Name: CAN 25006 CG Canada Midyear Outlook Sightlines Webinar 250722 V2 HQHD MED
Uploaded: 2025-08-05T17:51:20.440Z
Duration: 56 min 42 s
Description: CAN 25006 CG Canada Midyear Outlook Sightlines Webinar 250722 V2 HQHD MED

Transcript for "CAN 25006 CG Canada Midyear Outlook Sightlines Webinar 250722 V2 HQHD MED": Hello, and welcome. My name is Shree Vamuri, and I'm the national sales manager for Capital Group's business here in Canada. On behalf of all my colleagues, thank you so much for taking the time to join our twenty twenty five midyear outlook sidelines webinar. Let me go ahead and introduce our presenters today. We have three great presenters. I'm really excited to to to share their backgrounds with you. First is Catherine Forrest. Catherine Forrest is an equity investment director with Capital Group. She's been with Capital Group for a little over three years and in the industry for over twenty. Prior to joining Capital, Catherine had various senior roles at Sun Life Global Investments. Welcome, Catherine. And joining Catherine is Jamie Golisima. JD has been with Capital for over two years in the industry for twenty four years. She's an investment director of strategy strategy research and ESG at Capital. Prior to Capital, she was at Citi on the ESG and advisory front. And prior to that, Catherine was with the, Central Intelligence Agency, which I'm sure there's a there's a few stories there. JB Wilson. Sorry. And then finally, Damien McCann. Damien is a portfolio manager on the fixed income world for Capital Group. He's actually a PM on, a vehicle that many of you utilize, so thank you, which is our multi sector income fund and the ETF equivalent CAPM. Damien has been with Capital for twenty five years. And prior to that, he was in various fixed income analyst positions at Capital. So with that as backdrop, thanks to all three of you for joining us today. Catherine, I'll turn it over to you. Jamie, thank you, for joining us today. Thank you, Damien as well. Jamie, I wanna start with you. We're a little past the halfway point in 02/2025, and it's, it's been a, a remarkable start to the year. Markets have largely looked past, persistent uncertainty. It's really been the year of the, the word of the year, so far. I'd love to hear your thoughts, on just the environment overall. Share your observations from a broader macro perspective. Certainly, with regard to The US, I think that's of interest to, to our audience here. But, but, clearly, looking beyond The US, into, Canada and the rest of the world as well. Absolutely. Thank you, Catherine. I'm very good to be with you all today. Certainly, no shortage of things for us to discuss at the halfway point of 2025. As Sri mentioned, we are really entering a period of geopolitical realignment, and this has significant economic investment implications as well. We've certainly seen The US really stepping away from the free trade framework that has underpinned, much of the geopolitical global order for many decades and and also has really created a certain, economic integration that we have come to really expect. So we now recognize that we're all in this period of trade policy uncertainty, and we really see that this could create more downside risks to global growth. When we think about where the world is headed, and how some of this policy could unfold, of course, closely watching what some of these implications could be. And at this halfway point in the year, it can be really helpful to think about how we came into 2025. So when we look at some of the estimates, of GDP growth this time last year at a global level, right around two and a half percent with The US really making up a good share of that global growth. And as we know, that kind of old adage when, The US catches when The US sneezes, the world catches a cold, Well, certainly, the inverse of that is true as well. So much of the momentum we had seen in The US from an economic perspective, was creating some positive, outcomes globally too. Now interestingly, as that has shifted and we see The US, really, as you you said, Catherine, in this period of uncertainty as it relates to policy, we're still seeing quite a bit of resilience in some of those US economic factors and data that we look at consistently. So a couple of things that that we're really watching for. Certainly in The US, we would suggest that in terms of growth, we're probably below consensus this year, especially as we see that uncertainty continuing to persist. And I'm sure we'll talk about that more as we go forward here. But the data that we look at, particularly as it relates to the consumer, for example, really important given that the consumer is 70% of The US economy. Things like high frequency data where we might look at TSA throughput. We might look at things like open table reservations. Things that really give us those indicators of discretionary spending. A lot of that is still holding up. So, surprisingly, we're continuing to see some of that resilience in the consumer particularly here in The US. And that tariff, related challenge and and some of that uncertainty does not yet really appear to be affecting hard consumer data. And as you mentioned, Catherine, the market really looking through much of that as well. But we still could certainly be seeing some of that weakness materialize in the back half of the year, recognizing that president Trump's first administration is not a perfect parallel for us here. Where we saw some of that inflationary impact from tariffs in the first administration was right around that three to six month mark post implementation and continued on about twelve months past. So, we're starting to get into this time period where we could see those effects and and we recognize that, of course, we're still in some of that uncertainty as we look ahead. When it comes to other markets, Canada in particular, of course, we know Canadian growth has been low but stable, and inflation has also been, in that low but stable category. You know, we recognize consensus would suggest that that, Canadian growth would probably weaken modestly due to this trade war, perhaps down to 1.4% this year, maybe 2% over the medium term. Our economists are also considering though that, there could be some structural growth challenges ahead for Canada. And of course, many on this call will will have that awareness as well. But, really recognizing the challenges that come with being, in conflict with the the largest trading partners. So Canada's largest trading partner being The US, recognizing that there are some challenging relations there now. And then also recognizing that there's a bit of a fractured nature to fiscal policy. So with provinces having, you know, a lot of autonomy over that spending, that can make it more challenging to create a really coherent fiscal stimulus approach. We would say though that, you know, the outlook could could improve recognizing the government has some strong plans to boost investment and get growth going. And also the trade war has created some urgency in terms of the structural reform agenda economically in Canada, so there's some potential there. As we kind of walk around the world, again, recognizing that uncertainty rules the day, we do see some opportunities and bright spots particularly outside The US. You know, when we think of this idea, of of the narrative of US exceptionalism that has been priced into the market last year and over the past twelve to eighteen months. We really recognize that other economies, other countries, can demonstrate some of those behaviors too and certainly can also be right for incredible companies and issuers to develop in those economies. So, lots of interest in where Europe heads here. Our economists are above consensus on growth prospects for Europe this year. And I know we'll spend a little bit more time talking about that in the context of, innovation and some interesting things that are going on, on the continent there. Great. Thank you, Jamie. You know, if if I could, I'd love to ask a follow-up question. You you spoke in detail about The US, and what I, what I wrote down was uncertainty and resilience, and you gave us some specific points on The US consumer. I wonder whether you have some additional thoughts on, fiscal, government expenditure and perhaps a tie into investment, and, perhaps, reduced uncertainty around that. And it kind of ties into, the graph that we showed, just a moment ago on the, clearly the fiscal, debt, rising, in The US, and and implications around that. But I wonder whether some of that, you know, clearly there's a risk side to it. But is there upside to that as well? How do you think about, the, the budget that just came out of The US? Well, I think exactly as you're mentioning, if we had some upside to find here, it would be that that is giving us some certainty and a level of clarity in terms of what tax policy you might expect in years to come. And then, you know, certainly, that has given us clarity that we are really cementing deficits right around 7% here in The US, which is pretty significant, of course. That will be adding about 3,300,000,000,000.0 to US long term debt over the next decade. So we recognize that those high debt levels, you know, will continue to be under the microscope and challenging. But to your point, it has clarified a a few things about that operating environment. And now our economists would tell you that they don't necessarily think that the tax bill will be particularly stimulative. Some of those aspects that might be certainly have been front loaded would be moderately stimulated this year, but much of what we had seen in the tax bill is really extending existing cuts, and and really continuing a bit of that runway. So expected to be, certainly somewhat moderately stimulative and whether or not that makes up for the headwinds we might see created by tariffs still does remain to be seen. Super helpful. Thank you. You know, before I turn my, my next, question or so over to Damien, I I wonder whether you have some, additional thoughts on the US dollar because that clearly ties into what we just discussed as well. Yes. Exactly. And I know you just you just shared that slide. So in quick reference to that, you know, we recognize that the dollar has certainly weakened this year. But some of the key drivers of strength that have underpinned the US dollar do remain in place. Of course, there's a lot of conversation about de dollarization, a trend that's certainly been happening over the past decade. Our currency analyst would suggest that, you know, much of the downside, is likely already reflected in pricing today. And if we think about, you know, some of those underlying pillars of strength, really, we are continuing to see this resilience in The US economy. And to get a further depreciation in the dollar, we would likely have to see some of those growth gaps closing between The US and the rest of the world. So if The US slows more meaningfully, while emerging markets Europe, etcetera, kind of deliver surprises on the upside, then we also lose some of that aspect of the relative resilience of the dollar that we've seen. Perfect. Thanks so much, Jamie. Jamie, let's, zoom in a little bit on fixed income. I mean, there was a lot, there to sink our teeth into, in Jamie's comments as well. I wonder how you think about some of those remarks, in the context of, policy rates, and yields across the curve, in particular in The US, but feel free to comment on other parts of the world as well. Sure. And and maybe just first, thanks to everybody for spending some time with us today. Yeah, as to your questions, Catherine, I mean, I think we can glean quite a bit of information about market assumptions, for the economy and the direction of rates by looking at the yield curve, you know, the absolute level of yields, the shape of the yield curve, you look at different, you know, yields for different maturities, and how yields are reacting to events in the market and the economy on the policy side. The market is currently assuming that the Fed will cut rates by, 50 basis points by the end of the year. So once, in October and then once more by the end of the year, to 25 basis point cuts. And then a third 25 basis point cut is assumed by the April year. I think this is a reasonable expectation. The the Fed has been moving quite slowly, you know, waiting for and expecting tariffs to begin to show up in prices. And so they don't want to cut meaningfully in advance of that. But they are also, at the same time, acknowledging that tariffs are not likely to have a dramatic impact on prices, and that current policy rates are quite restrictive and are likely to come down over time. My own assumption is that we're gonna see, you know, one to three cuts over the next eighteen months. So it's maybe slightly less than what's priced, but only slightly. I'm also thinking about the eventual transition to a new Fed chair timing to be determined. Clearly, the president would like it to be now. But regardless of the exact timing, you know, Powell's term is up in May. So there is a high likelihood that whomever the administration chooses, to replace Powell will be more dovish. So it's it's possible and I think somewhat likely that the front end of the yield curve will respond to this, by falling further. If you look further out on the yield curve, you know, the the curve is fairly flat in kind of the high 3% range out to the five year maturity and then it kind of ramps up to 4.4, 4.5% at the ten year and then not quite 5% at the thirty year. So just thinking about that 4.5% approximate rate for the ten year, I think that's about where it should be. And let me tell you why. I mean, you can dissect that ten year treasury yield of 4.4% between sort of a real rate and then an adjustment for inflation. Inflation has been running at about two and a half percent. So you deduct that two and a half percent from four and a half percent, and you're left with two a 2% real rate. And that's, a reflection of sort of, expectations for, sustainable growth in The US economy of 2%. We might be a little bit below that, this year, you know, due to, you know, potential impact from tariffs, but but only slightly below that. And then, I think there's there's expectations, well founded that, we return to trend growth of about 2.5%, maybe closer to, trend growth of about 2%, maybe closer to 2.5%, in 2026. So, that's arguably reflected in the current ten year rate, as it stands today. For the thirty year, there's been a lot of talk about the thirty year in the market recently. It's closer to a 5% rate. I think about the thirty year yield in relation to the ten year yield. So the ten year is 4.5, thirty years at five. So there's like a 50 basis point tens, thirties curve. The last time the ten year treasury was in the mid fours. The thirty year treasury was was quite a bit lower. It was only slightly above the ten year at 4.6 to 4.7. So the market is pricing in sort of additional yield to go out to thirty years from 10 compared to where it has in the past. And it that is is the market, you know, expressing a view that, you know, debt in The US on the on the government's balance sheet, is elevated. And so the, buyers of thirty year treasuries would want a bit more compensation. But at the same time, we have to consider that the treasury, US treasury is very focused on this topic, and could be taking steps to bring down thirty year rates. Issuing less thirty year, is one easy step. So I'm not, you know, in the camp that the thirty year treasury becomes, you know, sort of unhinged, and and goes a lot higher from here. Really, really helpful. Thank you, Damien. I think that was, that was probably, sufficient just in terms of, framing the broader macro backdrop. I wanna go a little bit more into what we're seeing bottom up. Jamie, clearly, we're bottom up investors, looking for the best companies regardless of where they're listed. Now having said that, one area that you mentioned in your earlier remarks, was Europe. And when I look across our various portfolios, I can see that the teams have been finding lots of interesting investment opportunities there. Of course, European equities have done quite well year to date, certainly, on average. When you think about that, do you see longer term structural supports behind that? Yes, Catherine. That's a great way to frame it. There are certainly some structural drivers that are changing the landscape in Europe. And as you point out and as Damien also mentioned, we've seen really benign impacts from tariffs yet particularly in Europe. We have seen in particular that perhaps a 10% universal tariff will be tolerable for the EU in terms of the construct of how they trade with The US. And that in particular, there there has been some decent activity even in other areas of Europe's economy, strengthening industrial production recently, for example. We would also mention, of course, Germany gets a lot of headlines recently talking about that fiscal stimulus really with an emphasis on industrial and defense spending. And those are going to be big numbers. Right? We expect them to be borrowing somewhere upwards of 4% of GDP through 2029. It's significant. And this is, of course, again, primarily defense, industrial infrastructure related spending, but those also have multiplier effects in the economy. And importantly across Europe, it's not just defense spending. Again, recognizing that that gets a lot of the headlines. But what we see here as well is that Europe has had some pretty impressive rankings in innovation. So, again, when we talk about this idea of really exceptional companies that are very interesting in terms of what they're doing and and their future trajectory, seven out of the 10 of the most innovative con companies globally are in Europe. And so as you point out, that's where it's really essential to have that deep understanding of companies case by case and and what is sort of unique about them in the market. A few of those that we think are really interesting, for example, SAP, again, coming, right off of Germany, thinking about SAP. It's the largest enterprise resource planning software provider in the world by market share. Over 400,000 customers and really something that is very, sticky in its services offerings. So 99 of the 100 largest companies globally use SAP. Many folks here are probably familiar with what that offering looks like. There really are not a lot of viable alternatives to their offering and their software. So incredibly sticky and well positioned. What does that look like through the lens of innovation, though? Well, some things that they've been doing, for example, are launching, new AI tools. They have something called Jewel that's essentially like a digital copilot, and it's integrated and embedded across their entire cloud platform. What it helps do is manage tasks across all of these different aspects of a business. It can even help automate tasks. And so it's a really interesting example of integration of AI capabilities coming into software. A use case might be where it would, look across supply chain aspects and think about how to, manage and optimize carbon footprint while also maintaining a particular profitability level. So it's a really interesting tool and an example of a well positioned company that is sort of taking this innovation catalyst to the next level. Another company that we think is interesting here, you could see DSV. They are the world's largest freight forwarder. Freight forwarding is a really interesting business to be in right now as you might imagine because those are companies that organize and coordinate how goods are shipped on behalf of importers and exporters everywhere. Being a profitable freight exporter means that you have to be very good at buying transportation capacity. You have to be very effective at understanding how to sell that as a margin, attach those services to that offering. And so what's really unique about DSV is, again, a couple of the ways that they're leveraging technology and really driving, forward some of this innovation. One of those cases is, they're using drones in the warehouse. In 2023, they've, pilot tested some of these capabilities and used autonomous drones to actually do inventory management and scan bar codes from the drones. So this is really interesting because as you can imagine, that ends up really reducing the demand for labor for that particular activity, which is a great cost savings measure and also creates, a much faster validation of inventory. They track that about 70 increase, in the ability to quickly track and manage inventory for drones. So really interesting examples of how these businesses that, again, are in the European context are benefiting, certainly from a a more positive economic environment as Europe might go forward, but also have these really unique and integrated aspects of innovation happening within them. Thanks, Jamie. And what those examples and, you know, as you're talking through that, one one criticism I think that Europe has often been subject to, has been that while they might be really good at innovation, commercialization might be something that they're not really exceeding in. And based on the examples that you gave, you know, that strikes me as a very company specific, puzzle to solve. So I wonder whether I I heard that right from you or whether you have additional thoughts on that. Well, yes. That's a great point, Catherine. Because I think as you point out, you could certainly have an environment that is starting to consider how they might deregulate, and create a a more effective environment to stimulate some of this, some of this innovation at a company level. But it really does require a company by company analysis and understanding of how these new capabilities, how they might be able to benefit from a more, friendly policy environment. Again, this will be very idiosyncratic and specific to the companies themselves. Excellent. Thank you. Damien, I I wanna come back to you, and and you, you gave some excellent points on the on just the broader, policy rate and, yield curve, backdrop. But I know your primary focus as an investor is on credit markets. And I'd love to hear your thoughts on, the investment opportunities that you see within credit specifically. Sure. So our view in credit, remains, our our our view is that credit remains an attractive way to generate incremental returns above what is offered by treasury securities. And the returns offered by treasury securities, because yields are quite elevated versus history, are pretty solid in this environment. So the all in return opportunity provided by credit in today's market is also quite high versus history and therefore, we think, represents an attractive investment opportunity, for our clients. For example, our multi sector income strategy yields about 6.5% currently. That yield is a pretty good proxy for where total returns will be on average over the next few years. Year to date returns are around 4.25. So we're in a period where returns in this type of credit portfolio will likely remain elevated. Why is this our view? I mean, a few thoughts, and starting with fundamentals. First, the global and US economy are in pretty good shape. Growth is likely to remain, fairly healthy in this period, and we might have a bit of a slowdown related to tariffs. But as as we've talked about, the the hard economic data that we're observing has remained quite resilient. And there are some scope, for acceleration in growth, as we as we move into 2026, driven by deregulation and continued high levels of investment, into things like AI. Second, credit fundamentals are solid across many different credit sectors. If you look at corporate balance sheets, they're not stretched in in high yield or investment grade. Corporate managements, by and large, are not looking to add significant leverage, as they were, for example, before the global financial crisis. And this is in part because the cost of borrowing is fairly high. It it it's, it's, sort of alarming for a for a corporate treasurer to think about, you know, adding more debt to the balance sheet given given where where coupons are, that the corporates would have to pay. That's that's a good thing for investors in fixed income, but maybe not so good good for, for the borrowers. On the topic, of, the, you know, the consumer balance sheet, this this is another area, where things look pretty good. In The US, consumer leverage is is much improved today versus where it was, several years ago. Hope helped by, very low unemployment, and inflation, that has declined significantly. Real wages are growing faster than inflation, so the overall consumer, spending level should should remain, resilient, which, lends further support, to the business sector. Similarly, emerging market sovereign credit quality is healthy and and benefiting from solid growth, in the developed markets, US, Europe, you know, Japan, Australia, and that sort of, you know, percolates in in the emerging markets sort of with an amplifying effect. On the topic of valuations and credit, credit valuations are on the tighter side versus history, on average, if you look at credit spreads. But I'd say that's about where they should be, given how supportive underlying credit fundamentals are, that I just sort of walked through in the in the different parts of the economy. It wouldn't I think be fairly odd if spreads were a lot wider than where they are today given how healthy the fundamental backdrop is and how elevated overall yields are and and the strong technical that creates, pulling more fixed income investors into the market, pursuing those high yields. Also, credit is not a monolith. There is tremendous diversity across credit markets, you know, referring to thousands of unique issuers across the various credit sectors that our analyst and PM teams are studying every day. We then build the multi sector income portfolio around 300 to 400 core holdings that sort of rise to the top among the thousands of options, that that we're presented with in the markets, sort of broadly. So when we invest in credit, we're not buying the commonly referenced credit indices. We're identifying attractively priced individual bonds from issuers that our analysts believe are strong and or improving credits. And through that bottom up portfolio construction process, we end up with portfolios that outperform those various credit indices over time. If you look at the multi sector income portfolio, we're finding value selectively in places like energy, media, utilities, pharmaceuticals, commercial real estate. We are underweight high yield because high yield spreads compared to spreads in other credit sectors look maybe a bit too tight, but we still like the overall yields and are finding opportunities in in individual names. We're neutral investment grade corporates or underweight emerging markets, but are finding value in, certain geographies and in certain emerging market corporates. And then we're overweight securitized credit, where valuations, compare favorably to corporate sectors and, underlying fundamentals are are trending positively. Thank you so much, Damien. I I wanna come back to, to securitize maybe in a little bit. Before we do that, Sri, can I turn to you to see if we have any questions, from the audience that, we should pay attention to? Yeah. We have a couple. And and just as a reminder, if you wanna ask questions, please, it goes to the to the q and a feature on the player page on the right hand side, and, feel free to ask anything you like. But two questions, I think, probably one one for Jamie, one for Damien. From a Jamie perspective, I think it this probably ties into the, innovation on Europe, question, of course, on what you're seeing in Canada. Are there green shoots? Are there other other individual companies potentially in Canada that you're seeing that kind of would fall in that line. And then number two for Damien, this is this is a predict the future question on you mentioned, the the six and a half percent yield on multi sector income, and that could have been elevated for a while. The question is, what does a while what does a while mean? Well, maybe I will start with that question even bringing Catherine into the conversation because I know that she'll have a great perspective on some of these, companies that are that are in Canada that have some of that innovation potential. So, Catherine, certainly, over to you. Sure. I can offer up some thoughts. You know, when I look at, strategies that have broad geographic flexibility, that includes Canada, but also a whole range of other parts of the world, what I see there is is really, an interesting cross section of opportunities. I'm not sure they all necessarily fit into innovation. You know, in some cases, they're self help opportunities where companies, you know, they they have runway to extract more value from their core business, generate more and more stable free cash flow, and return more of that back to shareholders. So in some cases, it sounds as, about as boring as that, but it can create it can create really, really interesting returns. You know, the other company I'm looking at, there as an example is Fairfax Financial, which is up almost 30% year to date. So clearly not an example for innovation, but still, a company that has had opportunities to generate, long term returns for shareholders. And then maybe one of the, the newer additions, into, the global, portfolio, Bombardier. Maybe not necessarily in the context of innovation per se either, but clearly exposed to some of the, the broader, structural tailwinds, where it's not just about aerospace and defense in Europe, but also aerospace and defense more broadly. So those come to mind. There's a a very eclectic list of other companies in the global equity portfolio. Anything from, materials, all the way to IT. So it's, it's not something I would say, zoom in on this theme in Canada. It's, it's it's an interesting list of, very specific companies. Let me let me take that, second question. I mean, I I think about this being a multi year opportunity to earn elevated yields. So, let's say two to four years, I mean, the further you go out, the economy is cyclical. There will be a recession at some point in the future, and that's probably the next time the yields are gonna fall dramatically. Predicting recessions is something that I actively try to avoid. There have been many more recessions predicted than have occurred. The last time we had a run of the mill recession was in 02/2001. The recession that occurred, in 02/2008, you know, global financial crisis, that was not a run of the mill, recession. And then COVID was, you know, an exogenous shock. And so, you know, I think market participants often, you know, get into the habit of, you know, predicting, you know, that sort of the next crisis, and and they often just don't play out. So I I think we're in a period an extended period, of economic growth, and that, in and of itself should keep should be a support for yields. And then you can layer on to that analysis and assumption about inflation, and then Fed policy. I think, you know, we're unlikely to return to, 2% growth or I'm sorry, 2% inflation. That's that's certainly the the Fed's target, but my expectation is that we're gonna remain a bit above that for an extended, you know, multiyear period. So I don't think falling inflation is going to be a driver of yields falling. I do think we could see yields come down at the front end connected to, you know, the incoming Fed chair, whoever that is, being more dovish than Powell, and and getting the Fed to cut more aggressively. And so what we could end up seeing is a steepening of the yield curve where yields at the front end are quite low, maybe, in the low threes or even twos. But then treasury yields further out on the yield curve, five year, ten year, thirty year remain elevated. You know, the Fed doesn't have any control over yields in that part of the yield curve. You know, in theory, the the treasury could intervene and, you know, aggressively buy bonds. But historically, they've they've only do done that during periods of crisis. And so if we're sort of in this normal economic growth environment for a while with the Fed cutting and inflation remaining, you know, a bit above the Fed's target, somewhere between two and three, I think we could have, the ten year treasury in a kind of four to 5% range for a multiyear period. And then you tack on top of that a couple 100 basis points in credit spread. And for a multisector, portfolio, you you can, you know, see see see yields in the sixes for an extended period. Anything else on the line, Sri, or should we, refocus to some of the thoughts at on all lines? We do have a couple more questions, if that's okay. Yeah. Absolutely. It is. The the first question is, you know, the past couple market drops experienced a decline in both equities and bonds. Do you see a new correlation between, you know do you see the correlation is now positive between stocks and bonds or capital e looking at other less conventional methods of risk management or hedging? That that's one of the questions. And then the second question that just came in is a a bit on just the the Japanese automation or robotics companies languishing in price. Noticed that we own some and is part of the reason competition from Chinese companies in the space. Any comments just in general maybe on the future of that area? So those would be the two questions. I think the the role of fixed income in broader portfolios, you know, that that hold equities alongside bonds, the role of fixed income as a hedge has been restored by this dramatic increase in yields that we've experienced, you know, today versus, say, 2021. So if you go back to 2021, the yield on the Barclays Ag was in the the low 1% area for both The US Ag and the Canadian Ag. And today, the yield on the Barclays Ag in The US is about 4.5% and I think it's about 3.5% in Canada. Back in 2021, the ability of a bond portfolio that that yielded so little to cushion returns in a crisis or in some big risk off event was very limited. There was, you know, you were starting with minimal income, which is kind of the the the bedrock foundation of returns in bonds. And then the ability of yields to fall further from that very low level was was very limited because they were only about 1%. So as equities sold off, as as the Fed hiked rates, you didn't have much cushion in terms of return drivers, in your in your bond portfolio, to to offset, and so bond returns were negative right alongside equity returns. Fast forward to today with yields dramatically higher, you know, three and a half in Canada, four and a half in The US, and a multi sector portfolio, that invests globally in the six and a half percent range. You've got a lot more return coming from that yield. And then, in the event there is a a crisis, a drawdown, for whatever reason, a recession or something else, the Fed has, and other central banks have, a lot of room to cut, you know, by hundreds of basis points. And so I think an investment in fixed income today, if you hold that until the next crisis arrives, whenever that is, bond returns as equity prices are weak in a crisis should should be pretty good because you're gonna have that that income driver, as well as falling yields. So I think that, you know, we went through a brief period where where correlations broke down because yields were were rising in a in a low yield environment, but we're back to I think what's what's kind of a more normal pattern going forward, where weak equity can can be paired with with strong fixed income, in a, you know, in in a in a crisis environment. I'm happy to make some broad comments on the, kind of intersection of Japanese automation and and Chinese competition. And then, Catherine, if you have any company specifics you'd like to mention there, certainly, we'll turn it to you. But, that really is a very kind of nuance answer when we think about those dynamics between China and Japan. So, certainly, Chinese firms are are really rapidly advancing in their automation capabilities. But what is unique about Japan's position here is that they do have very strong positioning, in in niche technologies. And so that's something that continues to be a strength, despite the kind of rapidly changing environment in terms of competition. We know certainly there are many places where Chinese firms are leapfrogging some of those general technology capabilities, particularly in EVs and other areas. And so recognizing that that is sort of a function of how competitive dynamics are changing in the region. But, again, Japan retaining a lot of strength in some of these specialized technologies and automation. And some of the headwinds that those companies have faced, is also due to just some of the broad manufacturing challenges that we have seen in in those global dynamics economically as well. So, Catherine, defer to you though. What would you add there from a company perspective? Yeah. Sure. The the the one company example that comes to mind, which, you know, has been, and continues to be, an investment in in both the global and the international equity strategy. It's it's Keyence. And Keyence is, is one of the leaders, in factory automation globally. It has been challenged not necessarily in, in in recent quarters, by by results. Results have continued to be, to be strong, and, you know, certainly in line with expectations. But one of the, the key headwinds, for key ins, more recently, has just been some pressure on the multiple. And, of course, that is in the context of a rising rate, and inflationary environment in Japan. And then alongside that, some rotation into some of the, you know, more traditional, industrial, conglomerates, within Japan, focus is around, allocating capital more efficiently, and returning capital more so, back to shareholders. So one example there, is, is Hitachi, for example. So broader market rotation, broader map macro headwinds from rising rates and inflation. But clearly, as Jamie was stating, still companies that have, very strong technological advantages, certainly, in some niche areas. So let me pause there, Sri, to see if, if you wanna dive more into that or if there are more questions on the list, from, from the audience. No. That's great. No no no more questions. Thank you, guys. Okay. Well, I I have more questions. So so so, Jamie, if I if I could maybe turn turn back to you. You alluded to geopolitical realignment, and some of the fiscal initiatives coming out of Europe, and security is is clearly a bigger picture headline around that. Can you walk us through, what that means, from a company and from an investment perspective? Because security, first and foremost, you know, is is the physical security and, companies within the aerospace and defense, industry. But I'm sure, you can paint a broader picture around that. I'd love to hear your thoughts. Yeah. Thank you, Catherine. Well, that is exactly, you know, where we kind of take off from this theme around security. I think we're always very quick to think about security through this lens of national security and almost making it synonymous with defense and aerospace and military strength. But, in fact, you know, we really see now there's an opportunity to kind of broaden this idea of security into other lenses. And in part, as you mentioned, this is really driven by the fact that we're in this very unique period of geopolitical realignment. And so countries' economies are really thinking about security beyond that very kind of narrow definition and dimension of military or national security. And so what we've got here, as you can see on your screen, just a couple of other ways that, you know, this sort of theme and this sentiment is really opening the door for many other companies to play a bigger role in this security narrative. So, you know, we'll walk through just a few here that are interesting. First of all, energy security, great example here of thinking broadly beyond kind of military and defense applications. Of course, why does energy security matter? Well, energy security, of course, is about securing, access to reliable, affordable electricity, and that is a critical part of any country's, security objectives certainly creates economic resilience, and that becomes increasingly important as we think about the demands for power, the demands for energy that will continue to come in the future decades as we think about AI, data centers, infrastructure. Right? All of these big investment demands that we're aware of. Companies that are interesting there are are companies like GE Vernova. So that is a company that holds 40% of the global glass gas turbine market, and it does operate really, you know, some really significant energy infrastructure. So the world's largest onshore wind fleet, for example. And that is really a part of diversifying their energy, portfolio and really being able to create that resilience through other renewables, other alternative sources of energy. Those gas turbines, of course, also providing really reliable backup power. That's part of grid resilience when we think about this energy security narrative. And then even thinking about some of the future of energy technologies. So things like SMRs, small modular reactors, in the nuclear space, which while many years out, is also still a a real next gen solution when we think about the future of energy, and what might be, the interesting edges again of innovation in the years to come. Another aspect of thinking about security is this lens of supply chain security. So, again, through, this theme of recognizing that it is potentially going to be increasingly challenging to ensure that goods are making it where they're supposed to on time and consistently and, delivered without disruption, we recognize that supply chain security will become, really increasingly important. And, you know, if you think about this, this also shows up in companies like we've got here. So Mitsubishi Heavy Industry is a good example of that. Again, still tying a bit to the defense theme. But it is really also about, thinking about bringing some of these capabilities in countries. So for example, MHI is Japan's largest defense contractor, and they are really well positioned to benefit from, again, some of the structural increase in defense spending that we are seeing. So similarly to the story that we were speaking about early in Germany, There are new government policies in Japan that MHI will be really well positioned to benefit from. So some of these guaranteed profit margins, certain types of CapEx subsidies, and contracts that will extend over many years that really give them a lot of runway to do some long term investing, in production capacity. So MHI is the prime contractor for, many aspects of Japan's military, defense capabilities, and so that's a company that, again, kind of intersecting this idea of supply chain security and also more national security elements, we think is well positioned to benefit from some of these, tailwinds in the country. Great. Thank you so much, Jamie. Certainly, lots of, different parts of the investable universe to, to think about and look at there. Damien, you know, one thing that I I I was gonna ask you about, was just, you know, how you think about fixed income broadly in a portfolio context and the roles that it can play in portfolios. But I I think we've already touched on that through one of the earlier questions. So maybe we'll park that. We can come back to it in case there are further questions from the audience around it. But but one area that you've hinted towards, as, you know, an area of, specific interest certainly within the multi strategy income strategy, securitized, you know, is is one of the components there, an area of interest. I'd love to hear more thoughts, from you on that. Sure. So securitized is is the smallest, sector in our our multi sector benchmark, and that's mostly because it's a smaller sector with less liquidity. So we've we've intentionally limited its size in the portfolio. Having said that, we think it's an attractive sector with strong fundamentals and valuations that are more attractive currently than corporate and EM credit. And so we are overly securitized in the portfolio. It's a very diverse sector. So let me give you a couple of examples of the things that we invest in. One example is subprime auto secured lending. So these tend to be short duration, kind of two to three year bonds with spreads around one fifty currently. That's about three times the spread of a triple b rated short corporate. So pretty attractive, just on the basis of valuation. We invest in bonds issued by underwriters that we understand very well, and the bonds naturally deleverage over their short lives, which further reduces credit risk. We also invest in commercial real estate, so diversified pools of commercial properties and structures structures called CMBS or commercial mortgage backed securities. Spreads here are close to 200 over treasuries for a and double a rated bonds. This sector, commercial real estate broadly and in particular office, continues to recover as occupancy in office properties, for example, continue to climb from from the depths of the pandemic. And then with the the Fed having started to cut, you know, we're no longer at peak rates. The environment for refinancing for owners of commercial real estate has gotten a lot easier, and that's driving a further recovery, in the sector. And then lastly, agency mortgages, specifically, current coupon the current coupon is a higher coupon relative to the the the kind of the the outstanding MBS bonds out there. So we're focused on these higher coupon, bonds that have been recently issued by the agencies, backed by the the US government. We think they look quite attractive, again, compared to short corporates. So you can get a spread in this fairly stable rate environment that we now find ourselves in, north of a 100 basis points over treasuries. So we think that looks pretty good as well. Excellent. Thanks so much, Damien. I'm looking at the clock. I I wanna ask each of you one more question, but I'm gonna ask you to, to try and keep your comments short maybe to, to one minute or so, one and a half. Jamie, I wanna zoom out a little bit with you, and maybe just, help us think through, some of the bigger picture issues, the key sources of uncertainty, and how you frame these, for our investment teams. Yes. Well, some of the work that the investment, group is doing in this space is really leveraging scenarios analysis to understand, as you mentioned, Catherine, these key sources of uncertainty. Much of that relates to how economic power and how political power will be used. And as you can see here, we've done some work in trying to look at how different scenarios could unfold as as those powers change in their use. In a quick minute here, I would say that we find ourselves in a world that is likely a a bit of a trade battlefront scenario. That's a place where countries are erecting tariffs, navigating this geopolitical divide, and where economic partnerships and collaborations could look different than they have in decades past. So why is this important? Well, we think that certainly as active managers, this helps us not necessarily to predict the future, but certainly prepare for the future. Portfolios are not positioned for binary outcomes. So thinking about this scenario's analysis is really helpful when the future feels unclear and really helps support, our investment professionals finding ways to act in conviction and understand how different portfolios and investment decisions will respond under various scenarios that might unfold in the future that we're seeing, ahead. Great. Thank you, Jamie. Not predict, but prepare. Those were the words I wrote down there. Damien, any final words of wisdom from you? Anything we missed? Sure. I mean, couple couple things. I mean, we're in a period where yields are quite elevated in fixed income and that's an unambiguous positive for expected returns. And as we talked about the role of bonds as a hedge and a broader portfolio has been restored by this dramatic rise in yields that we've experienced. Credit fundamentals are in good shape and well supported by continuing economic growth across developed markets, as well as EM. Credit spreads are, on average, tight, but justifiably so. Credit markets are, you know, large and diverse, and our analysts are finding value even though those index credit, credit indices, point point type spreads. And then the last point, you know, now is a, I think, a a really good time to diversify and focus on, building a credit portfolio that's that's, diverse by geography. So sort of a a a global credit portfolio that has significant exposure to The US, where yields are quite a bit higher, than than where they are in Canada, where the economy is probably growing a bit faster, than Canada, and where the investment opportunity set is is dramatically larger, and more diverse. Investing in our multi sector income fund provides a yield that once hedged back to the Canadian dollar is fairly similar to a Canadian dollar denominated fixed income portfolio, but is a lot more diverse. And then over time, yields in The US, are likely to converge, to where yields in Canada are. I mean, neutral rates in in both The US and Canada are at similar levels as viewed by the respective central banks. And as yields in The US converge on Canadian yields over time, that's gonna drive hedging costs lower, and as yields fall versus Canada, you know, when yields fall, bond prices go up. So as yields fall in The US versus Canada, that's a tailwind for returns, in US portfolios versus Canadian portfolios. Thank you, Damien. Sri, back over to you. Thank you, Catherine. Thank you, Jamie. Thank you, Damien. Really appreciate you all taking the time. And, we talked about the complexity of the world, on the front end of this thing. And I know the three of you gave us a lot to chew on and our our and I know help our advisors and clients navigate through this, so thank you very much. Also, just like to thank all of you for taking the time today. And and I I think the question now becomes, okay. We have a lot of these ideas. How do we put them to work? You know? How how should I utilize these midyear outlook themes, into specific investment ideas at Capital Group? So you heard a number of different things today. So if you look at the 2025 outlook, I'd ask you to reach out to your sales team as well or, you know, you can you can get the the resources here on the player page. Just just two things in particular. Right? If you look, the themes, evocations, and investments, if you look at the second column in terms of the international equity opportunities, you heard Jamie talk a lot about innovation and opportunities overseas. You can see our global equity as well as international equity fund as opportunities in that space. Your Damien mentioned credit, quite a bit throughout and the opportunities in the yield that we're that we get. And that multisector income portfolio he mentioned is right there on the far right hand side. And we have, across the board, these are not the only ideas we have, but I wanted to highlight those ideas. And not only are those ideas in fund, but we also have those ideas in our newly launched ETFs, along new as of last October. And I know some of you have been using our ETFs, so thank you very much. Those of you who haven't, these are our four ETFs, CAPM, which is that multisector income bond Damien mentioned, CAPW, which is our World Bond Fund. It's ETF equivalent, CAPG, which is a global equity fund many of you are familiar with, and then CAPI ETF or some of our international equity. You can go on our website to to capture all that information.