Current Outlook

Updated January 7, 2021


Note: The following strategies guide our advice to clients and are reflected in the fund allocations for the Founders Fund.

The recent equity market rise has been almost as dramatic as the fall. We’ve been inclined to trim our stock holdings in light of the gains. In the Founders Fund, our equity weight is down to 63% (it was as high as 65% in the spring), though still above our long-term target (60%).

Our positioning reflects the potential we see in our equity holdings, which haven’t rebounded to the same extent as the market (more on this below).

Bonds continue to pose a challenge. While they provide valuable diversification in a portfolio, their potential returns look even more modest with yields at all-time lows. Moreover, yields are more likely to rise than fall from these levels (bond prices fall when yields rise). The Founders Fund is holding 23% in bonds, well below its 35% target.


The risk versus return trade-off for bonds remains unattractive. Yields for bonds are depressed because of economic uncertainty. Moreover, real yields on government bonds (the yield after accounting for inflation) are now negative.

Over the next five years, we expect bonds to return between 1-3% per year, which translates to a 5-15% cumulative return. These returns are likely to come with higher volatility than investors have been accustomed to.

Our fixed income manager is still positioning the Income Fund defensively but has added more to provincial and corporate bonds in recent months. In the Founders Fund, we’ve maintained our below-target weight in bonds. Instead, we’re holding cash which provides some defence while giving the fund liquidity.

Despite our lowered return outlook, bonds remain an important tool for most clients. They provide safety when stocks are volatile (as they have been recently), and as such, are a diversifier for a balanced portfolio. The Founders Fund currently holds 23% in bonds and 14% in cash.


We’ve lowered our best estimate for 5-year stock market returns to 5-7% per year (25-40% cumulative). The change reflects the swift rally since March and our view that companies will grow slower as they recover from the impact of COVID-19.

That said, we do not own “the market”. The rebound has been uneven, with large technology companies playing a big role. For example, the Nasdaq index, a proxy for U.S. technology companies, was up more than 40% in 2020 while the more diversified stock market (S&P 500 Index) was up 18% in U.S. dollar terms. Our managers’ more diversified positioning has meant our portfolios haven’t recovered to the same extent, but we believe the long-term prospects of the companies we own remain compelling.

The potential is reflected in the Founders Fund’s positioning. The fund currently holds 63% of its assets in Canadian and global stocks, which is above its long-term target of 60%.

Specific Advice

If you would like an assessment of your portfolio or a second opinion, give us a call (1-888-888-3147). We provide advice and can help better align your investments to your personal situation.

Founders Fund Asset Mix: January 7, 2021