Les répartitions en titres à revenu fixe sont généralement construites en silos selon des catégories de produits, comme les obligations universelles, les obligations à long terme, les obligations à rendement élevé et le crédit privé. Cette approche fragmentée de la prise de décision mène souvent à des résultats sous-optimaux.

Le présent document remet en question ce modèle. Il explique comment une approche plus intégrée, fondée sur les objectifs des investisseurs, leurs passifs et leur tolérance au risque plutôt que sur les catégories de produits, peut produire de meilleurs résultats ajustés au risque.

L’approche en silos

Les portefeuilles à revenu fixe sont souvent présentés comme étant diversifiés; pourtant, dans les faits, ils sont généralement construits en silos. Les répartitions sont effectuées entre différentes stratégies, comme les obligations à long terme, les obligations à rendement élevé ou le crédit privé, chacune étant justifiée selon ses propres mérites. Ce qui semble être une diversification du portefeuille à première vue peut masquer des concentrations involontaires de risques, notamment un risque de duration découlant d’une exposition aux obligations à long terme, des baisses de valeur comparables à celles des actions attribuables aux placements en obligations à rendement élevé, ainsi que des enjeux de liquidité liés au crédit privé. Ces risques ne sont pas toujours évidents lorsqu’ils sont examinés individuellement, mais ils peuvent se manifester simultanément précisément au moment où ils sont le moins souhaitables.

Cette situation découle souvent du processus décisionnel, dans lequel le portefeuille est constitué progressivement plutôt que conçu de façon globale. De nouvelles répartitions sont généralement ajoutées graduellement afin d’améliorer le rendement ou de combler des lacunes perçues dans les portefeuilles existants, sans tenir pleinement compte de la structure d’ensemble ni des risques involontaires qui peuvent en résulter. Avec le temps, les portefeuilles peuvent ainsi demeurer ancrés dans les occasions d’hier, alors même que les conditions de marché, les dynamiques de liquidité et les valorisations relatives évoluent.

Une approche plus efficace consiste d’abord à prendre du recul et à considérer le revenu fixe comme un système intégré. Cela signifie qu’il faut évaluer le portefeuille dans son ensemble, comprendre comment chaque composante contribue à la génération de revenu, à la liquidité, à la préservation du capital et à la diversification, tout en veillant à ce que ces rôles soient délibérément choisis plutôt qu’hérités de manière involontaire.

Approche intégrée

Une approche plus intégrée commence par redéfinir le revenu fixe, non pas comme un ensemble de répartitions individuelles, mais comme un système coordonné visant l’atteinte d’un objectif précis. Dans ce système, le risque, le rendement et la liquidité sont équilibrés de façon intentionnelle à l’échelle de l’ensemble des occasions de placement, et chaque répartition doit justifier sa place en fonction du rôle qu’elle joue, et non simplement de l’étiquette qui lui est attribuée.

Une façon de conceptualiser cette approche est de prendre l’exemple d’une voiture de course haute performance, où chaque composante remplit une fonction distincte et essentielle, et où la performance globale dépend de la façon dont ces composantes travaillent ensemble.

Dans cette analogie, les obligations traditionnelles représentent le châssis. Elles constituent l’assise de la préservation du capital et soutiennent l’appariement avec les passifs. Toutefois, leurs limites dans certains contextes de marché ont amené les investisseurs à aller au-delà des expositions traditionnelles, en intégrant des sources complémentaires comme les prêts hypothécaires commerciaux, le crédit privé et la dette des marchés émergents afin d’élargir leur boîte à outils et d’améliorer la résilience du portefeuille.

Les obligations à long terme jouent le rôle du système de suspension, absorbant les chocs et stabilisant la conduite. Elles sont particulièrement utiles pour les régimes de retraite à prestations déterminées (PD), puisque leur sensibilité aux taux d’intérêt favorise un meilleur arrimage aux fluctuations des passifs. Lorsque les taux diminuent et que les passifs augmentent, les obligations à long terme peuvent offrir un contrepoids essentiel, contribuant ainsi à préserver le degré de capitalisation du régime.

Les obligations à rendement élevé, quant à elles, représentent le moteur, soit la source de puissance et d’élan. Leur rendement est davantage influencé par les écarts de crédit que par les fluctuations des taux d’intérêt, ce qui en fait une source attrayante de revenu grâce au portage lorsque les données fondamentales demeurent solides.

Le crédit des marchés émergents agit comme le groupe motopropulseur, en élargissant l’univers des occasions de placement. En offrant une exposition à des économies et à des dynamiques de marché différentes de celles des marchés développés, le crédit des marchés émergents peut accroître le rendement tout en réduisant la corrélation globale du portefeuille. La diversification entre les pays, les secteurs et les émetteurs contribue à atténuer les risques localisés et ajoute un niveau supplémentaire de résilience, particulièrement lorsque les cycles des marchés développés sont soumis à des pressions.

Les prêts hypothécaires commerciaux et le crédit privé procurent l’adhérence dans les virages, en offrant un flux de revenu stable et un gain de performance supplémentaire. Ces actifs sont généralement adossés à des flux de trésorerie garantis, et la prime d’illiquidité peut se traduire par un revenu plus stable et plus prévisible, tout en offrant une certaine protection contre les baisses.

Enfin, les stratégies de revenu fixe à rendement absolu jouent le rôle du système de contrôle adaptatif, conçu non pas pour suivre le marché, mais pour s’y adapter. Plutôt que d’être ancrées à des indices de référence, ces stratégies visent à générer des rendements positifs dans un large éventail de contextes de marché. En intégrant davantage de souplesse, notamment grâce à des positions non contraintes ou à la possibilité de vendre à découvert, elles réduisent la dépendance aux sources traditionnelles de rendement, comme le revenu courant et la duration. Elles peuvent ainsi améliorer la diversification et accroître l’efficacité globale du portefeuille.

Ces caractéristiques ne font toutefois pas l’unanimité. Par exemple, le compromis associé aux obligations à long terme est que leur exposition à la duration peut devenir un frein lorsque les rendements réels augmentent, entraînant des coûts d’opportunité et, à l’occasion, des surprises liées à leur convexité. Comme tout moteur haute performance, elles peuvent surchauffer dans des périodes de tension. Lors des épisodes de turbulences sur les marchés, les obligations à rendement élevé peuvent se comporter beaucoup plus comme des actions, en affichant des replis qui remettent en question leur rôle de stabilisateur. De même, l’adhérence procurée par les actifs moins liquides peut être trompeuse, puisque les compromis liés à la liquidité ne deviennent souvent apparents qu’en période de tensions sur les marchés.

En définitive, l’efficacité d’un portefeuille de titres à revenu fixe ne repose pas uniquement sur chacune de ses composantes, mais sur la façon dont elles sont délibérément combinées. Lorsque chaque répartition est évaluée en fonction de sa contribution à l’ensemble — qu’il s’agisse de générer un revenu, d’assurer la liquidité, de protéger le capital ou de diversifier le portefeuille — celui-ci devient plus que la somme de ses parties; il devient un système conçu pour offrir un rendement durable.

Construction de portefeuille

Une approche plus efficace en matière de revenu fixe commence par remettre en question une hypothèse profondément ancrée : la façon dont les portefeuilles sont généralement construits. Plutôt que de partir des catégories de produits pour ensuite chercher à atteindre un résultat, cette approche inverse le processus en commençant par le résultat recherché.

Le point de départ devient les objectifs fondamentaux du portefeuille, qu’il s’agisse de générer un revenu, de couvrir les passifs ou d’améliorer l’efficacité du capital, puis de concevoir délibérément les expositions nécessaires pour atteindre ces objectifs. Bien que ce changement puisse sembler subtil, il transforme fondamentalement la réflexion. L’attention ne porte plus sur la répartition du capital entre différentes catégories, mais plutôt sur les risques qui sont assumés de façon délibérée.

Dans ce cadre, la duration, le crédit, la liquidité et la convexité ne sont plus les sous-produits des décisions de répartition; ils deviennent les éléments constitutifs du portefeuille. Chacun est sélectionné, dimensionné et combiné de manière intentionnelle afin de créer un système cohérent où chaque exposition est choisie pour le rôle qu’elle joue dans l’atteinte des résultats recherchés, et non simplement parce qu’elle correspond à une catégorie prédéfinie.

Cette approche permet également de concevoir des portefeuilles plus adaptables. Au lieu d’être implicitement liés à des indices de référence statiques, les portefeuilles peuvent être construits de façon à s’ajuster de manière dynamique à l’évolution des marchés. À mesure que les taux d’intérêt fluctuent, que les conditions de crédit changent et que la liquidité varie, le portefeuille est en mesure de s’adapter.

Elle ouvre également la voie à une intégration plus réfléchie du crédit public et privé, permettant de tirer parti des primes d’illiquidité lorsque cela est approprié, tout en faisant une place à des stratégies moins traditionnelles, comme les stratégies de revenu fixe à rendement absolu, qui visent non pas à reproduire un indice de référence, mais à générer des résultats constants dans différents contextes de marché.

En intégrant les caractéristiques propres aux différentes stratégies de revenu fixe, les portefeuilles peuvent devenir plus adaptables, plus efficients sur le plan du capital et mieux outillés pour gérer les risques, particulièrement en période de tensions. Le changement réside dans le passage d’une approche consistant à construire des portefeuilles reflétant des catégories d’actifs à une approche visant à concevoir des portefeuilles axés sur les résultats.

Adapter les stratégies selon le type d’investisseur

La conception d’un portefeuille de titres à revenu fixe dépend ultimement du type d’investisseur ainsi que de ses objectifs, de ses passifs, de sa gouvernance et de sa tolérance au risque.

Régimes de retraite à prestations déterminées

Pour les régimes de retraite à prestations déterminées, la construction de portefeuille est plus efficace lorsque la prise en compte des passifs et la génération de rendement sont traitées comme les deux volets d’une même décision, plutôt que comme des priorités concurrentes. Les obligations à long terme jouent un rôle essentiel en servant d’assise au ratio de couverture et en stabilisant le degré de capitalisation, tandis que le crédit peut constituer une source fiable de liquidité et de portage.

À cela peuvent s’ajouter des stratégies à rendement absolu, qui contribuent à atténuer la volatilité de l’excédent actuariel en procurant une plus grande souplesse lorsque les marchés sont incertains. Des répartitions ciblées en crédit privé peuvent également améliorer les rendements en permettant de capter une prime d’illiquidité.

Le principal avantage réside dans l’intégration de ces composantes au sein d’un cadre cohérent de placement axé sur le passif (LDI) bonifié par des stratégies de rendement. Plutôt que de gérer séparément les actifs de couverture et les actifs axés sur le rendement, cette approche harmonise l’efficience du capital, les besoins de liquidité et la gestion des risques avec les obligations à long terme du régime. Il en résulte un portefeuille conçu non seulement pour répondre aux passifs, mais aussi pour traverser les cycles de marché avec davantage de confiance et de maîtrise.

Comptes généraux des compagnies d’assurance

Pour les comptes généraux des compagnies d’assurance, la construction de portefeuille consiste à maximiser le rendement généré par chaque unité de capital réglementaire tout en maintenant la prévisibilité des flux financiers et le respect des exigences réglementaires. Le crédit de base de grande qualité constitue le fondement du portefeuille, procurant un revenu stable et favorisant l’efficience du capital dans le cadre des exigences réglementaires. Les prêts hypothécaires commerciaux peuvent compléter cette base en offrant un rendement supérieur et des flux de trésorerie durables qui s’harmonisent avec les passifs. Des répartitions ciblées dans le crédit opportuniste peuvent également améliorer les résultats, pourvu qu’elles demeurent compatibles avec les contraintes de capital.

Exemple – Comptes généraux des compagnies d’assurance
Accent : Rendement par unité de capital et appariement actif-passif
Objectifs	Efficience du capital, respect des contraintes réglementaires, prévisibilité des flux de trésorerie
Répartition illustrative	Crédit de base de grande qualité Prêts hypothécaires commerciaux Crédit opportuniste dans les limites du capital

Fondations et fonds de dotation

Pour les fondations et les fonds de dotation, la construction de portefeuille vise à générer des rendements réels, à préserver le capital et à soutenir les besoins de décaissement dans différents contextes de marché. Cet objectif est atteint au moyen d’une combinaison de stratégies complémentaires. Les obligations de plus courte duration peuvent jouer un rôle stabilisateur en contribuant à gérer le risque de taux d’intérêt tout en préservant la liquidité. En complément, des stratégies diversifiées à rendement absolu peuvent procurer un revenu et une protection contre les baisses lorsque les marchés traditionnels deviennent plus volatils.

Une répartition importante en prêts hypothécaires commerciaux ou en crédit privé renforce davantage le portefeuille en offrant un potentiel de rendements attrayants ajustés au risque ainsi que des flux de trésorerie contractuels. Ensemble, ces composantes peuvent contribuer à limiter l’ampleur des baisses de valeur et à soutenir la capacité des organisations à financer leur mission avec confiance, peu importe où elles se situent dans le cycle des marchés.

Considérations relatives à la gouvernance

Passer d’une approche fondée sur des catégories d’actifs cloisonnées à une approche plus intégrée consiste à redéfinir la façon d’envisager l’investissement, ce qui exige un changement de mentalité et, possiblement, des pratiques de gouvernance. Plutôt que de sélectionner des catégories d’actifs individuellement, les investisseurs mettent l’accent sur les résultats qui correspondent le mieux à leurs objectifs.

Cette approche exige des gestionnaires de placement capables de répartir le risque de façon dynamique, de demeurer agiles à mesure que les marchés évoluent et d’offrir une transparence quant à la manière dont la valeur est créée. Elle invite également les conseils d’administration à être à l’aise avec des indices de référence personnalisés plutôt qu’avec des indices publics à des fins de comparaison, en accordant moins d’importance au fait de surpasser un indice et davantage à la protection contre les risques de baisse et au renforcement de la résilience globale du portefeuille.

Des silos aux solutions

Pour les investisseurs institutionnels, il s’agit d’une occasion de prendre du recul et de repenser le revenu fixe, non pas comme un ensemble de répartitions par catégories de produits, mais comme un outil permettant d’améliorer les résultats du portefeuille global. En partant des objectifs — qu’il s’agisse de générer un revenu, de couvrir les passifs ou d’améliorer l’efficience du capital — les investisseurs peuvent concevoir leurs expositions de manière plus délibérée. Il en résulte un portefeuille plus cohérent, dans lequel chaque composante contribue plus efficacement à l’ensemble, les risques sont mieux gérés et les résultats sont davantage alignés sur les objectifs globaux.

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Fixed income allocations are typically constructed in silos based on product labels, such as universe bonds, long bonds, high yield and private credit. This fragmented decision-making approach often leads to suboptimal outcomes.

This paper challenges that model. It explores how a more integrated approach, grounded in investor objectives, liabilities and risk tolerances, not product labels, can lead to better risk-adjusted results.

The siloed approach

Fixed income portfolios are often presented as diversified, yet in practice they are typically constructed in silos. Allocations are made to individual strategies, like long bonds, high yield, private credit, justified on their own merits. What looks like portfolio diversification on the surface can mask unintended concentrations, such as duration risk through long bond exposure, equity‑like drawdown emerging from high yield allocations, and liquidity challenges in private credit. These risks are not always obvious, when viewed individually, but they can reveal themselves simultaneously at precisely the moment they are least welcome.

This is often a by-product of the decision-making process where the portfolio is gradually assembled, rather than holistically designed. New allocations are typically introduced incrementally to enhance returns or address perceived gaps in legacy portfolios, without fully appreciating the overall structure and revealing unintended risks. Over time, this can anchor portfolios to yesterday’s opportunity set, even as market conditions, liquidity dynamics and relative value evolve.

A more effective approach begins by stepping back and treating fixed income as an integrated system. This means evaluating the portfolio holistically, understanding how each component contributes to income, liquidity, capital preservation and diversification, as well as ensuring that these roles are consciously chosen rather than unintentionally inherited.

Integrated approach

A more integrated approach begins by reframing fixed income, not as a collection of individual allocations, but as a coordinated system with an aim to achieve a specific goal. In this system, risk, return and liquidity are intentionally balanced across the full opportunity set, and every allocation must earn its place based on the role it plays, not simply the label it carries.

One way to think about this is through the lens of a high-performance racing car, where each component has a distinct and essential function, and overall performance depends on how those parts work together.

Traditional bonds, in this analogy, serve as the chassis. They anchor capital preservation and support liability matching. However, their limitations in certain market regimes have prompted investors to look beyond traditional exposures, incorporating complementary sources such as commercial mortgages, private credit and emerging markets debt to broaden the toolkit and enhance resilience.

Long bonds function as the suspension system, absorbing shocks and stabilizing the ride. They are especially valuable for defined benefit (DB) plans, where their sensitivity to interest rates help align with liability movements. When rates fall and liabilities rise, long bonds can provide a critical counterbalance, helping preserve funded status.

High yield bonds, by contrast, serve as the engine, the source of power and forward momentum. Their returns are driven more by credit spreads than by interest rate movements, making them an attractive source of income through carry when fundamentals are stable.

Emerging markets (EM) credit acts as a powertrain that expands the opportunity set. By providing exposure to economies and market dynamics that differ from developed markets, EM credit can enhance yield while reducing overall portfolio correlation. Diversification across countries, sectors, and issuers helps mitigate localized risks and adds an additional layer of resilience, particularly when developed market cycles are under pressure.

Commercial mortgages and private credit can provide grip in corners providing a steady income stream and a performance turbo boost. These assets are typically backed by secured cash flows, and the illiquidity premium can translate into smoother, more stable income with some downside protection.

Finally, absolute return fixed income strategies function as the adaptive control system, designed not to follow the market, but to navigate it. Rather than being anchored to benchmarks, these strategies aim to generate positive returns across a wide range of environments. By incorporating flexibility, whether through unconstrained positioning or the ability to short, they reduce reliance on traditional sources of return such as yield and duration. In doing so, they can enhance diversification and improve the overall efficiency of the portfolio.

These characteristics are not without their detractors. For example, the trade-off for long-bonds is that the duration exposure can feel like a drag when real yields rise, creating opportunity costs and, at times, convexity-related surprises. Like any high-performance engine, they can overheat under stress. In periods of market turbulence, high yield can behave much more like equities, with drawdowns that challenge its role as a stabilizer. The grip in corners of less liquid assets can be misleading since the liquidity trade-offs often only become apparent in stressed market conditions.

Taken together, the effectiveness of a fixed income portfolio does not come from the individual components alone, but from how they are deliberately combined. When each allocation is viewed through the lens of its contribution to the whole, its role in providing income, liquidity, protection or diversification, the portfolio becomes more than the sum of its parts, it becomes a system designed to perform.

Portfolio construction

A more effective fixed income framework begins by challenging a deeply ingrained assumption: how portfolios are typically built. Rather than starting with product labels and working backward to an outcome, this approach flips the process, by beginning with the outcome itself.

The starting point becomes the portfolio’s core objectives, whether income generation, liability hedging or capital efficiency, and then deliberately engineering exposures to deliver on those goals. While this may seem like a subtle shift, it fundamentally changes the conversation. The focus moves away from how capital is allocated across categories, and toward the risks that are consciously being taken.

In this framework, duration, credit, liquidity and convexity are no longer by-products of allocation decisions, they become building blocks. Each is selected, sized and combined with intention to achieve a coordinated system, where every exposure is chosen for its role in delivering outcomes, not simply because it fits within a predefined label.

This perspective also enables portfolios to be designed with greater adaptability. Instead of being implicitly tied to static benchmarks, portfolios can be constructed to respond dynamically to changing market environments. As interest rates shift, credit conditions evolve and liquidity ebbs and flows, the portfolio is positioned to adjust.

It also opens the door to a more thoughtful integration of public and private credit, capturing illiquidity premiums where appropriate, and creating space for less traditional strategies, such as absolute return fixed income, which are designed not to track a benchmark, but to deliver consistent outcomes across varying market conditions.

By incorporating the different fixed income strategy characteristics, portfolios can become more adaptive, more capital-efficient and better equipped to manage risk, particularly in periods of stress. The shift in implementation is from building portfolios that reflect categories, to designing portfolios that deliver outcomes.

Tailoring strategies by investor type

The actual design of a fixed income portfolio depends on investor type and associated objectives, liabilities, governance and risk tolerance.

DB pension plans

For DB pension plans, portfolio construction works best when liability awareness and return generation are treated as two sides of the same decision, not competing priorities. Longer-dated bonds play a vital role by anchoring the hedge ratio and stabilizing funded status, while credit can add a reliable source of liquidity and carry.

Layered on top, absolute return strategies can help dampen surplus volatility, providing flexibility when markets are uncertain. Selective allocations to private credit can further enhance returns, capturing illiquidity premium.

The real advantage comes from integrating these elements into a cohesive liability-driven investing (LDI) enhanced return framework. Rather than managing hedging assets and return-seeking assets in isolation, this approach aligns capital efficiency, liquidity needs and risk management with a plan’s long-term obligations. The result is a portfolio designed not just to meet liabilities, but to navigate market cycles with greater confidence and control.

Insurance company general accounts

For insurance company general accounts, portfolio construction is about getting the most yield out of every unit of balance sheet capital while maintaining predictability and regulatory discipline. High‑quality core credit forms the foundation, delivering steady income and supporting capital efficiency under regulatory frameworks. Commercial mortgages can build on this base, offering enhanced yields and durable cash flows to align with liabilities. Selective allocations to opportunistic credit can further improve outcomes, provided they are sized within capital constraints.

Insurance company general accounts illustration
Focus on yield per unit of capital and asset-liability matching.
Objectives	Capital efficiency, regulatory constraints, predictable cash flows.
Illustrative blend	High-quality core credit Commercial mortgages Opportunistic credit within capital limits

Endowments and foundations

For endowments and foundations, portfolio construction is about generating real returns, preserving capital and supporting spending needs through different market environments. This is best achieved through a blend of complementary strategies. Shorter‑duration bonds can play a stabilizing role, helping to manage interest‑rate risk while preserving liquidity. Layered alongside, diversifying absolute‑return strategies can provide income and downside protection when traditional markets become unsettled.

A meaningful allocation to commercial mortgages and/or private credit further strengthens the portfolio, offering the potential for attractive risk‑adjusted returns and contractual cash flows. Together, these components can help manage the level of drawdowns, supporting the ability to fund missions with confidence, regardless of where we are in the market cycle.

Governance considerations

Breaking away from asset class silos to a more integrated approach, is about redefining how to think about investing that requires a change in mindset, and potentially governance practices. Instead of selecting individual asset classes, investors focus on outcomes that better align with their objectives.

It demands investment managers who can dynamically allocate risk, stay agile as markets evolve and provide transparency into how value is created. It challenges boards to be comfortable with customized benchmarks, rather than public benchmarks for comparison purposes, placing less weight on beating a benchmark, and more on protecting against downside risks and strengthening overall portfolio resilience.

From silos to solutions

For institutional investors, this is an opportunity to step back and rethink fixed income, not as a set of product allocations, but as a tool to deliver superior total portfolio outcomes. By starting with objectives, focused on income, liability hedging and capital efficiency, investors can design exposures more deliberately. The result is a more cohesive portfolio, where each component works more efficiently, risk is managed more effectively and outcomes are better aligned with overall goals.

The post Rethinking fixed income portfolios through integrated strategies appeared first on Groupe financier Connor, Clark & Lunn ltée.

Before we discuss the silver economy, let’s talk about the markets as we are at the mid-year mark.

Rumbling grows louder and louder that we are in stock market euphoria. By many metrics, including trading volume, margin debt and multiples, in our view, this is shaping up to be one of the biggest stock market bubbles in history.

If we go back to 2000, we had a different market composition.

• Passive investing was less than 20% – today, it is over 50%.
• Retail share of trading was less than 10% – today, it is above 20%.
• There were no leveraged ETFs, zero-day options, etc.
• Hedge funds managed around $600 billion – that number is now above $6 trillion.
• Active managers were mainly fundamental bottom-up, split about equally between value, growth and core.
• Systematic investing (quantitative funds) accounted for the management of $200 billion – today, around $2 trillion.

So, what happens when this bubble deflates? In our view, today’s market structure differs materially from prior cycles, making historical comparisons more challenging.

What is risk in this situation? Is it underperforming the market or is it losing money? Pension funds have an estimated rate of return of 6 or 7%. Should they look to reduce risk? Diversify their portfolio?

Diversification, quality and long-term opportunity

At Global Alpha, we believe in building true small cap portfolios, diversified by country, currency, sector and industries. At the same time, we remain exposed to different long-term secular industries. We buy quality companies, defined by stronger growth and margin profiles; with strong balance sheets and low debt.

Unfortunately, this approach has not been rewarded over the last few years. Not even for famed investors like Warren Buffet who underperformed the S&P 500 by 20% and the Nasdaq-100 by 30% year over year.

As he famously said, “Be fearful when others are greedy, and greedy when others are fearful.” Perhaps he viewed the overconcentration as others being greedy, which recalls another Buffet quote:

“Only when the tide goes out do you discover who’s been swimming naked.”

As investors clamoured to the top ten, the rest of the small cap universe was left a little stark.

On that note, there’s still opportunity in the markets, represented by the silver economy.

A trend that never gets old

From Japan to Italy to the United States and Canada, the world is facing the largest demographic shift in its existence. According to data from World Bank Group, about 16% of the current population (ex-Africa) is over 65. And 18% is less than 14. By 2050, it is expected that less than 15% of the population will be less than 14 and over 26% will be over 65.

World Bank Group also indicates that Japan is the globe’s fastest aging society. 35% of its population is over 65 years of age, with 6% of that older than 85. By 2050, more than 50% of the population will be above 65 years old.

Countries like Korea and Italy are not far behind. What does an aging, “silver” population mean for investments?

A population that is only getting older means that there are growth prospects for companies that offer or adapt their products to cater to that demographic.

In our portfolio, we have several names that are in that category:

• Extendicare Inc. (EXE CN): a Canadian operator of long-term care as well as one of the largest providers of home health care in Canada.
• Service Corporation International (SCI US): one of North America’s largest providers of death care services.
• Challenger Limited (CGF AU): one of the largest providers of annuities in Australia.
• Globus Medical Inc. (GMED US): a medical device company focused exclusively on spine disorders.

We also have many other companies in the portfolio who have a growing part of their revenues addressing this market. One such company is Shanghai Conant Optical Co. Ltd. (2276 HK), which is the second largest global manufacturer of optical lenses and a leading manufacturer of lenses for smart glasses.

We also own WeRide Inc. (800 HK, WRD US) a diversified, Robotaxis, Robobuses, Robovans, autonomous driving stack and software licensing, deployed globally in China, the Middle East and Europe.

Back to the top

Overall, while current markets may be expensive and structurally different from past bubbles, investors should focus on diversified, quality small-cap companies exposed to durable secular trends. Our team is constantly looking at thematics to identify long-term trends like this one of the silver economy.

The securities identified and described do not represent all securities purchased, sold or recommended for client accounts. It should not be assumed that investments in these securities were or will be profitable.

The post The silver economy: A secular opportunity appeared first on Groupe financier Connor, Clark & Lunn ltée.

Before we discuss the silver economy, let’s talk about the markets as we are at the mid-year mark.

Rumbling grows louder and louder that we are in stock market euphoria. By many metrics, including trading volume, margin debt and multiples, in our view, this is shaping up to be one of the biggest stock market bubbles in history.

If we go back to 2000, we had a different market composition.

• Passive investing was less than 20% – today, it is over 50%.
• Retail share of trading was less than 10% – today, it is above 20%.
• There were no leveraged ETFs, zero-day options, etc.
• Hedge funds managed around $600 billion – that number is now above $6 trillion.
• Active managers were mainly fundamental bottom-up, split about equally between value, growth and core.
• Systematic investing (quantitative funds) accounted for the management of $200 billion – today, around $2 trillion.

So, what happens when this bubble deflates? In our view, today’s market structure differs materially from prior cycles, making historical comparisons more challenging.

What is risk in this situation? Is it underperforming the market or is it losing money? Pension funds have an estimated rate of return of 6 or 7%. Should they look to reduce risk? Diversify their portfolio?

Diversification, quality and long-term opportunity

At Global Alpha, we believe in building true small cap portfolios, diversified by country, currency, sector and industries. At the same time, we remain exposed to different long-term secular industries. We buy quality companies, defined by stronger growth and margin profiles; with strong balance sheets and low debt.

Unfortunately, this approach has not been rewarded over the last few years. Not even for famed investors like Warren Buffet who underperformed the S&P 500 by 20% and the Nasdaq-100 by 30% year over year.

As he famously said, “Be fearful when others are greedy, and greedy when others are fearful.” Perhaps he viewed the overconcentration as others being greedy, which recalls another Buffet quote:

“Only when the tide goes out do you discover who’s been swimming naked.”

As investors clamoured to the top ten, the rest of the small cap universe was left a little stark.

On that note, there’s still opportunity in the markets, represented by the silver economy.

A trend that never gets old

From Japan to Italy to the United States and Canada, the world is facing the largest demographic shift in its existence. According to data from World Bank Group, about 16% of the current population (ex-Africa) is over 65. And 18% is less than 14. By 2050, it is expected that less than 15% of the population will be less than 14 and over 26% will be over 65.

World Bank Group also indicates that Japan is the globe’s fastest aging society. 35% of its population is over 65 years of age, with 6% of that older than 85. By 2050, more than 50% of the population will be above 65 years old.

Countries like Korea and Italy are not far behind. What does an aging, “silver” population mean for investments?

A population that is only getting older means that there are growth prospects for companies that offer or adapt their products to cater to that demographic.

In our portfolio, we have several names that are in that category:

• Extendicare Inc. (EXE CN): a Canadian operator of long-term care as well as one of the largest providers of home health care in Canada.
• Service Corporation International (SCI US): one of North America’s largest providers of death care services.
• Challenger Limited (CGF AU): one of the largest providers of annuities in Australia.
• Globus Medical Inc. (GMED US): a medical device company focused exclusively on spine disorders.

We also have many other companies in the portfolio who have a growing part of their revenues addressing this market. One such company is Shanghai Conant Optical Co. Ltd. (2276 HK), which is the second largest global manufacturer of optical lenses and a leading manufacturer of lenses for smart glasses.

We also own WeRide Inc. (800 HK, WRD US) a diversified, Robotaxis, Robobuses, Robovans, autonomous driving stack and software licensing, deployed globally in China, the Middle East and Europe.

Back to the top

Overall, while current markets may be expensive and structurally different from past bubbles, investors should focus on diversified, quality small-cap companies exposed to durable secular trends. Our team is constantly looking at thematics to identify long-term trends like this one of the silver economy.

The securities identified and described do not represent all securities purchased, sold or recommended for client accounts. It should not be assumed that investments in these securities were or will be profitable.

The post The silver economy: A secular opportunity appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

From a cyclical perspective, housing indicators remain weak, while the stockbuilding cycle appears to be reaching a peak, with a downswing likely to extend well into 2027.

The optimistic case is that real money growth will be supported by a reversal of the H1 boost to inflation from higher energy prices, assuming that the reopening of the Persian Gulf proves lasting, while the business investment cycle remains in an upswing driven by seemingly insatiable demand for AI compute. Still, upward pressure on financing costs from the vast spending could start to constrain momentum soon, while the disinflation lift to real money growth could be offset by slower nominal expansion, reflecting H1 interest rate rises.

A conservative view of equity market prospects, therefore, appears warranted, as least until monetary indicators give an “all-clear” signal. The cyclical framework employed here suggests that equities will perform poorly over the medium term: weak phases in the three investment cycles are scheduled to coincide at some point in 2027-28,  a condition historically associated with major bear markets.

An important recent change has been a divergence of money growth across major economies, with US expansion picking up to a level inconsistent with 2% inflation, in contrast to weakness in Europe and Japan – see charts 2 and 3. This suggests superior US near-term economic prospects and a need for opposite monetary policy adjustments. If forthcoming, these could sustain a recent recovery in the US dollar, likely acting as another headwind for markets.

Chart 2

Chart 3

US monetary acceleration gathered pace after the Fed’s December decision to resume balance sheet expansion, a policy that Chair Warsh wants to reverse. Action is unlikely before late 2026 but – if combined with a near-term interest rate rise – could cause money growth to slow sharply in H1 2027.

Despite US strength, global annual broad money growth is below its pre-pandemic (i.e. 2015-19) average, reflecting softness in China as well as Europe / Japan. This suggests that inflationary pressures globally will remain contained, even if US medium-term risks are rising.

The judgement that the stockbuilding cycle is peaking is supported by the global manufacturing purchasing managers’ survey, with an average of the finished goods inventories and stocks of purchases indices reaching its fifth highest level on record in May – chart 4. Downswings in the cycle were historically associated with underperformance of cyclical sectors – notably materials, financials and communication services – versus defensive sectors, especially health care and consumer staples.

Chart 4

Cycle fluctuations were also reflected in prices of production inputs including electronic components as well as industrial commodities. A coming downswing could challenge optimistic forecasts for medium-term earnings growth of chipmakers and other hardware suppliers.

The post A “monetarist” perspective on current equity markets appeared first on Groupe financier Connor, Clark & Lunn ltée.

CC&L Infrastructure is pleased to announce the release of its 2025 Responsible Investment Report and 2025 Climate Report.

The reports reflect our commitment to responsible investment and sustainable infrastructure, highlighting the initiatives undertaken across our portfolio over the past year. As long-term owners and active managers of infrastructure assets, we believe operating responsibly is fundamental to protecting and enhancing asset value while contributing to resilient infrastructure and stronger communities.

Today, our team of more than 45 professionals manages over $7.5 billion in infrastructure assets across transportation, social and renewable energy sectors, including approximately 2.4 GW of renewable energy capacity. As an employee-owned business, we invest alongside our clients, aligning our success with theirs and reinforcing our long-term approach to value creation.

The 2025 Responsible Investment Report highlights progress across our five Responsible Investment focus areas:

• Asset resilience: Strengthening the long-term resilience, reliability and performance of our infrastructure assets through active ownership, disciplined risk management and operational excellence.
• Climate & transition: Advancing our approach to climate risk assessment, emissions measurement and reporting while investing in renewable energy and supporting the transition to a lower-carbon economy.
• Shared value: Building long-term partnerships with local communities, Indigenous groups and other stakeholders to create lasting economic and social value where our assets operate.
• People focus: Maintaining a strong commitment to health and safety, fostering an inclusive workplace and supporting the employees, contractors and communities connected to our assets.
• Governing with integrity: Promoting strong governance, ethical business practices and transparent reporting to support accountability and informed decision-making.

The accompanying 2025 Climate Report provides an update on our approach to managing climate-related risks and opportunities across the portfolio. The report is aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which continue to underpin global best practices for climate reporting, and reflects our ongoing efforts to strengthen climate governance, risk assessment, greenhouse gas emissions measurement and disclosure. Through transparent reporting and continuous improvement, we aim to enhance our understanding of climate-related risks while supporting the long-term resilience of our portfolio.

Together, these reports provide an overview of our approach, our progress and the initiatives underway across our portfolio as we continue to strengthen our responsible investment practices.

Read more about our approach to responsible investing.

The post CC&L Infrastructure Releases 2025 Responsible Investment and Climate Reports appeared first on Groupe financier Connor, Clark & Lunn ltée.

This is the second in a two-part series on small caps. Last week, we looked at historical small caps performance, recent small caps performance and the reasons behind the unexpected. This week, we dive into what this means for allocators and skeptics.

Small caps have captured the attention of allocators, what with their outperformance of large caps, their durability through economic surprises and the access they offer outside of the crowded top ten mega caps. How does this information impact portfolio allocations?

Implementation: where the allocator’s choices can make a difference

The case for small caps is strongest when implementation is treated as part of the allocation decision. In a broad and inefficient universe, choosing active over passive, quality over the index, and a global opportunity set can make a meaningful difference. What needs to be considered when it comes to portfolio allocation?

Active over passive

We’ve previously discussed eVestment peer universe data showing the median active manager added value in Global and EAFE small cap. As of May 31, 2026, according to eVestment peer universe data the median EAFE small-cap manager has delivered 1.75% higher returns than the  MSCI EAFE Small Cap index, since the inception of our respective strategies.

BofA Global Research notes that small-cap active managers have posted better hit rates than large-cap active managers in seven of the last 11 years through 2025. The opportunity set supports it: BofA shows the long-run annualized Quintile 1 versus Quintile 5 spread for the FCF/EV factor within the Russell 2000 is approximately 20 percentage points, versus 7 within the Russell 1000.

Quality over the index

As we argued in our December 2025 commentary, “Time to take out the trash – Why high ROE matters in the long run,” the global small-cap universe contains over 12,000 names and the dispersion between the best and worst businesses is enormous.

Global breadth, with a regional lens

EAFE small caps are, in our view, the strongest within-asset-class call today. The European valuation gap to long-term averages is wide, the regional economies are at different points in their cycles, and the structural themes – German fiscal deployment, European industrial policy, Japanese reform – sit disproportionately in this universe.

Four objections to small caps, and what the evidence actually shows

If the historical evidence supports investing in small caps, and allocators have the opportunity to actively make a difference within portfolios, why aren’t small caps more heavily weighted? The four objections below come up most often in our conversations with allocators.

“Small caps are too volatile in this environment.”

But BofA Global Research’s May 2026 data documents that the realized volatility of the Russell 2000 has been lower than the S&P 500 during this decade’s worst weeks – a reversal of the prior pattern. The same has held year to date through the Iran war, and through several recent stress episodes (Brexit 2016, Taper Tantrum 2013, COVID 2020, tariffs 2025).

Reality is the dispersion in S&P 500 names has compressed as concentration has risen, while small-cap volatility no longer carries the size premium it once did. Volatility is no longer the reason to avoid the asset class.

“The small-cap index has become a junk bucket of non-earners and unprofitable biotechs.”

This was true through 2022. It is becoming less true. The median ROE of the Russell 2000 has been rising off multi-decade lows, the share of non-earners has begun to decline, the Russell 2000 saw more upgrades to the Russell 1000 than downgrades in the 2023 and 2024 rebalances and the share of US IPOs with negative earnings has fallen from roughly 80% during the 2020–22 bubble to approximately 60% year to date.

The S&P 600, which applies a profitability screen, currently has only about 10% non-earners against approximately 32% in the Russell 2000 – a structural choice available to any allocator concerned about index composition. As we argued before, high-ROE small caps have, over multi-year horizons, materially outperformed their lower-quality peers; quality selection is the answer to this objection, not avoidance of the asset class.

“Active managers can’t beat the small-cap index – look at 2025.”

2025 was the worst year on record for active small cap managers, with roughly 15% beating the Russell 2000 (BofA). It was also one of the most extreme low-quality rallies of the past decade. Active small cap managers tend to be structurally tilted toward quality, which is precisely the wrong tilt during a junk-led move. The longer-run picture is different. As above, active small cap managers have posted better hit rates than active large cap managers in seven of the last 11 years. The 2025 episode is best understood as an extreme drawdown in a strategy that has otherwise compounded reliably, not as evidence that the asset class is too efficient for active management.

“We should wait for rate cuts before adding small caps.”

Two pieces of evidence cut against this. First, per Kepler Cheuvreux, the historical correlation between European small-cap relative performance and the German Bund yield has materially weakened since early 2025. The asset class has been outperforming through rising rates, not waiting for them to fall. Second, per BofA, what matters more for small-cap performance than rates per se is the corporate profits cycle: in periods of accelerating EPS growth, US small caps have averaged 18–19% annual returns regardless of whether GDP was accelerating or decelerating, with the highest average and best hit rate in accelerating EPS combined with decelerating GDP.

The current Russell 2000 forward P/E of approximately 16.9x implies roughly 8% annualized 10-year returns based on the historical regression (BofA, R-squared 0.46). The setup does not require a particular rate path to work.

The case against small caps often rests on backward-looking assumptions: higher volatility, weaker quality, poor active outcomes and rate dependence. But recent evidence is showing us that those assumptions need to be revisited.

Sizing: the wrong question, asked the right way

Clients regularly ask how much small cap is the right amount. In our September 2025 article, “Why small caps are built for what’s next,”* we shared that our typical recommendation falls between 5% and 15%, and the precise figure matters less than the choice to size the allocation meaningfully in the first place. A four-asset mean-variance optimization on EAFE and US large and small caps – using eVestment median manager returns from January 1999 to June 2025 – produces an efficient frontier on which an all-large-cap portfolio does not sit. The closest efficient point combines roughly 30% small caps with 70% US large caps at the same volatility level, with higher expected returns. The number will vary with assumptions; the qualitative conclusion does not.

The harder question for most allocators is not 5% versus 15%. It is whether the strategic underweight that has accumulated over a decade of large-cap dominance gets revisited at all. The structural arguments stand on their own.

The recent evidence – small-cap outperformance through a genuinely difficult macro backdrop, broad-based across sectors, decoupled from bond yields, supported by a valuation gap that has if anything widened, and an index whose quality composition is improving from its 2022 lows – reinforces the timing. The objections can keep coming, but we can see through them with evidence-backed rebuttals. Allocators can make a clear difference. We think the case for revisiting the underweight is as clear as it has been in years.

Global Alpha was founded on the conviction that small caps are an inefficient asset class in which an experienced team can generate alpha across a full cycle. We are happy to discuss how a small-cap allocation can be sized within a particular plan’s constraints, and how our Global and International Small Cap strategies have navigated the recent environment.

* Contact us for a copy of this article.

The post Fixing the strategic small cap underweight: Part 2 appeared first on Groupe financier Connor, Clark & Lunn ltée.

This is the second in a two-part series on small caps. Last week, we looked at historical small caps performance, recent small caps performance and the reasons behind the unexpected. This week, we dive into what this means for allocators and skeptics.

Small caps have captured the attention of allocators, what with their outperformance of large caps, their durability through economic surprises and the access they offer outside of the crowded top ten mega caps. How does this information impact portfolio allocations?

Implementation: where the allocator’s choices can make a difference

The case for small caps is strongest when implementation is treated as part of the allocation decision. In a broad and inefficient universe, choosing active over passive, quality over the index, and a global opportunity set can make a meaningful difference. What needs to be considered when it comes to portfolio allocation?

Active over passive

We’ve previously discussed eVestment peer universe data showing the median active manager added value in Global and EAFE small cap. As of May 31, 2026, according to eVestment peer universe data the median EAFE small-cap manager has delivered 1.75% higher returns than the  MSCI EAFE Small Cap index, since the inception of our respective strategies.

BofA Global Research notes that small-cap active managers have posted better hit rates than large-cap active managers in seven of the last 11 years through 2025. The opportunity set supports it: BofA shows the long-run annualized Quintile 1 versus Quintile 5 spread for the FCF/EV factor within the Russell 2000 is approximately 20 percentage points, versus 7 within the Russell 1000.

Quality over the index

As we argued in our December 2025 commentary, “Time to take out the trash – Why high ROE matters in the long run,” the global small-cap universe contains over 12,000 names and the dispersion between the best and worst businesses is enormous.

Global breadth, with a regional lens

EAFE small caps are, in our view, the strongest within-asset-class call today. The European valuation gap to long-term averages is wide, the regional economies are at different points in their cycles, and the structural themes – German fiscal deployment, European industrial policy, Japanese reform – sit disproportionately in this universe.

Four objections to small caps, and what the evidence actually shows

If the historical evidence supports investing in small caps, and allocators have the opportunity to actively make a difference within portfolios, why aren’t small caps more heavily weighted? The four objections below come up most often in our conversations with allocators.

“Small caps are too volatile in this environment.”

But BofA Global Research’s May 2026 data documents that the realized volatility of the Russell 2000 has been lower than the S&P 500 during this decade’s worst weeks – a reversal of the prior pattern. The same has held year to date through the Iran war, and through several recent stress episodes (Brexit 2016, Taper Tantrum 2013, COVID 2020, tariffs 2025).

Reality is the dispersion in S&P 500 names has compressed as concentration has risen, while small-cap volatility no longer carries the size premium it once did. Volatility is no longer the reason to avoid the asset class.

“The small-cap index has become a junk bucket of non-earners and unprofitable biotechs.”

This was true through 2022. It is becoming less true. The median ROE of the Russell 2000 has been rising off multi-decade lows, the share of non-earners has begun to decline, the Russell 2000 saw more upgrades to the Russell 1000 than downgrades in the 2023 and 2024 rebalances and the share of US IPOs with negative earnings has fallen from roughly 80% during the 2020–22 bubble to approximately 60% year to date.

The S&P 600, which applies a profitability screen, currently has only about 10% non-earners against approximately 32% in the Russell 2000 – a structural choice available to any allocator concerned about index composition. As we argued before, high-ROE small caps have, over multi-year horizons, materially outperformed their lower-quality peers; quality selection is the answer to this objection, not avoidance of the asset class.

“Active managers can’t beat the small-cap index – look at 2025.”

2025 was the worst year on record for active small cap managers, with roughly 15% beating the Russell 2000 (BofA). It was also one of the most extreme low-quality rallies of the past decade. Active small cap managers tend to be structurally tilted toward quality, which is precisely the wrong tilt during a junk-led move. The longer-run picture is different. As above, active small cap managers have posted better hit rates than active large cap managers in seven of the last 11 years. The 2025 episode is best understood as an extreme drawdown in a strategy that has otherwise compounded reliably, not as evidence that the asset class is too efficient for active management.

“We should wait for rate cuts before adding small caps.”

Two pieces of evidence cut against this. First, per Kepler Cheuvreux, the historical correlation between European small-cap relative performance and the German Bund yield has materially weakened since early 2025. The asset class has been outperforming through rising rates, not waiting for them to fall. Second, per BofA, what matters more for small-cap performance than rates per se is the corporate profits cycle: in periods of accelerating EPS growth, US small caps have averaged 18–19% annual returns regardless of whether GDP was accelerating or decelerating, with the highest average and best hit rate in accelerating EPS combined with decelerating GDP.

The current Russell 2000 forward P/E of approximately 16.9x implies roughly 8% annualized 10-year returns based on the historical regression (BofA, R-squared 0.46). The setup does not require a particular rate path to work.

The case against small caps often rests on backward-looking assumptions: higher volatility, weaker quality, poor active outcomes and rate dependence. But recent evidence is showing us that those assumptions need to be revisited.

Sizing: the wrong question, asked the right way

Clients regularly ask how much small cap is the right amount. In our September 2025 article, “Why small caps are built for what’s next,”* we shared that our typical recommendation falls between 5% and 15%, and the precise figure matters less than the choice to size the allocation meaningfully in the first place. A four-asset mean-variance optimization on EAFE and US large and small caps – using eVestment median manager returns from January 1999 to June 2025 – produces an efficient frontier on which an all-large-cap portfolio does not sit. The closest efficient point combines roughly 30% small caps with 70% US large caps at the same volatility level, with higher expected returns. The number will vary with assumptions; the qualitative conclusion does not.

The harder question for most allocators is not 5% versus 15%. It is whether the strategic underweight that has accumulated over a decade of large-cap dominance gets revisited at all. The structural arguments stand on their own.

The recent evidence – small-cap outperformance through a genuinely difficult macro backdrop, broad-based across sectors, decoupled from bond yields, supported by a valuation gap that has if anything widened, and an index whose quality composition is improving from its 2022 lows – reinforces the timing. The objections can keep coming, but we can see through them with evidence-backed rebuttals. Allocators can make a clear difference. We think the case for revisiting the underweight is as clear as it has been in years.

Global Alpha was founded on the conviction that small caps are an inefficient asset class in which an experienced team can generate alpha across a full cycle. We are happy to discuss how a small-cap allocation can be sized within a particular plan’s constraints, and how our Global and International Small Cap strategies have navigated the recent environment.

* Contact us for a copy of this article.

The post Fixing the strategic small cap underweight: Part 2 appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The stall could be explained by a less favourable “excess” money backdrop. Six-month growth of global (i.e. G7 plus E7) real money – on both narrow and broad definitions – crossed below that of industrial output in April. Narrow money growth was higher over August-March, while the broad money gap had been positive in most months since end-2022 – chart 2.

Chart 2

Real money growth rates appear to have recovered in May but may not have moved back above output expansion, based on partial information.

Prospects for a restoration of excess money support are mixed.

The real money slowdown reflected an energy-driven rise in six-month CPI momentum. This should reverse if recent commodity price relief is sustained – chart 3.

Chart 3

Yield curves, however, remain higher than before Gulf conflict, reflecting tighter actual and expected monetary policies. Higher rates could dampen nominal money growth.

Meanwhile, solid June flash PMI results suggest that six-month industrial output expansion will hold up near term.

As previously discussed, global money growth has been supported recently by faster US expansion. Six-month growth of the preferred US narrow and broad measures here – M1A and M2+ respectively – rose further to 9.3% and 8.2% annualised respectively in May – chart 4. (The M1A series has been adjusted for a reclassification of some savings deposits as demand deposits in November.)

Chart 4

By contrast, six-month growth of Eurozone and UK broad money – as measured by non-financial M3 / M4 – was just 3.7% and 3.4% annualised respectively in April. May numbers are released next week.

The break-out of US six-month money growth above a January 2025 high coincided with a resumption of Fed balance sheet expansion. Chair Warsh wants to reverse this policy, suggesting a future downside risk to money trends.

The post Are equities stalling? appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The stall could be explained by a less favourable “excess” money backdrop. Six-month growth of global (i.e. G7 plus E7) real money – on both narrow and broad definitions – crossed below that of industrial output in April. Narrow money growth was higher over August-March, while the broad money gap had been positive in most months since end-2022 – chart 2.

Chart 2

Real money growth rates appear to have recovered in May but may not have moved back above output expansion, based on partial information.

Prospects for a restoration of excess money support are mixed.

The real money slowdown reflected an energy-driven rise in six-month CPI momentum. This should reverse if recent commodity price relief is sustained – chart 3.

Chart 3

Yield curves, however, remain higher than before Gulf conflict, reflecting tighter actual and expected monetary policies. Higher rates could dampen nominal money growth.

Meanwhile, solid June flash PMI results suggest that six-month industrial output expansion will hold up near term.

As previously discussed, global money growth has been supported recently by faster US expansion. Six-month growth of the preferred US narrow and broad measures here – M1A and M2+ respectively – rose further to 9.3% and 8.2% annualised respectively in May – chart 4. (The M1A series has been adjusted for a reclassification of some savings deposits as demand deposits in November.)

Chart 4

By contrast, six-month growth of Eurozone and UK broad money – as measured by non-financial M3 / M4 – was just 3.7% and 3.4% annualised respectively in April. May numbers are released next week.

The break-out of US six-month money growth above a January 2025 high coincided with a resumption of Fed balance sheet expansion. Chair Warsh wants to reverse this policy, suggesting a future downside risk to money trends.

The post Are equities stalling? appeared first on Groupe financier Connor, Clark & Lunn ltée.