Current Outlook

The following strategies guide our advice to clients and are reflected in the positioning of the Founders Fund.

We remain cautious. The third quarter was another reminder of how narrow markets have become. Global stocks gained 1.6% in Canadian dollars, yet three companies – Nvidia, Apple and Microsoft – accounted for more than the entire gain. The U.S. market has increasingly become a “one bet” market, with returns heavily influenced by one question: how profitable will AI ultimately be for the companies building it and those using it?  

We’re believers in the technology. We just don’t think it’s wise to let one theme determine the outcome of a portfolio. The potential is real, but there are still big questions around what users will pay, what the required data centres and power infrastructure will cost, and how much debt will be needed to fund it all. Stock prices already reflect high expectations, leaving little room for disappointment. 

Against that backdrop, we expect stock returns over the next five years to fall short of the last five, which have been exceptional. Our working assumption is 4-6% per year, with a wider range of outcomes than usual. 

The outlook for bonds has improved. Rates moved sharply higher during the quarter, with the 10-year Government of Canada yield rising from 3.4% to 4.0%. Bond prices fell as a result, which was painful in the short term, but the higher starting yield improves the outlook from here. The bonds in our Income Fund now yield over 4%, comfortably above inflation. Just as importantly high-quality bonds are the asset most likely to hold up if the AI trade stumbles or the economy slows. We think of them as insurance that happens to pay a decent income. 

Our advice is to keep your stock weighting at, or below, your long-term target. This isn’t a call to move to cash. Short-term predictions are notoriously unreliable and narrow markets can stay narrow for a long time. It’s a call to not stretch for more risk at today’s prices. 

If the Founders Fund is your primary holding, you’re following this advice. The fund’s stock weighting is 49%, well below its 60% target, with 37% in bonds and 14% in cash. It will participate if markets keep rising, but it also has the flexibility to buy when prices become more attractive. 

If you’re drawing from your portfolio, including through the Steadyhand Retirement Withdrawal Program, now is a good time to top up your spending reserve to two years of expenses. The same goes for any large expenditure coming in the next year or two – set the money aside now rather than counting on the market to deliver it on schedule. 

Please contact us if you’d like to talk through your situation.