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This article was published 4/2/2017 (1686 days ago), so information in it may no longer be current.
Dan Chornous is an upbeat guy.
There’s no doubt growing up in Winnipeg has helped colour the attitude of the man who heads RBC Global Asset Management, one of the world’s largest investment firms.
Manitoba wind chills have a way of infusing people with the ability to look for silver linings in six-foot snow drifts.
Chornous says he wouldn’t be where he is today without it.
"I was blessed with terrific mentoring in my early years here as an analyst (at Great-West Lifeco), given responsibilities that perhaps would not have been available to us in bigger cities," says Chornous, speaking with the Free Press late last month about his start with the financial giant headquartered in Winnipeg.
"Great-West had a strong culture that focused on the investment process, so I had that embedded in me at an early age."
Thirty years or so after leaving Winnipeg, Chornous could have hardly envisioned returning to his hometown as the chief investment officer for RBC’s mutual fund and institutional client management arm, which manages more than $350 billion globally.
Even less so that he would end up as the keynote speaker at 52nd annual Forecast Dinner for the city’s chartered financial analyst (CFA) community.
Maybe it’s his inner Winnipegger speaking, but the theme of his speech, for the audience of a few hundred CFA charter holders on Jan. 25 at the convention centre, had an upbeat hue at a time when many are skeptical about the investment climate.
First, Chornous says he wanted to address the challenges faced by industry, most notably how to prove their value as investing shifts increasingly toward automation.
"The business is being challenged as excess returns — or alpha — are shrinking in many cases," he says.
More investors, professional and amateur, are ascribing to the idea that if you can’t beat ’em, join ’em. They’re buying ETFs (exchange traded funds) that mirror market performance rather than trying to beat it. And that presents a challenge for portfolio managers, for whom the gold standard of education is a CFA designation.
"There are cheap alternatives to traditional actively managed products," he says.
So how do the experts justify the additional fees when statistically they’re unlikely to beat the market year over year?
"As the financial system shifts, people have to change their business model."
Focus on investment process and stay "ahead of the challenges that confront us," he contends.
It’s about figuring out how "we continue to improve our value to the client base we serve."
Perhaps more than any other profession, knowledge is a powerful tonic in the investment world. Investment professionals who successfully endure the infamously difficult curriculum to earn their CFA designation are indeed knowledgeable.
So even though the rise of robo-advisers — online computer programs creating automated portfolios of ETFs — may be doing to the investment industry what Uber is to the taxi industry, Chornous says robots can’t provide context.
Certainly Chornous has some interesting food for thought — on context — about what’s ahead in the markets.
He sees things differently from the current "orthodoxy."
"To me there has been some reassessment of the long-term possibilities for growth in the global economy," he says.
"I think there was 100 per cent certainty in most of the investment community that there wouldn’t be much growth and that inflation wouldn’t be a problem — like forever."
But rays of optimism shone through in the dark days of late 2015 and early 2016 when many investors were panicked and ready to give up.
"(January 2016) was a bloodbath in the stock market," he says.
Commodities bottomed out at the end of 2015, and oil sank even further in the first few weeks of 2016.
"Then, for whatever reason, and I don’t know what that is exactly — it’s just the way that markets work — maybe that certainty (about sluggish growth) fell to 90 per cent, and that opened up possibilities."
Resources rose, which is generally associated with actual real economic growth.
"Six weeks later, value stocks — which have endured a half-decade bear market — started to rise relative to growth stocks," he says.
"That typically happens when the markets look toward a stronger growth period for the economy."
Then U.S. economic data, which had largely been negative for some time, turned positive. Time after time, GDP and employment figures exceeded expectations.
"In July, interest rates bottomed at the long end (30-year duration) in the United States," he says. "We had signals come in throughout 2016 that appeared to question the orthodox view of the future."
Brexit and the election of Donald Trump as U.S. president were thought to be bad for investment, but even after those events the markets kept climbing in record-breaking fashion.
Yet after such a good run, some might ask whether now it’s time to scale back risk. What goes up must come down, right?
That’s not entirely off the mark, Chornous says. Certainly, don’t get greedy, but there’s no reason to shun the stock market, either.
"The fact that stocks have been rising for the last year — and the valuation of stocks has risen as a result — ought to curb people’s enthusiasm," Chornous says.
"But the threat of a bear market in stocks? We just don’t see those indicators right now."
Rather the global economy is showing positive signs not seen in quite some time.
"We’ve moved out of a period that was dominated by central banks and the need for quantitative easing into something more indicative of a normal economy," he says.
"It’s not growth rates of the ’60s and ’70s, but they’re likely to be higher than they have been and unassisted by low rates."
Trump is not the reason, as the new U.S. president loves to claim. In fact, Chornous argues had Hillary Clinton won, it would be a similar scenario.
"Honestly, who is in the White House is just one aspect in a long list of things that shifted the momentum."
Current growth is built on growing earnings, higher employment and rising commodity prices. Chornous believes these conditions will continue for a while. It won’t be the great fattening of bottom lines seen in the past, but it will be honest economic expansion.
"I think that there is more fuel to keep this going for some period of time."
As investors who need the markets to help us retire, among other important goals, let’s hope he’s right.