1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 14
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
GLOBAL INVESTMENT STRATEGY
Derek Holt
Vice President, Scotiabank
Economics
Myles Zyblock
Chief Investment Strategist,
ScotiaGAM
Walid Khalid
Director, Investment
Strategy
Key conclusions
•
Corporate profits may remain supported by positive, albeit below-trend economic
growth, serving as a constructive backdrop for risk assets like equities.
•
Volatility arising from monetary policy uncertainty, the scale of AI-related capital
expenditures and whether future demand justifies it, and elevated valuations can be
mitigated by exposure to non-correlated assets, such as fixed income.
•
Although capex spending is large, the companies embarking on this spending are more
financially resilient than their predecessors.
•
Passive investing leaves portfolios vulnerable to concentration and valuation risks,
underscoring the importance of active management.
•
Long-term investors are best served by continuing to favour high-quality companies
within diversified portfolios. While quality stocks have underperformed recently, these
instances tend to be brief, with quality historically regaining leadership in short order.
In physics, entropy is the idea that systems drift toward disorder unless there is structure or a
framework to counteract it. Financial markets behave similarly to this idea. Left to their own
devices, new information – from shifting fiscal and monetary policies and evolving trade
developments, to longer-term structural trends such as technological evolution and ageing
populations – naturally introduce more complexity and uncertainty for investors.
This is not a bad thing. In fact, it is a fundamental feature of investing, one that can be managed
with an offsetting force. In our view, tried-and-true investment principles – such as diversification,
maintaining a high-quality bias, and staying invested – form the structure that mitigates the
uncertainty inherent in the investment landscape. By adhering to these principles, investors can
counteract unpredictable forces that arise, allowing for outcomes that, over the long haul,
gravitate more towards predictability.
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