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2020 4th Quarter Market Outlook

12 October 2020 by National Bank
Q4 market outlook

As growth gradually picks up, market volatility provides attractive investment opportunities, according to Fiera Capital, portfolio manager of the NBI Corporate Bond Fund1.

Given the low-interest-rate environment, find out about the outlook and strategy of the portfolio manager for this fund, included in several NBI Portfolios.

Markets in a nutshell

Corporate bonds have rebounded strongly, after going through a tumultuous and unprecedented period in the first quarter. Significant government support measures and easing concerns about the spread of the coronavirus have contributed to this market rebound.

The rally in oil and other commodity prices as well as the strong positive reaction from stock markets also favoured debt securities. Investors believe that the second wave of COVID-19 should be managed more effectively, which explains the ongoing economic recovery.

Outlook and challenges

Volatility is destined to stay elevated until the end of 2020. However, it will not reach the highs seen last March due to:

  • significant improvement in market liquidity;
  • likely less severe consequences of a second wave of COVID-19 compared to the first wave.

Until the economy has returned to cruising speed, governments will continue to implement strong measures. These decisions will eventually prove effective, but their duration and impact on economic growth remain uncertain.

Global and North American growth is expected to gradually pick up in the second half of the year. However, a full economic recovery is not expected until 2021–2022.

Investment opportunities

In this context, we expect:

  • Canadian yields to remain low for an extended period of time;
  • market volatility to provide attractive investment opportunities.

We believe that the spreads between corporate and government bond yields should continue to narrow in the coming months. On the other hand, investor appetite for issues offering higher yields than government bonds should favour growth in debt securities.

Corporate bonds have performed well since the end of the first quarter. As a result, we expect to take profits in sectors that have risen sharply to favour other sectors with more promising potential.

obligations sociétés

Portfolio manager’s strategy

Our strategy is to look for the securities and sectors with the best risk/return profile in a context of low growth and particularly low interest rates:

  • The energy sector, Canadian banks, automobiles, airports and real estate investment firms are among the areas where we are advocating caution.
  • We are overweighting corporate bonds maturing in less than seven years.
  • Having said that, we remain on the lookout for investment opportunities to enhance the Fund’s performance.

Legal disclaimer

1 The NBI Corporate Bond Fund (the “Fund”) is offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Fiera Capital Corporation acts as portfolio manager for the Fund.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus of the Fund before investing. The Fund’s securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Fund is not guaranteed, its values change frequently and past performance may not be repeated.

Views expressed regarding a particular company, security, industry, market sector, future events (such as market and economic conditions), company or security performance, upcoming product offerings or other projections are the views of only Fiera Capital Corporation, as of the time expressed and do not necessarily represent the views of National Bank of Canada and its subsidiaries (the “Bank”). Any such views are subject to change at any time based upon markets and other conditions, which could cause actual results to differ materially from what Fiera Capital Corporation presently anticipate(s) or project(s). The Bank disclaims any responsibility to update such views. These views are not a recommendation to buy or sell and may not be relied on as investment advice.

© 2020 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.