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COVID-19 & Your Finances: How are CI Direct Investing’s Portfolios Managed

Global stock markets have experienced unprecedented volatility as a result of COVID-19 and that has a lot of investors asking about the impact this will have on both their short-term and long-term finances. 

To keep you well informed, we’ve answered some of the most common questions we’ve received about how we manage our portfolios:

1. Are you making any changes to your portfolios as a result of the current volatility?

We won’t be changing the strategy behind our portfolios as they were designed to weather difficult markets. However, to make the most of current opportunities for our investors:

  • We are evaluating equity opportunities with plans to adjust geographic diversification once we have a better understanding of the impact to global economies. 
  • Before the market downturn we adjusted our ETF portfolios to reflect low interest rates and heightened credit risks in the US by reducing exposure to high yield bonds, and increasing the income from investment grade bonds. We expect to make additional adjustments to our Canadian bond exposure in line with that strategy as needed.

2. Why has my account not been traded this week?

When we place trades, our priority is to get a fair price on the asset for our clients. Nobody wants to pay more for something than it’s worth. When markets are operating normally we trade our ETF portfolios frequently throughout the week and we are able to get fair prices for our clients on those trades.

Recent increased market volatility has made it harder to get a fair price. Bigger ”spreads” have opened up between “bid” prices (what someone is willing to buy an investment for) and “ask” prices (what someone else is willing to sell an investment for). This difference has become much larger and less predictable than normal.

In order to ensure all our clients get a fair price on trades, we are trading our ETF portfolios a little less often so that we can pool the buying power of many clients. This situation is very fluid, but for now you may notice that cash takes a few extra days to be invested. This enables us to get the best possible outcome for all of our clients.

This only impacts ETF investments. This does not affect Nicola Wealth investments held in our Private Investment Portfolios, which will continue to trade weekly at market prices.

3. When does CI Direct Investing rebalance my portfolio?

We rebalance portfolios when the investment mix drifts too far from the targets. We also invest cash from contributions and investment income to help keep portfolios balanced.

Rebalancing has always been an important part of our strategy and that hasn’t changed.

4. Could you explain the strategies used in the CI Direct Investing Private Portfolios to manage risk and minimize loss?

CI Direct Investing’s Private Portfolios are powered by Nicola Wealth Management. These portfolios include private asset classes for enhanced diversification and protection against volatility. 

Historically, these funds have produced stable returns during volatile environments as more of the return comes from cash flow through dividend paying stocks, interest bearing bonds, and income producing real estate, as opposed to relying primarily on growth in the value of assets.

6. Is CI Direct Investing doing tax-loss harvesting right now?

(Note: This question is relevant only for non-registered account holders.)

Given the level of volatility and uncertainty we believe tax loss harvesting introduces more risks than benefits at this time. We continue to evaluate market conditions and portfolio performance and will consider tax loss harvesting opportunities if they become appropriate.

7. For non-registered accounts, should I be concerned about receiving taxable dividends?

(Again, this question is relevant only for non-registered account holders.) 

When we selected the current ETF holdings in our portfolios, tax treatment of distributions were a primary concern. For North American equity and real estate investments, we use ETFs that do not pay out a distribution, which means that in times like these when we’re seeing a loss, there isn’t any taxable investment income from the equity and real estate in the portfolios. 

8. Are CI Direct Investing portfolios hedged to the US dollar? Which is more beneficial: hedged or unhedged?

Hedging is a strategy used to protect investments from foreign currency fluctuations. So, if the value of the Canadian dollar sank compared to foreign currencies, the value of an unhedged foreign investment would be greater. If the value of the Canadian dollar rose compared to foreign currencies, the value of an unhedged foreign investment would be less. In contrast, a hedged foreign investment wouldn’t change as result of currency fluctuations.

Our ETF portfolios all hold US funds and we take both a hedged approach to our fixed income exposure in foreign markets, and an unhedged approach to our equity exposure. 

For fixed income, we're relying on the income stream to provide the majority of the returns, and we don’t want that income stream to be negatively impacted by currency fluctuations. Meanwhile, with our equity investments, we want to capture the combined return of the stock market performance and the potential growth of the currency value in that local market. 

Still have questions?

See these other articles for frequently asked questions we’ve received in light of the COVID-19 crisis:

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