Ian R. Campbell A Comment -- General Comments From an Expert A Commentary COMMENT Sep 17, 2008

These past 6 weeks remind him of a quote from Lenin: "There are decades when nothing happens, and then weeks when decades happen." Between tariff announcements and then reversals, and sudden intraday shocks and moves in the stock market and in currencies, it's been an extremely volatile time. It's very cloudy and confusing. His ETF research desk has been inundated with questions.

On the whole, he's not seeing the market retrench entirely out of equities. Money flows are split almost evenly between fixed income and equities. 2024 was a year of bull markets all the way, a record year for ETFs flows both in Canada and in the US, driven mainly by demand for the Mag 7 and the S&P 500. 

There's still a lingering desire and wish for those growth stocks to continue driving as the engine for the economy. But we're starting to see branches of flows moving into low volatility equities and certain aspects of fixed income, as well as buffers and other strategies for capital preservation.

They're highly efficient, giving you incredibly diversified exposure sometimes to thousands of stocks all at once. Enormous liquidity. Market makers stand ready throughout the day to execute huge orders. Primary and favoured vehicle for large institutions that want to turn over billions of dollars on a dime. 

Incredibly low fees and very tight spreads benefit investors as a whole. Smaller investors can piggyback onto this world-class institutional liquidity built around the ETF ecosystem. People who've just sold their stocks often move into ETFs so that they can maintain some type of market exposure.

Buybacks are similar to dividends. A way for a corporation to return money to shareholders. The company just takes cash on hand from its operations and reduces their share count. The remaining shareholders see a little bit of a price increase and accretion of company ownership. It can insulate the share price from dropping or, controversially, to prevent large stock options from vesting. In theory, it's no different from a dividend.

Thing is, we live in the real world where there are things like taxation. Most investors would much prefer to see capital appreciation rather than income ongoing. 

You may find some if you search for "shareholder yield". Invesco partnered with some index companies in trying to understand shareholder yield as the core concept. Shareholder yield combines dividends and buybacks as the true signal for how companies return capital to shareholders.

Look in the US. There was one in Canada, but it delisted.

Definitely could get worse. We're seeing the early effects of a once in a thousand years president of the US and all its repercussions. 

If you look at Q1 numbers for US companies and what they were projecting for the second half of the year, auto companies all pulled guidance. Same thing with the airlines. Other companies, while not pulling guidance, have said it's really murky for the second half. 

We're slowly seeing the US walk back on all the extreme reciprocal tariffs that they announced on "liberation day". Now we're getting discussions with other countries such as the UK and China. That leaves about 193 countries to go. A long road, but going in the right direction.

From here we should, hopefully, see some stability in the markets.

Critical thing is going to be what the impact is for the consumer. There's going to be a pass-through of tariffs, and it depends on who bears the brunt -- manufacturer, importer, or consumer. Inflation's going to be coming through. Layoffs may tick up.

Then it's up to the Fed whether to tolerate the inflation as a one-off, or to focus on labour, when it decides whether to guide down or not. Jerome Powell really differentiates between his role and that of the government; he sees it as his job to ensure full employment with inflation around 2%. He's not anticipating, but is waiting for hard data, and it's difficult with tariffs in flux. To lower rates now would be putting fuel on the fire, exactly what you don't want.

People will change their stripes as they get affected by different things. Current US president is blowing everything up from defunding research to challenging universities. 

His firm hasn't changed its approach. They look at everything from a bottom-up perspective. They have target prices on all stocks in a concentrated portfolio of 32-33 names. They also have target position sizes; if a stock drops, the team debates whether to buy it up to a full position. The macro is changing; but their method remains consistent, and that's served them well through current and past crises.

Upcoming mid-term elections plus lawsuits challenging tariffs should work in investors' favour. We have to hope that rules will fall into place and we can all move forward.