You are currently viewing the Canadian Institutional website. You can change your location here or visit other RBC GAM websites.

Welcome to the RBC Global Asset Management site for Institutional Investors
Français

In order to proceed to the site, please accept our Terms & Conditions.

Please read the following terms and conditions carefully. By accessing rbcgam.com and any pages thereof (the "site"), you agree to be bound by these terms and conditions as well as any future revisions RBC Global Asset Management Inc. ("RBC GAM Inc.") may make in its discretion. If you do not agree to the terms and conditions below, do not access this website, or any pages thereof. Phillips, Hager & North Investment Management is a division of RBC GAM Inc. PH&N Institutional is the institutional business division of RBC GAM Inc.

No Offer

Products and services of RBC GAM Inc. are only offered in jurisdictions where they may be lawfully offered for sale. The contents of this site do not constitute an offer to sell or a solicitation to buy products or services to any person in a jurisdiction where such offer or solicitation is considered unlawful.

No information included on this site is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any product or service. The amount of risk associated with any particular investment depends largely on the investor's own circumstances.

No Reliance

The material on this site has been provided by RBC GAM Inc. for information purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM Inc. It is for general information only and is not, nor does it purport to be, a complete description of the investment solutions and strategies offered by RBC GAM Inc., including RBC Funds, RBC Private Pools, PH&N Funds, RBC Corporate Class Funds and RBC ETFs (the "Funds"). If there is an inconsistency between this document and the respective offering documents, the provisions of the respective offering documents shall prevail.

RBC GAM Inc. takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when published. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM Inc., its affiliates or any other person as to its accuracy, completeness, reliability or correctness. RBC GAM Inc. assumes no responsibility for any errors or omissions in such information. The views and opinions expressed herein are those of RBC GAM Inc. and are subject to change without notice.

About Our Funds

The Funds are offered by RBC GAM Inc. and distributed through authorized dealers. Commissions, trailing commissions, management fees and expenses all may be associated with the Funds. Please read the offering materials for a particular fund before investing. The performance data provided are historical returns, they are not intended to reflect future values of any of the funds or returns on investment in these funds. Further, the performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. The unit values of non-money market funds change frequently. For money market funds, there can be no assurances that the fund will be able to maintain its net asset value per unit at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund securities are not guaranteed by the Canada Deposit Insurance Corporation or by any other government deposit insurer. Past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. RBC ETFs do not seek to return any predetermined amount at maturity. Index returns do not represent RBC ETF returns.

About RBC Global Asset Management

RBC Global Asset Management is the asset management division of Royal Bank of Canada ("RBC") which includes the following affiliates around the world, all indirect subsidiaries of RBC: RBC GAM Inc. (including Phillips, Hager & North Investment Management and PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, BlueBay Asset Management LLP, and BlueBay Asset Management USA LLC.

Forward-Looking Statements

This website may contain forward-looking statements about general economic factors which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.

Accept Decline
org.apache.velocity.tools.view.context.ChainedContext@31f372
by  Daniel E. Chornous, CFA Jun 10, 2021

In this video, Chief Investment Officer Dan Chornous reviews the key forces and risks considered in his optimistic growth forecast. He anticipates inflation will stabilize and short-term interest rates will flatten and discusses what that may mean for fixed income and equity markets.

Watch time: 9 minutes 17 seconds | Hover your cursor over the menu icon to see chapter options

View transcript

What is your outlook on the economy?

There is an absolutely massive amount of interest rate relief, monetary stimulus, and special programs that are still at work in the economy, not just locally, but around the world. And these will still be alive through the rest of 2021 and into 2022, even as the pandemic sort of breathes finally to a close.

So growth conditions in the next 18 months look absolutely terrific. If you look at the government finances, the things that funded that relief, they’ve been damaged, and there will be longer-term consequences for that.

But in the near term, much more important is the health of the consumer. So you have balance sheets that are in reasonably good shape; net worth in the United States, which is actually at an all-time high despite the difficulties of the last year. You have the ability to carry debt as a result of rather low debt levels and very, very low interest rates, and in better condition than it’s been since Ronald Reagan was president.

Then you add to that the massive amounts of pent-up demand that we all feel. And I think we’re going to see growth rates in the range of 6% in Canada, a GDP growth. Real growth in the United States 6.5% this year. And then even next year, as you start to normalize, put distance of the pandemic behind and relieve some of that pent-up demand, still 4%-or-so growth.

In fact, when you add inflation to that, you come up with nominal growth rates in the economy that are at levels that most of us have never seen. We’re talking about nominal growth rates 8%, 9%, even a bit above for brief periods over the next 12 months. Very interesting conditions lie ahead.


What are some of the key risks to your economic outlook?

As solid as the economic outlook appears to be, there are threats, of course, that we need to consider. And we’re nearing the end of this pandemic, but there is the threat of a fourth wave, and the transmission rates of some of these variants are quite concerning.

We’re assuming in our forecast that this naturally winds down as the percentage of the population that’s vaccinated rises. And we need to keep an eye on that, obviously. There are other, more traditional geopolitical pressures. The Middle East again is a hot spot concerning investors. The tensions between China and the United States didn’t pass with the change of the administration. Even Canada-U.S. relations are a bit tense with protectionism, which also transferred from one president to another.

So we’re not without potholes ahead of us but, by and large, they appear manageable, and we continue to look for very, very strong growth conditions out over the next 12 to 18 months.


What is your view on inflation?

Inflation hasn’t been a particular concern for economists or investors for almost decades now. It’s come down since the early 1980s and the advent of monetary discipline. But we’re seeing right now probably the most important inflationary spike that we’ve seen since 1980 to ‘85.

Right now, as I speak, the inflation reports are punching up through 4%, 4.5%. Now there’s reasons for this and, very importantly, there’s reasons for this not being sustainable. The supply chain bottlenecks, there’s base comparisons that are quite weak. Because of course, right now, we’re comparing on a year-on-year basis to a period that we were deep in lockdowns in most of the world.

In fact, I was speaking to our economist, Eric Lascelles, only this morning who said that the really early indicators of future inflation may well be peaking in here, but this is clearly a very important threat that we need to monitor on an almost-daily basis.

What we need to worry about as investors and what central bankers have to worry about isn’t so much the reported level of inflation – it’s inflationary expectations. Because to the extent that rising inflation gets embedded in expectations, it becomes a problem as we all build them into our demands for returns, for compensation, et cetera, and it becomes a self-perpetuating issue as it did in the ‘70s and ‘80s.

We’re not there yet. When we look at market-based indicators of inflation expectations, they’re elevated, but they’re still reasonably well anchored towards the 2% level. These are incredibly important to investors. If we get this wrong, and if central bankers wait too late to raise interest rates and tamp down inflationary pressures, interest rates will rise and stock prices will fall, as valuations under stocks don’t accommodate much higher than current levels of interest rates. This is an important element that must be followed very closely by investors.


What is your outlook on fixed income?

Although we’re quite positive on the outlook for the economy over the next year to 18 months, we don’t really see a need for short-term interest rates to rise all that much. And it’s possible that they won’t begin to rise until fairly late in that horizon.

The economy is still in need of support as we leave the pandemic behind. We know that central bankers are committed to making sure that it has solid traction before they remove some of that support. And in fact, before they get to raising interest rates, they’d want to start winding down quantitative easing programs. So there’s a lot of time between now and then.

So we’d look for essentially flat rates at the short end, anchored right where they are into the year-end of 2022 and maybe even into early 2023. And you move further out the curve—and as we speak, we’re closer to 1.5% on a U.S. T-bond being the world’s most important 10-year interest rate, as it sets the trend for all others—we think it’ll peak out at most at around 1.75%. And if we’re wrong, not that much above that over the coming year.

Much of the acute interest-rate risk that we were concerned about earlier in 2021 has been removed from the lift in interest rates that we saw in the first three or four months of the year. And there are longer-term structural forces that should contain long-term interest rates at not too far above current levels going forward.

So as you get later into this cycle, aging demographics, a preference for higher savings rates, all these things take away from global nominal GDP growth, suggest that real rates of interest after inflation rates of interest won’t rise much above 0% to 1%, probably holding long bond yields at below an ultimate target peak of 3%, 3.5%. Expect to earn your low single-digit returns on sovereign bonds over the next 12 months. And I don’t think you’re going to earn much more than that on a coupon for a long, long time.


What is your outlook on equities?

Many commentators have been concerned about the level of valuations in global equity markets, and the U.S. equity market in particular. I mean, that concern is reasonable. U.S. equity market is almost 30 times trailing-12-months earnings.

On the other hand, I don’t think that price-earnings ratios are going to settle back to levels any of us are going to be comfortable with. And secondly, we’re on the cusp of very, very strong earnings reports.

To deal with the earnings first and the kind of economy that we see forecast, we think that you could move up to very strong revenue gains, you could move margins from 8% to 10% in the United States. You could take earnings from probably $200, $210 at year-end up to, I don’t know, $250 even, slightly above, at year-end 2022. You attach a multiple of even 20 times earnings, which is slightly higher than normal but consistent with a lack of great alternatives in the fixed income market, and return to more reasonable levels of inflation and stable interest rates, and you’ve got returns in the high single-digits in Canada, mid-single-digits in the United States, and high single-digits outside of North America.

We’ve maintained very high equity weightings in our asset mix really throughout the period. And we have been reluctant to reduce these, despite the level of valuations, because we think the market is simply looking forward to very strong earnings growth which we think will be delivered.



Discover more insights from this quarter's Global Investment Outlook.

Disclosure

This document is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This document does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This document is not available for distribution to people in jurisdictions where such distribution would be prohibited.

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC.

In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this document is provided by RBC Global Asset Management (U.S.) Inc., a federally registered investment adviser. In Europe this document is provided by RBC Global Asset Management (UK) Limited, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this document is provided by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.

Additional information about RBC GAM may be found at www.rbcgam.com.

This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the above-listed entities in their respective jurisdictions.

Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.

Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.

® / TM Trademark(s) of Royal Bank of Canada. Used under licence.
© RBC Global Asset Management Inc. 2021
Publication date: (June 15, 2021)