NBI's Martin Lefebvre: Bullish vs. Bearish – Who will win the next round?

Martin Lefebvre, Chief Investment Officer & Strategist at National Bank Investments joined us for a chat to discuss the tug of war that is going on in markets between the bulls and bears.

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[00:00:00] Pierre Daille: Hello, and welcome to the Insight is Capital Podcast. I’m Pierre Daille, managing editor at advisoranalyst.com. There’s a tug of war going on between bulls and bears, and it has continued well into September between those who believe the FED has done enough for now to tame inflation, and those who believe the FED has much farther to go. Rates have been moving against equities and bonds and with correlations for many risk assets rising to one, it’s anyone’s guess as to what comes next. Joining me to talk about both the bullish and the bearish thesis is Martin Lefebvre, CIO at National Bank Investments.

Martin has 20 years of experience in the financial market sector where he has held various key positions. He joined National Bank in April of 2012 as a strategist before moving on to Private Banking 1859, where he oversaw the portfolio management team. As Chief Investment Officer, he is now responsible for the development of investment solutions for National Bank Investments and the management of tactical asset allocation mandates. Prior to his years at the bank, he worked at Natcan Investment Management as Vice President Asset Allocation, where he was responsible for the portfolio management of several multiple asset class mandates. He also served as senior economist and strategist for Desjardins Group, and as US Economist with the Canadian Ministry of Finance.

[00:01:26] Speaker 2: This is the Insight is Capital Podcast.

[00:01:31] Speaker 3: The views and opinions expressed in this broadcast are those of the individual guests and do not necessarily reflect the official policy or position of advisoranalyst.com or of our guests. This broadcast is meant to be for informational purposes only. Nothing discussed in this broadcast is intended to be considered as advice.

[00:01:45] Pierre Daille: Martin, welcome to the show. It’s great to have you.

[00:01:48] Martin Lefebvre: Thank you very much, Pierre. Happy to be with you.

[00:01:50] Pierre Daille: Martin, before we get talking, please tell us about the arc of your career how you got into the investment industry in the first place, and what you’ve been thinking about and working on these days.

[00:02:01] Martin Lefebvre: Yes. So you’ve touch about my bio a little bit, but if I go into more details I graduated somewhere around the end of the ’90s. And really there was not that many jobs around, certainly not in Montreal, in that sphere of activity. So I started, as you said, as an economist for the government of finance in, in Ottawa. But I I rapidly moved to the the banking sector where I worked as an economist for about, I would say 10 years. And I really loved every aspect of the job. I worked closely with with capital markets, bond desk. I was in charge of the FX forecast and and the bond markets forecast. So it was really following very closely everything linked to central banks and everything that’s that’s really aligned with everything that they do.

So really fundamental analysis. And then the problem with, is that when you’re working within an economist group, is that you’re in a silo. So to, to move on or to do different aspect of your career is very difficult once you are into that path. But I guess my big break came in in 2010 when Natcan was searching for a, or a PM for its allocation mandates. And I did that with some success for a couple of years. But after the firm was sold to to Fiera Capital, I switched back to the sales side, and I worked as a strategist for the the wealth management division at National Bank.

And soon after that, I really I took over the the management of the investment solutions for for a private banking division. And I guess somebody thought I I was doing a good job. Because really just a few years after that, I was put in charge of overseeing all of the bank’s retail investment solution. And since then you were asking what I was working on. We’ve added an OCIO offering and we’re working very closely in in collaboration with our institutional clients.

[00:04:03] Pierre Daille: Did you ever imagine you’d be here doing this when you were younger, when you were still in school?

[00:04:10] Martin Lefebvre: Oh, that that’s a good one. If you, if we, if you go back, when I was a kid, I wanted to be a stunt man. So I guess I didn’t-

[00:04:17] Pierre Daille: [laughs].

[00:04:17] Martin Lefebvre: … have that in mind. So I was more of the action type of kid, so I never-

[00:04:22] Pierre Daille: Yeah.

[00:04:22] Martin Lefebvre: … really figured myself sitting in an office chair all day. But what I’ve learned through time is that I was only looking for challenges and opportunities, and finance really is is all about that. Maybe I got the fever for all of this, watching Wall Streets, Gordon Gekko in 1987.

[00:04:39] Pierre Daille: [laughs].

[00:04:39] Martin Lefebvre: That’s really what, where it all came about, and that, that’s when I decided to take business and economics classes back then just before university. But I could tell you that ever since my first job in the domain, I knew I was I was at the right place, and I knew that I would do everything in my power to lead and build a research team. That’s really what I like. And I guess the rest just came naturally with a good dose of hard work and probably a bit of luck.

[00:05:08] Pierre Daille: Now that you’ve attained this role, the, your current role as CIO at National Bank Investment and strategist at National Bank Investments, what’s one thing that really is everything you thought it would be? And conversely, one thing that wasn’t?

[00:05:23] Martin Lefebvre: Pierre, that’s that’s a very good question. It’s a… being a CIO is is everything about making the right analysis, putting together thorough investment processes, making tough decisions and sticking with the plan. But it’s nothing about managing a black box or trying only to have value on a relative basis. When your portfolio manager beating the benchmark is the only thing. But when you’re a CIO, you need to understand that there’s a client at the end, and that outperforming at a down market sometime doesn’t cut it. Absolute returns is also very important. People have life goals and they’re accounting on us. So you need to think about communications, volatility, risk management and most importantly for for many clients is time horizon.

[00:06:18] Pierre Daille: It’s being a volatile year to date for both stocks and bonds with the inflate, with inflation at 40 year highs and rates on the rise. In your day to day conversations, what’s keeping your clients up at night?

[00:06:31] Martin Lefebvre: Yeah, that’s that’s absolutely most people you talk to have known nothing but disinflation, even if you were in the market at the beginning of the ’80s. So seeing inflation at a 40 year high is a bit of a surprise for for most people. Even people I work with, most of them are, around 30 years of age, so they’ve known nothing but an upmarket practically. So wages are rising, but certainly not enough to keep up with the price increase. So I think that households will make some tough choices going forward, especially in a rising rate environment. So you were asking what’s keeping my my clients up at night? Usually when the equity market goes down, there’s always an a balancing act with the bond market offsetting that. But the problem now is that equities are going down because yields are going up. So whenever yields are going up-

… obviously it means that the price of a bond is going down. And really what’s happened was really difficult to swallow for all those investors that are more conservative in nature. If you look at a statement, you’ll see that most bond strategies are down significantly over the past over the past year, certainly since the beginning of the year. So once clients get their statement they will see that even in a very secure positioning, there’s there’s nowhere to hide. And that’s pretty much the big problem in this cycle is that everything is in the red. Unless you were invested in in commodities and even more so in in the energy sector, everything is in the red.

I guess the only true safe heaven nowadays is the US dollar, but even that has gone up so much that it’s it’s becoming a problem for for many nations. Most clients are facing that, and it’s difficult to to understand and even to explain to them. But I think the worst is behind us, and we can look forward, even though it’s, it will remain difficult for e- equities in the near future, that probably from the bond market holders, that the worst is is probably behind us.

[00:09:01] Pierre Daille: Yeah, it’s it’s definitely a pivotal time. This week is definitely marked by the September FED meeting upcoming. We don’t know what’s going to, we don’t know full, fully what’s going to happen there, but you have a pretty good idea. With so far what’s probably baked in to the the FED’s thinking in terms of the the odds of a 75 basis point rate hike. But in the foreseeable future what are your thoughts on the market now and for the foreseeable future? Objectively speaking, what’s the bull thesis here, and conversely also, what’s the bear thesis? What are the odds at some point in the foreseeable future that the FED turns dovish, for example?

[00:09:52] Martin Lefebvre: We don’t see that coming in the in the in the near future. That’s for sure. One thing that’s gonna happen with the FED, probably raising rates by 75 basis points as you alluded to. But the message will be clear that they’re not about to make an about turn on their strategy and start lowering rates soon. So probably the dot plot will change where those more dovish at the FOMC were saying that it was a possibility for rates to be cut in 2023. I don’t, I, I don’t see that happening. If they keep raising rates after this coming Wednesday or and they will probably continue to do so until the end of the year, it’s gonna be very difficult for them to start cutting rates soon after.

So they’ve made inflation their main combat and I think that un- unless it drops significantly that they’re not about to change their their tune. On the optimist side or the more optimist out there on the street, they’re saying that inflation inevitably will draw very significantly over the coming months. And that should be enough. Once inflation drops below the FED’s key rates, it’ll be enough for them to maintain rates either at that level or even to cut them soon after that. But the pessimist will say that even though the key rates at the current level, it’s gonna take some time for all of the impact of raising rate environment to have a negative effect on consumption starting with the housing market.

So we’ve already, we’re seeing that it’s even more so in the US than in Canada. But in the US it’s pretty clear that the US market is is heading towards very difficult times. And once the housing market goes down, then, consumption soon will follow. And we’re in a bit of a pent up demand where we weren’t allowed to go out to restaurants to travel, and all of a sudden everything is reopen-

… and we just transferred from buying goods at home to doing everything that we we couldn’t do over the past couple of years. So there’s been really like a lot of demand lately a lot of activity, especially in those sectors. But when you look at plane tickets, double the price that they were before the pandemics. Going to restaurants, for sure Pierre, that it’s it’s much more expensive than what it was. So everything has gone up and at a certain point in time than households will have to make some some very tough choices.

So for us, it means that that tug of war will probably continue. But I guess that the big positive in all of that is that we’re not really seeing some big unbalances like the… like what we saw during the great financial crisis where lots of loans were made to to make sure that the ownership property ownership rose in the US and eventually that has led to a banking crisis. So we’re not seeing that. So hopefully we’re we’re seeing that even if there’s a recession, it might be very shallow and short lived. That would be the big positive in all of that. Where the chance of not going into recession right now is very low but if we can, manage to… If it’s short lived, then I guess that the market doesn’t have to go down typical bear market, 40%. So that’s the thing that we need to monitor very closely in the in the very near future.

[00:13:54] Pierre Daille: Yeah. It’s interesting I some voices, some of the voices in the market have been almost lobbying. You’d have to say, it sounds almost like lobbying the FED publicly through commentary to, do this upcoming rate hike, but then stand down and take a wait and see approach and see, how everything pans out over the next 18 months of the al- already existing rate hikes. Not necessarily to take a dovish stance, but just literally just to stand down and wait and see-

[00:14:36] Martin Lefebvre: Yeah.

[00:14:36] Pierre Daille: … While of course others are saying, "No, keep, this is gonna keep on happening until the inflation volatility is under control, under the… until the rate of inflation growth is subsiding." In the context of what’s been happening for most of this year with regards to the shift in regime that appears to be happening towards tackling inflation rising rates, how has your allocation changed from the beginning of this year until now? And what are some of the most recent allocation changes that you’ve made and why?

[00:15:10] Martin Lefebvre: Yeah, good question. Just just to go back a little bit recall that we ended 2021 really firing on all cylinders. So-

… clearly the market was already positioning for probably some technical pullback. That, that remains to, that was the environment that we were working with. So big drop last at the beginning of the year, that was more technical in nature than than anything else. But as soon after we saw that that clearly the market was looking for a direction. And there was lots of unforeseen events. Nobody could have really said that there, there’d be a war in Ukraine, so that kind of put oil on fire-


[00:16:02] Martin Lefebvre: … That China would go back to total confinement. So that, that was, I guess some people could say that was predictable, but it was a difficult to predict nonetheless. And the way our model works is that we tend to stick with fundamentals. There’s always risks, right? And-

… eventually one risk goes away for another one to to add to your the wall of worries. So there’s always risks. So we started the year fully invested in in equities, but it, it didn’t take long for us to change our tune and we went defensive. First we went to neutral, and then eventually we went to to be in defensive. We, the big problem, like I said earlier, is that even though we saw that equities were in a tough spot, the alternative being bonds, most of the time for us allocators, it was difficult for us to convince even ourselves that it was the time to buy bonds and bonds fared to even worse than than equities-

… in the first couple of months of the year. So we were massively underweight bonds. We stayed massively underweight bonds for for the first quarter and that’s really what paid off. Even though equities, went down bonds haven, fell even further than equities. We managed on a relative basis to to make a few basis points for our clients. But now I would say that we’ve raised liquidity. We like cash. Cash is yielding-

… somewhere between three and 4%, the highest level in since 2008. It’s it’s back in our the list of the possible universe, just before that it wasn’t something that we even looked at. But now, liquidity is good. Bonds has become more attractive. Benchmark yields are yielding 350 now in the US, a little bit less in Canada. But the bond investors can expect to have somewhere around 4% or even 5% if you buy corporates, … in here in Canada. So if your patient probably yields could, co- could go, always go a little bit higher for as long as the central banks messages that they’re not done with the their monetary tightening, but I guess the worst is behind us. And if you really expect inflation to come down, or even worse, a recession to take place somewhere in 2- 2023, then yields obviously will go back down. And bond holders would probably recoup all of the loss that were incurred during 2021. So I guess my big message is you have to be patient, you have to stay invested. But clearly prudence is of the essence for for the next six months or so.

[00:18:59] Pierre Daille: Yeah. Speaking of bonds, there’s both an opportunity to collect some yield from the, from bonds with rates having risen the way they have. But as you said, there’s also the tactical opportunity that if yields come back given a slowdown in inflation for a recession, we’ll see yields come back and therefore a tactical opportunity to have some gains as well from the bonds. What about sectors like energy and are there any key sectors that you like right now where you would have an overweight and any sectors that you specifically have underweighted?

[00:19:40] Martin Lefebvre: Yeah. So I guess this discussion is more for portfolio manager, equity portfolio managers, because wherever the sector you’re invested in on an absolute return, there’s a fair chance that’s gonna be negative, right?

But on a relative basis, I guess that defensive sectors whether utilities or not or whatnot, staples, consumption staples might, will probably do better. Everything that’s linked to interest rates or interest rate sensitivity where technology stocks, not to name them, I would stay away from those for the time being. But eventually if yield do go back down because of everything that we just said, inflation going back down and probably the FED fighting the the coming slow down instead of inflation, that would probably be a good time to switch back into growth stocks. I would shy away from everything linked to cyclical stocks. I guess that trade was the end of 2021 and the beginning of-

… of 2022. But now it’s already behind us. Oil prices, we’ve already seen the big jump the energy sector is up, big time. I don’t see any upward momentum from now on. It may stay fairly it may be alright for a couple more months, but I guess that trade is really behind us. And if there’s and if there’s indeed a coming slow down, then even those sectors will fill the brunt of the of the slow down. So I would I would be prudent sector wise going forward.

[00:21:30] Pierre Daille: So for the time being it’s you’ve been increasing the dry powder in the allocation keeping, raising allocations to cash, taking in more defensive portfolio stance to more liquidity-

[00:21:46] Martin Lefebvre: Yeah.

… and shorter duration?

Absolutely. But recall-

[00:21:50] Pierre Daille: Yeah.

[00:21:50] Martin Lefebvre: … that at National Bank, what we do is we do the asset allocation, we choose the assets we’re invested in, but we outsource to active portfolio management in in external firms. So-

… They have the mandate to add value no matter what the environment that they’re in.

[00:22:09] Pierre Daille: Okay.

[00:22:10] Martin Lefebvre: That deci- that decision remains their their own.

[00:22:13] Pierre Daille: And Martin, what are some of the unique features of you and your team’s asset allocation framework?

That’s a good question. I just alluded to our [laughs] our our approach. So it’s a good segue. Yeah.

[00:22:29] Martin Lefebvre: … and basically Pierre our approach is three prong. We start by building portfolios based on historical risk premium. That’s really how we we come up with the risk profiles for for our client. But that’s if we couldn’t do anything else. So obviously on top of that, we tend to add what we call a strategic layer. And that’s based on our long term m- market expectations that we do annually, we revise them annually. The next publication should be out shortly. I think it’s it’s supposed to be out by the end of by the end of the week. And that’s where we we had peripheral strategies like whether it’s alternatives, real assets-

… or a private equity, or that’s where we decide to be overweighted plain vanilla asset classes like livestock or bonds or go underweight or raise cash or stuff like that. So basically our target is to beat a plain vanilla portfolio. And f- finally to keep a very flexible approach in all of our solution we’re adding a tactical sleeve where we capture the opportunities of changing market environments and mispricing. Like I said, because we outsource the active management of our solution externally, it’s very difficult for us to say, "Okay, it’s time to be overweight, Canadian equities or US equities."

So we have a technical sleeve in pretty much all of our portfolio solutions. It usually amounts to somewhere around 10% of solution. It’s passively managed whether in futures or in ETFs. And and we can be very flexible with that approach. In a matter of a day we can go from overweight equities to overweight bonds. So that’s that’s given us a lot of flexibility and that’s enable us to to capture some some good opportunities over the past couple of years.

[00:24:34] Pierre Daille: Martin, is it safe to say that your office is, your CIO office is maintaining a high degree or is maintaining all the objectivity that you can possibly maintain? You’re not married to any particular vector or outlook in the market. You’re not making any, you’re not making bets on, on, the direction of the market. You’re mainly, and you’re mainly analyzing the market objectively in order to see where the flows are, where the ebb and, where the ebb and flow of the market is and what directions, different areas of the market are heading in-

[00:25:19] Martin Lefebvre: Absolutely.

[00:25:19] Pierre Daille: … and monitoring? Like-

[00:25:20] Martin Lefebvre: Yes, you’re absolutely right. We’re analyzing the markets on a daily basis, but we’re also trying to see the big picture.

And whenever we come up with an idea, whether it’s to, to buy real assets or infrastructure, or to go into commodities or to… We search the planet for the best managers, and we just allocate them they’re competing against each other. So we are, we’re just trying to-

… come up with the best strategy possibly, and then we allocate the mandate to, to, to the best the best managers out there. And because of our pricing power, because every time we allow, allocate mandates, it’s in the midst of 500 million and most, mostly billions usually we get very good pricing power also for for our customers. So that’s that’s probably a good a good advantage or a differentiator that we have from from most of our banking competitors, not to name them.

[00:26:19] Pierre Daille: Within the mandates that you manage how do you and your team work in terms of overseeing the assets that you directly control?

[00:26:28] Martin Lefebvre: Yeah, that’s a good question. So of I’ve talked about our our open architecture approach earlier.

So we, we do have a team that manages that. They do due diligences on all of our external portfolio managers, so that’s really their job. I come up with idea, and then they do come up with the best in class. And then as a committee we choose we only retain the the best ones. And then it’s their job to, to make sure that, on a regular basis, they they meet with them and make sure that they they’re still aligned with the mandates that we give them. What we do on my team is that not only we come up with the strategy, but we also manage the tactical sleeve that, that portfolio I was I was telling you about.

So it’s I guess it’s somewhere in the neighborhood of $7 billion, that we’re that we’re managing. And we’re we’re doing that in my team. So we come up with a strategy. We made the decisions, we follow the markets on a yearly basis. And that’s given us all the, like I said, the flexibility to make sure that the clients are, the best aligned in the in any type of of environment really. And that’s worked fairly well for us over the past couple of years. We’re knock on wood, we were able to add a lot of value for for our clients doing it that way.

[00:27:59] Pierre Daille: How much do you think at this point the market has discounted? You’ve already said that, you think that the worst is behind us. So in other words you also must believe that the market believes that the worst of these policy changes is behind us-

[00:28:15] Martin Lefebvre: Yeah.

[00:28:15] Pierre Daille: … And the worst of the news that’s happening is also behind us given geopolitical events, the war in Ukraine supply shock reopening of the economy and all of the pressures that has put on inflation. So how much… I, maybe I’m answering the question for you, [laughs].

[00:28:40] Martin Lefebvre: Yeah. But yeah, [inaudible 00:28:41]. Yeah. Markets don’t like to be idled. They’re always looking for direction.

[00:28:46] Pierre Daille: Yeah.

[00:28:46] Martin Lefebvre: So sometimes it’s only tactical in nature. If things go too far they’re waiting and just, to for the markets to go back up. But the general trend remains down. When I say that probably the worst was behind us, is that, remember somewhere in 2021, benchmark yields were hovering a- around zero, and they went up to 3.5% in a matter that was almost never seen before. Being long, very long duration in nature, the hit to the bond market was the worst, probably ever. Re- remember in the ’80s when yields were going when yields went all the way up to almost 20%, coupon rates were also very high. So that kind of offset the total return aspect of of the bond return. But nowadays, you don’t have that.

Coupons are, were at zero. There were there was a huge premium on the, on, on most bonds. But now, yield to maturity is somewhere around 3.5 4%. And there’s a discount for buying a bond. Yields may well go up a little bit more, like I said, until the FED is done, or central banks are done generally. But I guess the worst is probably behind us for in terms of the bond direction. Now, equities is another thing. And it remains to be seen what’s what’s ahead of us. But I guess if we revisit the lows of last June, markets will go back in bear market, we’ll be down 24 ish, 25% and then we’ll have to see how much how much bad news is still is still to come or if most of those are already priced in.

But what we do in our day to day monitoring is that we try to stay as, as rational as could be in our decision making. And to do that, there’s there’s a wide array of metrics that we follow. And because we consider ourselves evidence based, everything is gathered through analysis models where we add different signals ranging from monetary conditions, cyclical conditions and market sentiment in a way to quantify our risk positioning. Like I said the we believe that we’re the last line of defense for our clients. So we wanna stay as rational as possible in our in our decision making. And that’s that’s why we tend to have the need to be, to quantify all of our all of our decision making.

But like you said, there’s a, there’s still a lot to to factor going going forward. And like I said, we’re still waiting for the the behavior of the of the consumers to to change. There’s never been-

… a recession, whether in the US or in Canada, not involving a slowdown in consumption. And I guess the big positive if I if I try to compare the current downturn with other recessionary episodes, is that, like I said, there’s no, there’s not that many imbalances, but firms are alright, they’re balance sheet is clean. Same thing with households. There’s been there’s been a very sharp rise in in many metrics concerning households. Network has gone up like never before. And although the stock market is down since the beginning of the year, the last 10 years were almost abnormal in in returns for for many for many investors. So-

… a lot of people got really rich over the past couple quarters or years. And because of that, we think that their their balance sheet is also fairly good. And they’ll probably be able to to weather any type of storm. And like I said hopefully our best case scenario is for the coming recession to be shallow and short lived in nature.

[00:33:29] Pierre Daille: So some lasting wealth effects from the last decade are providing pretty significant cushion for the consumer, right?

[00:33:39] Martin Lefebvre: Absolutely.

[00:33:40] Pierre Daille: Yeah.

[00:33:40] Martin Lefebvre: Absolutely. Yeah.

[00:33:42] Pierre Daille: You mentioned alternatives. What role are alternatives playing in your asset allocation model?

[00:33:47] Martin Lefebvre: A- a big role actually. We’re looking at that we’ve added some like I said, now, yields have gone up. So bonds we’re probably, be more in vogue for the for the foreseeable future, much more attractive. But the past five years has been, yields will go up eventually, and we need to prepare for that. So we switched, we took a lot of our positioning in in bonds to invest that in cash securities. So whether it’s infrastructure, whether it is timberland and agricultural funds. We we bought a lot of real assets over the past couple of years.

We also we’re also invested in what we call nontraditional fixed income. So we are trying to buy some some opportunities. We’re trying to go buy into spread products instead of just buying the the coupons. So that’s added also a lot of value, and we’ve invested a lot of our time and effort into the private markets. So whether it’s that infrastructure, like I mentioned, but also in private equity, just to make sure that our spectrum is as or our universe is as as wide as possible to capture every possible opportunities for for our client going forward.

[00:35:18] Pierre Daille: Excellent. And Martin, what are some of the areas I think you may have covered this already but I think I should still ask you.

[00:35:28] Martin Lefebvre: Yeah.

[00:35:28] Pierre Daille: What are some of the areas of investment or opportunity that you wanna highlight for investors? I know you mentioned cash. The US dollar is very strong and appears like it might, appears to have some durability in terms of continuing to be stronger for at least a little while. But and cash, of course is building up some dry powder in portfolio allocations. But are there any other are there any areas of opportunity that you’d like to highlight?

[00:36:02] Martin Lefebvre: It’s probably too soon to try to reverse any trends. Like you mentioned that the US dollar is really strong. It’s probably the strongest it’s been in, in a long while. And usually when there’s when there’s a downturn, the the look for safe heavens is always favorable to US dollar. But the US Central Bank or the FED is always the first one to hike interest rates. It’s it’s always been like that. And usually there’s a sort of a six month lag before the rest of the world catches up to to the Federal Reserve. So before that happens, and we just saw the ECB start hiking, it’s it’s its own monetary policy. But there’s no way in, in my mind that the ECB will be able to raise rates all the way up to to wherever rates the the FED is is taken the markets-

… Because of the the difficulty or the structural difficulties that Europe is facing right now, the energy crisis. There’s so many things that will prevent the ECB from hiking interest rates all the way to the levels that we’re seeing here in North America. For the time being, I would say that although the US dollars seems to be over bought it, it would be difficult for us to really bet against that in the in the very in the very near future. Cash is just, an opportunity that was taken off the list over the past couple of years, because yield were brought down basically to zero. Nowadays it’s a, it’s an alternative.

If you don’t if you think bonds will go much higher then cash, probably better for you. And if you think that equities were correct because there’s a recession coming, then again, cash is probably a better alternative than it was for a very long time. But I would tend to stay very prudent in the in the near term. But just to remind everyone, risk aversion. If you get outta the market risk aversion will prevent you to go back into the market. And don’t forget, there’s already 20% of the downturn that’s already priced in. It may be, there might be another 10% or even a four, 20% downturn-


[00:38:31] Martin Lefebvre: … Coming ahead of us that would be in line with historical bear markets going all the way back to the early 19 ’50s. But since there’s not that many imbalances in the in the the economy right now, it could be, it doesn’t have to be that bad. Just because of that recall the importance of being invested and because the first couple of months following the rebound are always spectacular. I guess the signal this time around will not come from the FEDs saying that they’re done with tightening monetary policy that may give way to a rally. But the big jump or the big turnaround in equity market will only come once the FED signals or has given us the message that they’re about to lower interest rates.

That’s always been the pivotal signal from central banks. So I guess be be ready for that. Once that happens the market will go will go back up and we are, that’ll be the beginning on the, of a very, of another very long cycle. I’m pretty sure of it.

[00:39:48] Pierre Daille: That’s terrific insight Martin. What’s one thing that sets National Bank Investments apart in your mind?

[00:39:56] Martin Lefebvre: That’s a very good question. But if I had to think it, it wouldn’t be one thing, it’d be everything.

[laughs]. Okay.

[00:40:04] Martin Lefebvre: Starting with the the culture, adopting the bank’s value of making a positive impact for the community, for our clients, for our employees the way we work in close collaboration with our partners. I’ve mentioned our open architecture approach which gives us the ability to choose and retain only the best managers everywhere on the planet and like I said, at the best price. So that’s a big differentiator for us. But above all, I guess it’s our people. We’ve really put every effort in raising the bar to track and retain the best talents and then to be a destination of choice for for our employees. And that it’s surely paid off in in recent years. Yeah, if there’s one thing, I guess that sets us apart would be would be our people.

[00:40:58] Pierre Daille: Thank you for sharing that. So this is a time for prudence, maintain your asset allocation. In other words, stay invested. This is not a time to jump out. We, you mentioned I, I would say that the implication of what you said just now about remaining invested, remaining in your asset allocation is that cha- things obviously can change very quickly, they can turn on a dime. And-

[00:41:24] Martin Lefebvre: Yeah.

[00:41:24] Pierre Daille: … and if you’ve already been through the worst of this year, getting out now would be one of those terrible behavioral mistakes that, that, investors make quintessentially, which is, getting out at exactly the worst time possible and then missing the recovery. A- any parting thoughts?

[00:41:45] Martin Lefebvre: I guess you’re right about that that last statement. And it’s all linked to, risk aversion. If you get out now, it, probably if equities continue to go down, that, that would be a good thing. But the importance is going back into the market also at the right time, and that’s a very difficult decision to make. But I would I would add that volatility will remain with us in the foreseeable future. That’s for sure.

What we’re seeing also is that when yields do go back up like they just did, usually the correlation between bond returns and equities is also, goes back to positive. So it means that there’s gonna be some very good times ahead of us, but the bad times can be also worse. So there’s not gonna be much diversification from bonds going forward. So I guess diversification will remain key. You need to look at every aspect of the environment, universe going forward. That’s one short thing that will remain. Yeah.

[00:42:52] Pierre Daille: One last question. What’s a hobby or personal interest that you could talk about for hours?

[00:42:57] Martin Lefebvre: Oh my gosh. Yeah. I do lots of things. I’ve built my own cottage, so yeah, that’s kept me busy for for parts of the last couple of years.

[00:43:09] Pierre Daille: Fantastic.

[00:43:09] Martin Lefebvre: Yeah. Yeah. Every weekend. And it’s it’s almost finished. It was it was a boon to have that during the pandemics. We spent a lot of time there with the with the family. I do I’m a boat guy. I’m always on the water.

[00:43:24] Pierre Daille: Yeah.

[00:43:25] Martin Lefebvre: So I love doing that. Water skiing surfing stuff like that. That’s that’s the kind of thing that I like. But fall is upon us, so we’ll probably go for hiking in the trails in the in the backyard. So that that will be fun too. I’m looking forward to it.

[00:43:43] Pierre Daille: Martin, you weren’t kidding when you said, you were an action guy.

[00:43:47] Martin Lefebvre: Yeah.

[00:43:47] Pierre Daille: [laughs]. Martin, thank you so much. That was that was a terrific conversation. Very excited to chat with you today.

[00:43:58] Martin Lefebvre: My pleasure, Pierre. Thanks for having me.


Listen on The Move


Our conversation begins with Martin Lefebvre's background as an economist, a portfolio manager and his rise to the CIO position at National Bank Investments. From there, we quickly segué into what's been going on in markets, sentiment, and his office's perspective on how investors should think about positioning their asset allocations for the period ahead. We also discuss in detail his team's process and the factors and data they track and use on an ongoing basis to inform their asset allocation models, as well as the inclusion of alternative investments.

2022 has been a rocky and volatile year, so far, marked by what appears to be a change in economic and market regime, triggered by inflation volatility (supply chain disruptions and a tight labour market) and rising rates (central bank tightening), war in Ukraine, and energy crisis and economic upheaval in Europe. Broadly speaking, both stock and bond prices have seen sharp declines and while investors have suffered, they nonetheless have also bifurcated into two camps. Those who feel the Fed may begin to turn dovish sooner rather than later (hope), as a result of softening economic conditions, and those who believe we are in for a longer stretch where monetary tightening is concerned (fear).

Which camp is more likely correct? Join us for this conversation – please enjoy.

Here is NBI's latest from Martin Lefebvre's CIO Office on his team's outlook and expectations for the next 5 years.

For more, please visit National Bank Investments

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