Fund manager walks Mono council through their investment portfolio

May 11, 2023   ·   0 Comments


The Town of Mono weathered a very eventful 2022, at least investment-wise.

That was at the heart of how Will Mackay, an investment advisor and portfolio manager at CIBC Wood Gundy, described the municipality’s investment performance over the last year when council met on May 9. To date, Mono’s portfolio is up about two per cent, he said.

Mackay said much happened in 2022 regarding inflation and interest rates.

“I think there were three things that were key important in 2022,” he said. “It was inflation, and inflation, and also inflation.

“And that’s really key-critical.”

The financial scene last year was one of interest rates rapidly rising and inflation taking off to such a material degree, it had shifted a variety of pieces, he said.

“Adjustments are part of a business cycle,” Mackay said. “We were prepared as best we could for rising interest rates. We had known it was coming and we had pre-planned for some of it.”

The biggest challenge last year was the speed of change.

As interest rates moved substantially, it moved the risk for a lot of positions. The positions that we hold, adhere to the amount of credit risk we’re looking for.

“Interest rate risk (was) the biggest thing that impacted the portfolio last year, bar none,” he said. “And it was the speed of the interest rate changes.”

Higher interest rates had been anticipated. But managers expected the rates to rise how they did over three years as opposed to six months.

“One thing to remember is falling inflation is not decreasing prices,” Mackay said.

The rapidly rising interest rates caused damage in two areas: Equity valuation and fixed-income valuation.

The 10-year bond rate has not crossed three per cent over the last decade, with the exception of this year. It’s been below two per cent for the majority of that time.

“That’s the past,” he said, and added the market is much like driving in how we spend 95 per cent of the time looking out the front windshield and not the back window.

For the foreseeable future, the bond rate will be just below 3.5 per cent because the government is targeting inflation to get it back down to between two and three per cent.

“We hit year over year at 4.2 per cent, just this past month,” Mackay said. “They’re pushing hard to get it down.”

Deputy Mayor Fred Nix asked if there’s a lot of variation among municipalities and their portfolios.

“Your returns for the town are on par with all of our other accounts and, as well, are very similar in style and composition,” Mackay said. “The reason why is our team has created a proprietary view on how we hold funds for council and the town.”

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