective of wanting to broaden the equity opportunity set to bigger markets and take away a little bit from a more narrowly-focused real assets pool where we felt for these accumulation portfolios, we were better off moving towards the broader markets. And that's been a good transaction as international markets, as you know, Derek, have done quite well so far this year. We also made a manager change. All these things that I've formerly talked about were at the asset manager level, but we also make underlying manager changes from time to time. We made a manager change for our emerging markets equity pool. We had wanted to pull in our expected tracking era versus the emerging markets benchmark and parted company with a previous asset management firm in favour of a more systematic strategy where our expectations are for better representation of the ups and downs of emerging markets. So that happened earlier this year as well. And then when we look within fixed income, we had already been of the opinion that active management was of key importance within the fixed income asset classes, both domestically and globally. But there were a number of changes that we made that actually, once again, broaden our opportunity set and give us confidence that we have a better set of returns coming from fixed income.

 

[00:06:16.780] - Michael Keaveney

We made, for example, an asset allocation shift from a short term pool into the broader Canadian bond pool. That's simply because we think the yields are more favourable there. The opportunity set is more favourable. That's actually a transaction that is really only starting to pay relative dividends over the last couple of months as the bond markets, short term and mid-term, had moved maybe a little bit more closely together for a few months, but I think it's now starting to pay off for us. So there was change made there. Within global bonds, we had taken a look at the previous manager, whose remit was much more focused on a narrow subset of sovereign bonds, so government bonds, and reallocated to several different managers because the bond market is becoming increasingly complex. There are increasingly varied opportunities within global bonds and moving to a suite of managers who were better representatives, in our view, of a broader opportunity set within global fixed income from a previous narrow, although active opportunity set in sovereign bonds. So when all was said and done, there were a number of changes made so far this year, maybe a little bit more than the average year.

 

[00:07:35.820] - Michael Keaveney

But I think that interested investors and observers can continue to count on these portfolios to be actively managed, not just at the underlying manager level, which they certainly are at the underlying pool level, but also the overall asset allocation and mix level, which is done by the CIBC Asset Management team.

 

[00:07:58.220] - Derek Hebb

That's great. So, Michael, how have investors fared in the portfolios so far this year? What have been the highlights and the pain points?

 

[00:08:09.080] - Michael Keaveney

It's interesting, Derek, to talk about highlights and pain points, because I suppose it's an occupational hazard of being a diversified investor that there will always be pluses and minuses. And that really is the nature of diversification, because there's a little bit of uncertainty in the markets at all times for future returns. We want to diversify, but that means that there's always going to be things that outperform and a few things that underperform if those managers are doing different things. So yes, there's been highs and there's been lows. In general, of course, equities have done very well so far this year, and it's really incredible to think about if we only cast our minds back to early April, we might be thinking that we were shaping up for a pretty poor 2025. Now, of course, the year isn't over yet. We're only into the fourth quarter now. But equities have done well in multiple markets around the world. So in absolute terms, anybody who's got a balanced and diversified portfolio from those moderate profiles, which are maybe 35% or so equities, all the way up to the effectively all-equity portfolio is the Growth Plus.

 

[00:09:15.000] - Michael Keaveney

In absolute terms, the numbers are very good and above average. Highlights within that, I think active fixed income has been rewarded so far this year versus a more passive approach. So there's been some incremental returns there. Active managers have tended to be focusing a little bit more on the corporate bond market where they can eke out some incremental yield from the underlying investments. Now, spreads are relatively tight right now by historical standards, but it has worked to be active within fixed income so far this year, and that has been a plus. Making that emerging markets manager change earlier this year, I think, has been well rewarded, and we're very glad to have done so because that manager has kept up an added value over the course of the market and participated basically in the gains of every emerging market that has done well so far this year. Canadian equity, active management has been certainly fair and good so far this year. So that has been a point of good returns for us within the portfolios. But when it comes to pain points, certainly US equity markets and international markets have done well in absolute terms, and there's been some reasonable participation there.

 

[00:10:29.080] - Michael Keaveney

But what I see so far this year is in international markets, I think it probably would have paid in hindsight to have a very dedicated bias towards value types of stocks. And certainly our positioning has been much more core than that. So perhaps in relative terms, with hindsight as our guide, value would have been the place to be, but we have been more content to be core over the long term. We think it will be useful, but that's been a pain point to not have participated as much in the value stocks. And then active management in general, I think in US markets has been, let's call it challenged. I would say over the last market cycle, I'm sure many investors and interested observers are well aware of the outperformance of the so-called Magnificent Seven stocks. The simple fact of the matter is that most active investment managers in US have been, let's call it, somewhat skeptical of the ability of the momentum in those particular stocks to continue over time. And just versus a broad-based benchmark, that has caused a number of managers, and most active managers, incidentally, to underperform the broad benchmarks. That's been a little bit painful, but in absolute terms, the numbers are still pretty good.

 

[00:11:50.360] - Michael Keaveney

We still believe that there is a place for active management within US equities, although we do believe that the Magnificent Seven are wonderful companies worth watching and certainly a major source of innovation around the world. Their valuations are extremely high right now, so we do believe it is prudent to have some sort of differentiated view from the broad markets and not be, perhaps, as reliant on that momentum continuing within the US markets over the short term. So, like any diversified portfolio, there's been a number of highlights, a number of pain points, which we always watch for to see if there's a need to make a change or whether that's just something that is the nature of day-to-day active management.

 

[00:12:40.760] - Derek Hebb

Thanks. So, looking ahead, what is the outlook for the rest of the year and beyond?

 

[00:12:48.780] - Michael Keaveney

So, we are cautiously optimistic. I think that right now there is a mismatch between expectations for volatility when you take a look at priced markets like the VIX index, which is a guage of implied volatility in the bellwether US markets over the course of the next 30 days. Volatility expectations from that standpoint are quite low. But when we take a look at sentiment, when you take a look at headlines, newspaper headlines, talk about unsettled trade and tariffs, sentiment is very uncertain. So there is a little bit of a mismatch there that causes us to be a little bit more watchful than we would normally be when it comes to asset allocation decisions, because companies have done well. Our expectation, earnings are good. On the bond market, our expectations are that there will be some tailwinds from central bank cuts around the world. So that should bode well, relatively well for fixed income as well. But despite that relatively positive backdrop, there is this little bit of a disconnect between volatility that's occurred in the market, and then the sentiment behind that. So I don't think that that gives us the all-clear signal to go too far beyond a neutral weighting between stocks and bonds.

 

[00:14:14.820] - Michael Keaveney

I think they're both relatively good places to be, and certainly not a time to be taking big bets in one direction or the other. So there is some cautious optimism, but certainly continuing to monitor the markets on a regular basis, speak with our underlying investment managers for their viewpoints, ensure that not everybody is saying the same thing. We certainly don't want to build a portfolio where every underlying component is built for the exact same outcome. The nature of diversification is that we do need a collection of different opinions on the market in there in order to provide that diversification. But in general, reasonable optimism that we will get balanced like returns in the balanced portfolios and reasonable equity returns going forward. But let's not forget that fixed income has some tailwinds that should be beneficial for fixed income as well.

 

[00:15:11.580] - Derek Hebb

Thanks, Michael. So, I have one more question for you. 2025 has been a widely varying investment climate. Are there any lessons for investors to take away for the future?

 

[00:15:26.100] - Michael Keaveney

2025 has been a fairly unique year. With the announcement of those tariffs in early April, we saw a relatively sleepy market when it came to volatility all of a sudden get hugely volatile in the short term. And while that was a unique individual situation, it is the nature of markets for a return to volatility from time to time. So the mechanism by which it returned to short term volatility might have been unique. But the lesson I take away from it is that volatility, temporary volatility and spikes in volatility, are a feature of equity markets as opposed to a bug or a flaw. You will from time to time, see this thing come up. What causes it to come up will vary from time to time. But I think it's a useful lesson for people to take away that when they are building their investment portfolios, number one, they should expect periodic volatility. I think the other thing related to that was it would have been very tempting back in April to read those headlines, react to the total lack of certainty that was delivered by these tariff announcements, and say, maybe it would have been safer for me to head for the sidelines and perhaps no longer invest in equities and then maybe wait for a less volatile period.

 

[00:16:55.340] - Michael Keaveney

But in our experience, it's a further illustration that the ability to do that and time that well is extremely difficult. It was only a few days of volatility, and then the markets certainly rebounded to new highs. It would have been difficult to get that timing right. And I think what probably has happened is that investors who went to the sidelines in early April may still be on the sidelines because really, we haven't resolved all of the tariff questions. And if somebody was waiting for full certainty to return to the markets, they've actually missed out on some wonderful days. While those early April days were maybe some of the worst individual trading days on certain markets, you only had to wait a few days later to see some of the best trading days on the markets. And that's the way these things tend to happen. The best days and the worst days are often commingled with each other, with the worst days maybe happening first and the best days happening soon thereafter. So resisting the temptation to trade the headlines, I think, is, I hope, a lesson that most investors take away. And 2025 gave us probably one of the best examples of that in recent memory.

 

[00:18:13.700] - Derek Hebb

Very sensible advice. And certainly the examples that you raise are very good to point out. Well, thank you, Michael. This has been a helpful, informative, and certainly a timely discussion. In the interest of time, this will conclude today's call. If anyone has questions about the information that Michael discussed, please contact me. Thanks to everyone for listening in, and Michael, thank you again for joining us on this month's call.

 

[00:18:45.110] - Michael Keaveney

So welcome, Derek. Thanks a lot.

 

[00:18:46.870] - Derek Hebb

Take care.

 

 

 

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