In now what is a time-honoured two-year tradition here at Purpose, we recruited a handful of our favourite PMs and asked them to reflect on 2021 and what they anticipate for the year ahead.

Read on for their thoughts on inflation, 60/40 portfolio construction, Zuck’s Metaverse, the best gifts for this market environment, what sectors and asset classes were on the good and bad list this year, and more.

Craig Basinger Talks Investment Strategies and Portfolio Construction

Speaking broadly, what was on the naughty and nice list this year? Do you expect the same trends to continue in 2022?

In 2021, seems just about everything made it onto the ‘nice’ list with only a few pockets landing on the naughty list. As of the beginning of December, equity returns have been very pleasant, with most major markets enjoying strong double-digit returns.

The majority of commodities rose on the year, notably energy and industrial-related inputs. There were a few blemishes, but these were mainly in the safe-haven defensive assets—something you might expect in such a good year. Bonds were down a bit as yields rose, thanks to an improving global economy. Gold suffered. But, overall, the good news stories really outnumbered the bad news.

2022 will likely prove to be a tougher year, and not just because things went so well in 2021. Inflation pressures continue to build, which is starting to creep into longer-term expectations. Combine this with central banks starting to tighten and/or reduce quantitative bond-buying programs, and it sets the stage for yields to continue their trend creeping gradually higher.

This is an important pivot as easy monetary policy certainly provided a lot of lifting for the markets in the back half of 2020 and 2021. Volatility and market swings are likely to become larger, especially compared with the pullbacks of 2021, which all proved short and shallow.

On a positive note for 2022, the global economy does continue to emerge from the pandemic overhang: not in a straight line— it’s more akin to two steps forward, one step back (Delta, Omicron)—but the trend appears favourable. This should continue to help earnings growth, which is the bedrock of the markets.

When it comes to giving holiday presents, you have to balance the fun with the practical. When it comes to portfolio construction, is the 60/40 split still a valuable rule of thumb?

Proper asset allocation sits at the foundation of just about every portfolio, and there is no denying the 60/40 has delivered over the decades, including in 2021. As of the end of November, a global balanced allocation is up a little over 10%, even with a slight drag from the bond side, as equities more than compensated.

That being said, the bond allocation will likely continue to be a drag as we head into 2022. Rethinking a portion of that defensive component to include alternative defensive strategies that will hold up as yields normalize will likely continue to be prudent.

When analyzing their portfolios for the year ahead, what should investors be sure to check twice?

Inflation risk – while we don't believe runaway inflation is coming, the trend is higher and depending on your allocation, this is an added portfolio and financial plan risk. Tilting a bit more into investments that can maintain their real value would help mitigate this risk should this bout of inflation prove resilient. There are many options from real assets and commodities—tilting to value from growth could go a long way to protecting not just your portfolio but the resilience of your financial plan.

Nick Mersch Talks Tech Investing

In your opinion, was the technology sector on the good or bad list this year?

2021 has been yet another rollercoaster year for tech stocks. Over the first half of the year, growthier names within the tech sector had a much slower start than the rest of the market. High-growth names pulled back after fatigue seemed to set in after a landmark 2020, and rising interest rates made investors question valuation levels. In the second half of the year, as rate worry subsided, growth names caught up and surpassed both the NASDAQ and the S&P.

Dominating the discussion in technology nowadays is interest rates. Since high-growth names are longer-duration assets with their cash flows pushed out to later periods, they are more adversely affected by upward movements in interest rates. However, current inflation readings are starting to hit new highs, causing real rates to be deeply negative. In a continued negative real rate environment, assets will crowd around growth equities as there are no growthier equities than technology stocks.

It seems like Mark Zuckerberg is giving us the gift of the Metaverse. How do you think the advent of the Metaverse will affect the technology sector going forward?

Facebook underwent a massive rebrand towards “The Metaverse” with the new company name “Meta.” They did this because they realized that only boomers now boot up the “blue F” website/app and that it’s time to pivot. But don’t be fooled. This is not like when Google renamed itself Alphabet then just kept doing the same thing. This is a fundamental change in the path of the company that is going to be incredibly exciting.

They are now laser-focused on building the Metaverse, which is a persistent online space where people will work, play, and participate in a new socioeconomic arena. Why be a version of yourself limited to the physics of the real world when you can shoot fireballs out of your hands?

This concept is at the center of convergence, where all intellectual property is starting to blur the lines across platforms (Netflix, Facebook, Instagram, Pinterest, and Discord) and mediums (TV, movies, music, and video games). The most exciting part of this ecosystem is when you attach real-world economics in a play-to-earn (P2E) economy, which fundamentally changes what “work” looks like.

When people talk tech investing, you hear a lot of acronyms: whether that’s FAANG (Facebook, Amazon, Apple, Netflix, and Google) or the newly coined MAMAA (Meta, Apple, Microsoft, Amazon, and Alphabet). If you could invent a new acronym of tech companies that are on your holiday wish list, what would it be?

In the Purpose Global Innovators Fund, we focus on a core holding of software companies. I believe that these companies are at the forefront of digital transformation and have the most attractive business models out of any publicly traded companies.

Software companies have (1) scalable products, (2) highly recurring revenue, (3) high gross margins, (4) bulletproof balance sheets, and (5) massive and expanding addressable markets. The “Four Horsemen of Software” (in this analogy, the horsemen are harbingers of good things...) are Microsoft, Adobe, ServiceNow, and Salesforce, or as I like to call them “MASS.” If you don’t go to mass on Christmas, at least go to MASS in your portfolio.

Jeremy Lin Talks Climate Funds and ESG Investing

This year, your team launched Purpose Global Climate Opportunities Fund. What type of investors might find this fund to be a good stocking stuffer to round out their portfolio?

Reducing our carbon intensity is not just limited to clean energy or electric vehicles, it's a new way of doing business. We look for leaders across the entire energy value chain that are actively doing their part to enable the world for decarbonization.

We provide investors with incremental diversification from a variety of industries including renewables, autos, utilities, metals & mining, cleantech and much more— all with the tailwind of increasing pressure from consumers and governments for corporations to achieve carbon neutrality.

How can we as a society balance today's energy needs while continuing to push forward advancements in decarbonization?

It's easy to paint the entire oil and gas industry as a villain, but industries such as marine transport, aviation, petrochemicals, cement & steel, and fertilizers are just a handful of examples of sectors that are hard to decarbonize today. Plus, our way of life as we know it would come to a quick end if the entire oil & gas industry was to disappear overnight.

This means we must come to peace with our need for traditional fossil fuel today, and reward best-in-class companies that can provide transition fuels with the lowest emissions.

What advice would you give to an investor whose New Years resolution is to invest more sustainably in 2022?

There are many promising cleantech companies coming to market every day, but not all of them will prove to be economically viable. Diversify your bets and invest in a portfolio that can incrementally reduce emissions and serve the energy needs of today while also addressing emission reductions for tomorrow.

Nawan Butt Talks the Future of the Cannabis Market

In your opinion, was the cannabis market on the good or bad list this year?

The cannabis industry was on its best behaviour this year. There were large strides in expansion of the total addressable market with many states shifting gear into medical use or going full steam into the adult-use market.

Operators took full advantage and grew their toplines aggressively while churning handsome profits. The industry took strikes in the discussion of further federal reform in the United States. Meanwhile, Canadians started better understanding their consumer and have been right sizing their supply imbalances. Both sides of the border have shown significant progress in their market development.

Despite all these strides, the industry was given a lump of coal for Christmas. Stock performance has struggled on the backs of slower-than-expected reform. What remains undeniable though is the spirit of these operators as they are sure to shine that coal until it turns into a diamond.

If you could give the gift of investment advice this holiday season, what would you tell prospective cannabis investors?

Patience is the virtue that ultimately wins in the struggle of cannabis proliferation. The question of cannabis reform is a question of "when" and not "if." For those who are patient, there will be rewards to reap. There is a clear disparity between fundamentals and valuations—something all savvy investors are watching closely. But it’s only the Canadians who are ahead of the pack and already in.

What’s on your holiday wish list for the cannabis sector next year?

Comprehensive reform is the big wish, but we will settle for incremental reform as well. If politicians can come together and help the US cannabis industry compete on equal footing as other industries, that would be a huge win for the patient. We think this can be achieved incrementally by the SAFE Act, the re-instatement of Cole Memorandum, or the STATES Act. However, comprehensive reform could also be around the corner as cannabis decriminalization becomes a mainstream issue in the US.

Greg Taylor Talks Best Gifts for this Market Environment

Given everyone’s concern with inflation and tapering, if you could give the gift of investment advice, what would you tell investors to help arm them for a successful 2022?

There is a chance 2022 will be a very different year from what we have gotten used to. Since the start of the pandemic, the global central banks and governments—to their credit—have done everything they can to keep their economies and markets moving higher. But with the pandemic fading away and inflation returning, their tone is going to change. The ‘Fed put’ may disappear, and if inflation rates keep spiking, investors may have to adapt to a more hostile Fed. Expect more volatility and that the “buy the dip” mentality may fade.

Purpose Specialty Lending Trust was certainly on the nice list this year—winning first place in the Private Debt category for best one-year return at the Canadian Hedge Fund Awards. What do you think has been key to the fund’s success?

The PSLT fund is setup to give Canadian’s access to many of the world’s best private debt managers. This is a fund we are very transparent with by marking monthly to market and making sure the NAV is fully representative of what the fund is worth.

This resulted in some performance pressure in 2020 as we proactively adjusted the NAV for market conditions, but as the economy and markets have recovered and the funds have performed as expected, we have seen the portfolio recover and act much better of late. In a low interest rate environment, we expect private debt to continue to hold a place in investors' portfolios and believe this structure is a great way to get access to it.

Covid-related government stimulus measures might be one gift we may no longer see under the tree going forward. How concerned are you about how the removal of stimulus measures might affect the economy in the short term?

As we all get used to the “new normal,” financial markets will have to do the same. The stimulus efforts have been great to help many people, but it has also resulted in pockets of inflation and changed how many go about their daily lives. These efforts are about to come to their natural end: this may be challenging for some, but it could create opportunities as well.

Investors will need to be positioned for potential volatility around these events and look to overweight sectors that will benefit, while avoiding those that have been held up by artificial factors.

Sources: Charts are sourced to Bloomberg L.P. unless otherwise specified.

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