MD Tactical Asset Allocation Moves To Manage Risk With Return to Neutral Fixed Income Position
MD Physician Services Inc. has increased its exposure to Canadian equities, while positioning an offsetting decrease in international stocks, based on macroeconomic and investor sentiment signals.
Discussing MD’s investment strategy on the Business News Network (BNN) in Toronto, Chief Investment Officer William Horton said the move is part of MD's second-quarter Tactical Asset Allocation decision, announced on June 17, 2014.
Implemented quarterly, or as market conditions dictate, MD’S Tactical Asset Allocation is aimed at increasing exposure to asset classes that present more attractive risk and return profiles, and at reducing exposure to less attractive asset classes. This way, the actively managed portfolios are positioned to capture shorter-term return potential for investors.
In other key moves within this latest round of tactical decision making, MD has reduced its allocation to equities in all portfolios, having benefitted from a strong equity position over the past several quarters. By way of example, this means a 5.5% decrease in equity within a 10-year time horizon portfolio. MD also moved its fixed-income (bonds and cash) assets to a neutral position within its portfolios.
Mr. Horton said risk assessment is a key factor within the tactical decision-making process. “When we look at the Tactical Asset Allocation, we’re looking at a six- to 24-month period, and we’re working to use a risk budget, which is a check and balance for us in making decisions. The risk budget and the way the signals line up this quarter appear to indicate that we should reduce equities. However, in a 10-year time horizon portfolio we’re increasing to 8.5% our overweight to Canadian equities and have an offsetting position of 8.0% in international [stocks]. The rationale is that we expect, on a relative basis, the Canadian market to outperform international.”
Commenting on MD’s current fixed-income position, Mr. Horton said that MD’s portfolio clients have benefitted over several quarters from a relatively higher positioning in long-term bonds, versus short- to mid-term bonds. The return to a neutral position, he added, is also based on risk management.
“We’re returning much of the (fixed-income) portfolio to a neutral position, which for us is a safe haven in terms of achieving the goals that our clients have over their time horizon.”
Asked to comment on the direction of both the U.S. Federal Reserve and other central banks, Mr. Horton emphasized the important role that policy makers continue to have in supporting economic growth.
“Our position is that we’ll continue to follow what monetary and fiscal policymakers are doing. We’re convinced that they’ll continue to do what it takes to keep the economy going.” Mr. Horton cited a recent move by the European Central Bank to implement negative interest rates and ongoing quantitative easing by the U.S. Federal Reserve, albeit at a decreasing level, as key examples of support for economic growth.
About MD Physician Services
MD Physician Services, with more than $36 billion in assets under administration, is a wholly-owned subsidiary of the Canadian Medical Association. MD is dedicated to serving physicians and their families. MD Physician Services provides financial products and services, the MD family of mutual funds, private investment counselling services and practice management services through the MD Group of companies. For a detailed list of these companies, visit mdm.cma.ca.
Communications Manager, MD Physician Services Inc.