Here's What We're Thinking...

The Investment Committee of the Portfolio Advisory Group meets weekly to formally discuss markets, sector allocation, investment recommendations, and holdings in management of the Equity Guided Portfolios. Below is a brief synopsis of their current market view.

The "risk off" trade is on again from a short term perspective with the move toward bonds leading to a flattening yield curve, and a reversal of the recent strength in the high yield corporate bond market, which behaves similarly to equities.

Current global economic and geopolitical realities imply interest rates will remain lowhe Portfolio Advisory Group continues to favour equities over bonds in the current environment, although the rally in cyclicals over the 2 previous weeks suggests additional selectivity with regard to stock picks.

Renewed sovereign debt concerns revolving around not only Greece's solvency, but now focusing once again on Italy, have put temporary selling pressure on global equities, and a flight to the relative quality of U.S. treasuries and the U.S. dollar. The U.S.10-year bond yield has once again dipped below 3%.

Eurozone anxiety has led to heightened risk of credit markets in Europe locking up, although the real impact is difficult to gauge as market volumes are generally softer in the quieter summer months.

Current global economic and geopolitical realities imply interest rates will remain lower for longer. Expectations for rate increases by the Bank of Canada and the U.S. Federal Reserve continue to be pushed out well into 2012.

Current equity market instability, a symptom of a mid-cycle slowdown in the global economy combined with increased nervousness surrounding European debt, represents a buying opportunity. Although share prices could hover around current levels for several months, equity investors in diversified portfolios should be looking to selectively add equity exposure through a barbell approach: in addition to commodity cyclicals that are expected to outperform as the economic outlook improves in the second half of 2011, investors should also add to defensive, dividend paying stocks to counter ongoing equity volatility and enhance total returns.

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