That’s a tricky one. Starting at the beginning of the year, the setup was very good for the Canadian market to outperform. Our domestic economy is set up well to benefit from the end of the pandemic and to see a pickup in immigration, as well as a recovery in Alberta.

With immigration, clearly we have very aggressive immigration targets and we haven’t seen a lot of that take place over the last couple of years. And as well, given the recovery in oil prices, the outlook for the domestic economy in Alberta has gotten a lot stronger.

In addition, TSX earning estimates overall are set to exceed pre-pandemic levels by 40%. The valuation discrepancy of our market versus the U.S. market remains. Even though we’ve outperformed, there’s still a discrepancy there, and our market still trades below its historical levels on a P/E basis.

Plus a cyclical recovery in theory is positive for banks, materials, and energy. And the makeup of those three sectors at over 50% of our market far exceeds other markets. But that being said, we have more worries today than we did at the beginning of the year. The war in the Ukraine persists, and that’s creating lots of issues with commodity price inflation and other types of inflation. There’s more talk about recession scenarios, et cetera. So we need to revisit some assumptions when given these potential scenarios and particularly that impact on our Canadian banks, and front and centre will be higher rates on our housing market as well.

So we’re revisiting our scenarios, we’re relooking at how earnings are impacted. And in addition to the fact that the Canadian banks have sold off, trying to figure out if that’s been properly calibrated, because there’s some positives that offset some of the negatives of a potential slowing economy, which would be higher rates, the benefit of higher rates in margins for the banks, and the strong capital positions we’re in and the focus and growth in other areas.

So I think when you put it all together, given the defensiveness of our banks versus other banks globally and a pretty strong domestic economy versus others, as well as a pretty good defensive and interest-sensitive allocation within the Canadian market, I think our market is still poised to outperform, but I think the overall returns are looking a little bit tougher at this point in time.

They certainly are topical. The more we read about pressure on wages, supply chain, and our contribution to inflation and all of these, the factors that are contributing to this continue to persist, given what’s going on in the world. And in particular commodity prices and the outlook on that pressure on commodity prices, given the supply-demand environment, looks like it could persist for some time.

So in managing income-oriented funds, we always focus on having a balance within those funds, because one of our biggest concerns is the negative impact of inflation on a fixed-income stream. So we’ve always had a bias towards growing income streams. And within the asset mix of the fund, we always want to have a good balance to more cyclical sectors that are poised to benefit in a period of rising rates.

So we’ve always had an element of resources, whether that be materials, fertilizers, energy, gold, and others. And so having some allocation to that within the fund, and providing that balance, has always been front and centre. And I would say, given the way the market has evolved year to date, that there’s just given performance, though, the positioning of those sectors has grown within the fund itself along with the markets.

So we’re watching that carefully. It’s been a benefit in this environment, but we’re always watching for signs that maybe it’s gone a little bit too far the other way. So that overall balance within the fund is front and centre.

Secondly, from an individual company perspective, we’re spending a lot more time thinking about what inflation looks like on the individual companies themselves and their ability to manage through inflation concerns and their ability to pass on. Clearly, pricing power is important. It’s hard to get, but some sort of element of pricing power within a sector itself is very helpful. Competitive positioning of the companies themselves is also important. And the ability to pivot, if one has to when it comes to supply chain concerns, is also front and centre. So from an individual company level and conversations with analysts and the companies themselves, we’re focusing on these topics and recalibrating our scenarios kind of on an ongoing basis.

And then lastly, I would say, just given this persistence of high inflation, I think balance sheet has become way more important. It’s always important, but it’s more front and centre. And I think we’re definitely leaning towards the more defensive balance sheet versus being just in line with where they should be.

So that’s something that we’re positively disposed to, as well, and very concerned in a situation where a company has a bit of an issue with the balance sheet at the current time and needs to raise capital because there’s always a concern of their ability to do so if markets start to get really volatile. So that defensiveness is front and centre.

And lastly, I think given where the markets are today, we have been taking cash positions up in our funds, partially defensively, but more as an opportunity to hold as things sell off and things get overdone in the marketplace, and where we can step in on companies where we’ve done the math and we understand how things look and think that the risk/reward just got a lot more attractive. So we’re trying to position ourselves offensively for those opportunities.

That’s a big controversial topic. It’s very wide. I think, well, starting with ESG considerations, I think we are in a—things are a lot more encouraging in terms of how ESG-focused portfolios are built.

It’s changed. We’ve kind of moved away from eliminating those bad actors and starving carbon suppliers of capital and focusing more on transition. And that’s been very encouraging to see. The focus has shifted to ESG improvers, and I think this focus is helpful as it opens up an opportunity set and gives the ability for those that can afford to finance change, to partner with those that need it and make solid returns at the same time. So when it comes to energy, that’s encouraging.

And then on the current environment for energy, I’m going to try not to get political or controversial, but clearly in the Canadian energy space, the social license has been an overhang on our sector for a very long time. And I think given the supply concerns that have arisen from the conflict between Russia and Ukraine, it’s been made very clear that we need the oil and gas sector for a long period of time as we transition into lower-carbon fuels. And that reliability of that supply has become front and centre.

And in addition to that, what doesn’t get enough airplay is that our energy producers have been laser focused on reducing the emissions intensity of their own production and stand up very well globally. And we have a lot to be proud of here. And with the increasing requirements, given ESG considerations on reporting, this data globally in a standardized and more comparable manner, this should become more apparent.

And then the current events also highlight the massive opportunity for the Canadian energy space itself as the fourth largest global oil and gas producer to stand out as a leader. From a social perspective, there’s no question we have a lot to be proud of, and what we have to offer as a country in terms of our culture and the fact that we have resources that are abundant and reliable. In addition, we have the ability, given our culture, again, to collaborate with each other. I think our large producers has been quite encouraging to watch as they continue to collaborate, looking to work together with the support of the financial community, as well as our government, to come up with carbon reduction solutions that are possible and economically viable and this, you know, this CSCA/U.S. partnerships that are being put together are a really strong example of that.

And this was demonstrated with Canada’s recent budget, which gave the industry long-awaited clarity on the investment tax credit structure proposed on carbon capture solutions for the industry, which is a big step in providing these companies clarity on what the financial returns will look like, and what could look like for these projects, and giving them confidence to move forward. And there’s more things like that that need to fall into place for this to work. But this was a very good step and a very positive sign.