Issuu

Fall 2026 GLOBAL MARKETS

In this issue:

Preparing for the unexpected

Moving beyond static diversification

The price of persistence

Page 5

Page 10

Page 16

| Fall 2026

From the editor in chief | Joanna Wolff, CFA Today, in 2026, we face new challenges, opportunities and disruptions because of globalization, as geopolitical tensions and supply shocks have the world rethinking trade flows. Our fall issue of The Analyst investigates the impacts and realities of living in a globalized world, exploring the theme of “Global Markets” and gleaning insights into emerging trends and issues impacting the world of finance.

Table of Contents From the editor............................. 2 Board chair message..................... 3 From the desk of the CEO............ 4 Preparing for the unexpected........ 5 Book Review A Short History of Financial Euphoria....................................... 8 Moving beyond static diversification: Regime-aware, tail-risk-sensitive portfolio construction............................... 10 Charterholder profile Lynn Wang.................................. 13 The price of persistence Why the next oil shock will be measured in months, not dollars....................................16 AI-driven portfolio management: Current trends and what comes next................................. 19 The forgotten asset class: Fixed income in a volatile world....22 Capital rotation: Follow the money, not the economy............ 25 Diverse Dividends....................... 30 Advocacy Corner..........................32

Does it seem like “1 in 100” events aren’t rare anymore? Do constant news cycles make us hyper-aware that events once seen as extreme now feel uncomfortably familiar? Our cover story shares insights into portfolio design for uncertainty and protection, diversification and the critical roles of behavioural analysis and governance. Our feature stories examine a dynamic approach to portfolio construction and regimeaware investing during structural market shifts, explore capital rotation and how flows shift across asset classes throughout economic regimes and delve into the evolution of fixed income beyond a buy-and-forget portfolio allocation. The Analyst’s quarterly book review offers modern examples and applications to explore the uncanny relevance of John Kenneth Galbraith’s 1990 book, A Short History of Financial Euphoria, more than 35 years after its initial publication. We also analyze expert perspectives and strategies regarding oil price shocks and the impacts of increasing global energy demands. Lynn Wang, CFA, this issue’s featured charterholder profile, speaks to the profound influence mentorship and volunteerism have had on her career, as well as her transition from a corporate role into one centred in entrepreneurship and empowerment. Our AI Watch article examines how AI adoption is shaping the financial industry and offers predictions on the industry’s future AI focus. Finally, Rohit Mehta’s interview from episode 4 of Diverse Dividends, The Analyst’s video podcast series, speaks to leadership and passion, the importance of thoughtful branding and three pivotal trends poised to transform the financial industry. We hope this issue provides perspective on the reality of globalization’s impact on our industry. As always, thank you for reading.

Welcome New Members..............33 Joanna Wolff, CFA Portfolio Manager, Sionna Investment Managers Chair of Editorial Committee, Editor in Chief, The Analyst CFA Society Toronto

Correction Notice: In the Summer 2026 article titled Private Markets: The recent landscape and thoughts on what comes next, the company “Blackstone” was incorrectly referred to as “Blackrock”. The online version has been updated. We regret the error and apologize for any confusion. ©

Board chair message | Heather Cooke, CFA At a time when tariffs and shifting geopolitical relationships are making global trade less predictable, strengthening Canada’s economy at home has new urgency. We cannot control every external shock, but we can remove unnecessary barriers within our borders and help Canadian businesses and capital move, compete and grow. That principle applies to the movement of capital as much as it does to goods, services and workers. Ontario’s commitment to join the Canadian Securities Administrators’ passport system is therefore more than a technical regulatory development. It is a step toward a more integrated and competitive Canadian economy. The passport system allows issuers and registrants to work primarily with one principal regulator across participating jurisdictions. Ontario’s longstanding non-participation has required firms elsewhere in Canada to duplicate efforts with the Ontario Securities Commission. Once implemented, its participation should reduce cost and complexity while maintaining strong investor protection. I welcomed this progress. It has always struck me as counterproductive that Canadian asset managers could face greater complexity offering investments across Canada than some foreign firms entering our market. A more coherent domestic system can help Canadian firms scale, support capital formation and strengthen competitiveness when Canada needs to attract and retain investment. Many members may not realize that this progress also reflects a benefit of CFA Society Toronto membership. Through our Society, CFA Societies Canada represents you nationally; it is a collaboration of 12 CFA Institute member societies representing more than 21,000 CFA charterholders. This network brings members’ expertise into discussions with governments, regulators and industry organizations.

The Analyst is published quarterly by CFA Society Toronto 120 Adelaide Street West, Suite 2205 Toronto, Ontario M5H 1T1 Telephone: 416.366.5755 Website: www.cfatoronto.ca General questions: info@cfatoronto.ca

Management Office Chief Executive Officer Fred Pinto, CFA Director, Educations & Events Jenny Yeo Senior Director, Operations Valerie Weddell Senior Director, Marketing & Communications Kenny Chan Senior Manager, Education & Professional Learning Meredith Lowry Senior Manager, Education & Events Mary-Margaret Courtney Senior Manager, IT Alexandra Pegg Volunteer Relations Manager Leslie Venturino Senior Manager, Corporate Relations & Business Development Aaron Ly Manager, Leadership & Board Governance Calandra Muller Manager, Marketing & Communications Jessi-Lyna Wan Manager, Next Gen Program Sabina Cichy Associate, Membership & Operations Tania Lewis Senior Associate, Education & Events Amanda Black Associate, Marketing & Outreach Kiri Kim

Volunteers

CFA Societies Canada helped advance this issue through sustained advocacy. It jointly urged Ontario to join the passport system, co-hosted the Capital Mobility roundtable at the One Canada Summit, supported the resulting recommendation and co-led the coalition welcoming Ontario’s commitment. Attention now turns to timely implementation and a genuinely streamlined regulatory experience. Advocacy may be less visible than an event, publication or professional development program, but it is an important form of member value. It gives our collective expertise a national voice and helps advance markets that are efficient, competitive and worthy of investor trust. When external markets become less predictable, strengthening the market we share becomes even more important. I encourage members to follow this work, raise the policy issues affecting your practice and contribute your expertise when opportunities arise. Through CFA Societies Canada and the leadership of Michael Thom, CFA, managing director, our local community has a national voice, and each of us can help strengthen it.

Chair, The Analyst, Editorial Committee, Joanna Wolff, CFA Vice Chair, Thomas Shen, CFA Editorial committee members Areg Avetisyan, CFA Alan Cody, CFA Sanaz Danielle Fotoohi, CFA Angha Gupta, CFA Ben Jekiv, CFA Winfred Lam, CFA Attika Raj, CFA Writers Areg Avetisyan, CFA Sebastien Davies, CFA Sanaz Danielle Fotoohi, CFA Angha Gupta, CFA Ed Ho, CFA Lauren Huneault Attika Raj, CFA Ryan Sheriff, CFA Editor Sara Maginn Pacella

Heather Cooke, CFA Chair, Board of Directors CFA Society Toronto

Features Editor Angha Gupta, CFA Regular Features Editor Sanaz Danielle Fotoohi, CFA Art director Janet Sangalang

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From the desk of the CEO | Fred Pinto, CFA, ICD.D

RBC GAM.............................. 28 & 29

90 Years Forward

Rotman........................................ 21

This year, CFA Society Toronto marked 90 years of service to Canada’s investment profession. It was an important milestone that provided us a chance to look back and also to ask what our members, our profession and the next generation will need from us. That question sits at the heart of our member value promise: “Membership Empowers You to Thrive at Every Stage of Your Career.” Over the past year, we worked to make that promise tangible by strengthening member listening, expanding cohort-based programming and establishing a new Education Advisory Committee to keep professional learning relevant throughout members’ careers. The results are encouraging. Overall member satisfaction reached 79 per cent, while the proportion of members who were “very satisfied” rose from 41 to 49 per cent. Our volunteer community also grew by approximately 14 per cent, from 292 to 332 members. That matters because a strong professional community is not built for its members alone; it is built with them. Our responsibility extends beyond today’s membership. Rather than treating secondary school students, university students, CFA program candidates, Associate members and CFA charterholders as separate audiences, we are building an integrated pathway into the investment profession.

Opinions expressed in The Analyst do not necessarily represent those of the authors’ firms of employment or of CFA Society

That pathway now spans career discovery and student work placements, faculty roundtables, CareerFest, Candidates Connect, enhanced Associate membership and the CFA charter-holder community. Participation from universities grew by 20 per cent, reaching 65 schools, and enhanced Associate membership welcomed more than 100 members in its first two months. These are not isolated programs. Together, they help people discover the profession, navigate its early stages, find a lasting professional home and ultimately lead within it.

Toronto and do not constitute a solicitation for the purchase or sale of any financial instruments. Information herein is obtained from various sources and is not guaranteed for accuracy or completeness. The authors’ firms and CFA Society Toronto therefore

Our anniversary celebrations brought that idea of community to life. We recognized more than 600 new CFA charterholders, while our PATH campaign featured their names forming the CFA Society Toronto icon as a visual reminder that our members quite literally make up our Society. The campaign generated 45.7 million impressions in the heart of Canada’s financial centre, extending the CFA charterholder message beyond our immediate community.

disclaim any liability arising from the use of information in this publication. The information provided herein is intended only as

None of this happens in isolation. It reflects the leadership of our Board, the commitment of our volunteers and staff and the support of our partners and members.

general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by CFA Society Toronto. Although

We are proud of what CFA Society Toronto has built over its first 90 years. But an anniversary is not an endpoint; it is a foundation. Our focus now is building the community that will strengthen our profession, uphold trust and help the next generation thrive over the next 90.

professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

Fred Pinto, CFA, ICD.D CEO, CFA Society Toronto

GLOBAL MARKETS

Preparing for the unexpected By Sebastien Davies, CFA

Are extreme 1-in-100 events becoming normal, and are current models fundamentally broken?

Most institutional investors have had the same quiet moment over the past two decades. It usually arrives in an investment committee meeting, while reviewing a portfolio or watching a Bloomberg screen as an asset class makes a move that was supposed to be exceptionally rare. It is less a moment of surprise than of uneasy familiarity, as another event once considered extraordinary joins an increasingly familiar list. Among the most consequential market dislocations of the past 20 years have been the global credit crisis, the pandemic liquidity freeze, the fastest hiking cycle in a generation, regional banking stress and renewed global trade conflict. Put them together and it is reasonable to ask whether something in the financial system has changed, and whether events that were supposed to be rare have become ordinary. That was the question I set out to explore through conversations with David Rosenberg, founder of Rosenberg Research, and Corrado Tiralongo, chief investment officer, Canada Life Investment Management. Rather than debating whether extreme events are becoming more frequent, both practitioners argue that the underlying behavioural drivers of markets remain largely unchanged, even as market structure, information flow and liquidity conditions continue to evolve. Their focus is not on predicting the next crisis, but on building portfolios that continue to function when predictions inevitably fall short.

Are shocks actually more frequent? Looking at the speed and publicity of recent drawdowns, it is easy to conclude that the old rules no longer apply. However, Rosenberg and Tiralongo see the forces at work as familiar. Rosenberg reads the current environment through the lens of the long economic cycle, which runs through the macro framework behind his Rosie Model Portfolio and which he believes is in its later stages. Expansion, leverage, contraction, repeat. Someone who has watched that sequence run several times tends to be unimpressed by the suggestion that it has stopped running. Rosenberg says, “There is no such thing as a new era.” Cycles change shape and duration, but not their underlying character. A cycle that takes longer to turn gives an economy more time to accumulate excesses. Those prolonged imbalances make the eventual correction look extreme, even though the driver behind it remains entirely ordinary. That deep respect for mean reversion leaves him systematically wary of any overextended market where risk appears to cost nothing.

There is no such thing as a new era.

GLOBAL MARKETS

They still make forecasts, but the more useful question is whether the portfolio remains functional when those forecasts are wrong. Uncertainty is expected. The practical task is to build something that keeps working even after you miss the mark.

It’s not about trying to predict when that crisis is going to occur. It’s really structuring the portfolios and the frameworks to be functional when a crisis occurs or when your forecast is wrong.

Where this shows up This shift in perspective directly alters a few practical areas of portfolio construction.

Looking through the labels Portfolio design still leans on broad asset classes: public equities, private equity, real estate and fixed income. Tiralongo’s observation is that, on a large platform, these are implementation buckets, not complete descriptions of risk. They tell you what the portfolio owns, but not necessarily what economic exposure it carries.

Tiralongo explores behaviour: how investors respond to uncertainty, how confidence builds and how narratives emerge to justify increasingly crowded positioning. Fear, greed and complacency have not changed. Because the future is unpredictable, he focuses on execution over forecasting: “It’s not about trying to predict when that crisis is going to occur. It’s really structuring the portfolios and the frameworks to be functional when a crisis occurs or when your forecast is wrong.” Both reference instantaneous news cycles. What has changed, both suggest, is the speed at which information, markets and policy interact. News now travels almost instantly. Capital reprices within minutes or hours rather than days, and policymakers typically respond more quickly than they once did. Imbalances still build slowly, often through long periods of calm. It is the unwind that has compressed. Rosenberg goes further, suggesting the baseline frequency of severe shocks over multi-decade windows may actually be lower than it once was. The underlying probability may not have changed much, but the speed and intensity with which those shocks unfold make them feel more frequent and more memorable.

Teams are increasingly looking through the wrapper to the underlying driver. Tiralongo argues that the portfolio should hold distinct economic exposures that can perform across different growth and inflation regimes, rather than relying on a simple mix of traditional asset classes. For example, a portfolio may own software companies through both public equities and private equity. While those investments sit in different asset-class buckets, both may ultimately depend on the same underlying drivers: technological adoption, revenue growth, valuation multiples, discount rates, risk appetite and access to capital. A portfolio may therefore appear diversified by label while remaining concentrated in the same underlying growth and duration exposures. The goal is not simply to diversify the buckets, but to diversify the economic forces that drive risk and return.

Liquidity is not cash Designing for uncertainty For both practitioners, the answer is not to improve forecasting, but to change how portfolios are built. Institutional frameworks have long used historical data to price risk and set allocations, assuming the correlations observed during calm periods would still hold in a crisis. Tiralongo notes the limitation is structural: “Conventional analytics describe the outcome. Decision analytics connect the choices made to the results those choices produced.” Assets that appear uncorrelated in quiet markets can move together once liquidity tightens, particularly when investors are forced to raise cash simultaneously. Rosenberg and Tiralongo handle this by shifting away from more elaborate models or attempting to name the next negative catalyst.

A recurring distinction is that structural liquidity shouldn’t be confused with “idle cash.” Large cash buffers act as a permanent drag on compounding. Institutional resilience relies on maintaining liquid exposures alongside diversifying strategies that preserve value, can be rebalanced or provide reliable access to capital when markets dislocate. Rosenberg emphasizes deliberate rebalancing during latestage manias. Tiralongo frames liquidity as the primary defence against becoming a forced seller. An allocator facing redemptions or capital calls in a drawdown should not have to sell illiquid private holdings or good long-term positions at distressed prices. For Tiralongo, resilience comes from what he calls “disciplined flexibility,” where the portfolio structure,

liquidity and governance are in place to adjust by choice rather than by necessity. That preserves the ability to buy when everyone else is derisking.

Building protection into the mix Downside protection has moved beyond short-term tactical hedging. Rather than relying primarily on put options as insurance, practitioners increasingly build resilience directly into the portfolio itself. Puts can provide effective protection when purchased at attractive prices, but regularly relying on them for insurance creates a persistent drag on long-term returns. Rosenberg favours embedding counterweights through relativevalue positions that can hold up during mean-reversion events, such as long consumer staples against short discretionary cyclicals or long-duration government bonds alongside hard assets including uranium, copper, pipelines and precious metals. Tiralongo places less emphasis on any single hedge and more on the role each exposure plays within the overall portfolio. Systematic absolute-return strategies, including managed futures, can add resilience by introducing a distinct return driver, preserving liquidity or diversifying equity risk. The objective is not to predict which hedge will perform best, but to build a portfolio whose components respond differently when market conditions change, allowing it to absorb shocks and rebalance from a position of strength.

Uncertainty is expected. The practical task is to build something that keeps working even after you miss the mark. statistics, some allocators are shifting toward a rigorous review of the internal decisions behind sizing, entries and exits. Tiralongo points out that while sports teams spend hours reviewing tape, the investment industry rarely studies its own execution with the same granularity. He views decision analytics and structured postmortems as practical mechanisms to bridge this gap. The goal is to identify behavioural patterns and improve decision-making before the next crisis arrives.

Inside the committee room The habit of treating every disruption as a historical anomaly may miss the point. Whether the world is producing more frequent shocks is a question for academics, not practitioners. Go back to that quiet moment in the committee room, the one that seems to arrive every few years. What matters in that instance is whether the portfolio can absorb the shock and whether the people around the table know exactly what they are permitted to do.

Governance and behaviour Both practitioners spend as much time on behaviour as on construction. A risk framework only works if the people using it can follow it under pressure. Rosenberg’s version is personal discipline: block out the noise, resist the herd, keep ego out of the decision, and cut a losing position before it does permanent damage. “Fall in love with your partner,” he says. “Don’t fall in love with your portfolio. It’s not always gonna love you back.” Tiralongo frames the same problem institutionally, observing that “resilience is about designing before the stress arrives.” Organizations need frameworks agreed in advance, with clear delegations and rebalancing protocols, so teams can act within established governance rather than inventing the process during market meltdowns. That discipline is starting to change how teams assess themselves. Rather than relying solely on backward-looking performance

The real evolution in portfolio management stems from accepting the limits of prediction. As Rosenberg puts it, “You always want to have an insurance policy against being wrong.” Modern asset allocation is shifting toward building frameworks resilient enough to survive when those forecasts inevitably prove incorrect.

Sebastien Davies, CFA, is a partner at Primal Capital, investing across technology, financial infrastructure and digital assets. He has a background in institutional capital markets and emerging financial technologies and he writes about markets, investing and how technology is reshaping financial systems, with an emphasis on real-world application rather than theory.

BOOK REVIEW

The same old genius, 36 years later: A Short History of Financial Euphoria, by John Kenneth Galbraith By Areg Avetisyan, CFA

Nvidia is now worth more than US$5 trillion, more than the annual output of every country on earth except the United States and China.

In 2025, firms with some plausible tie to artificial intelligence supplied roughly four-fifths of the American stock market’s gains, and the 10 largest companies came to represent about 35 per cent of the S&P 500, a concentration last seen at the dotcom peak. The tell, as always, is the spending. OpenAI has committed some US$1.4 trillion to data centres over eight years while booking roughly $13 billion in revenue, a ratio that would embarrass a lemonade stand were it not marketed as vision. A February 2026 study from the National Bureau of Economic Research put the same questions to nearly 6,000 senior executives: what AI has done for you, and what you expect it to do? Nine in 10 reported no effect on employment or productivity at their own firms to date. The same executives forecast productivity gains roughly five times what they had actually seen, a ratio that increases to nine times in the responses of American executives. None of this would have surprised John Kenneth Galbraith. In A Short History of

Financial Euphoria, Galbraith argued that the mechanics of a bubble never change. “The circumstances that induce the recurrent lapses into financial dementia,” he wrote, “have not changed in any truly operative fashion since the Tulipomania of 1636 to 1637.” What recurs is not the asset but the state of mind: the satisfaction of getting rich, and the conviction that anyone getting rich must be clever. Prices rise, the rise is read as proof of genius, and the buying continues until no buyers remain. Although this book was published over 36 years ago in 1990 it still holds relevance for today’s markets. His sharpest observations concern innovation. Strip away the marketing, he says, and every financial marvel reduces to the same act: “The creation of debt secured in greater or lesser adequacy by real assets.” Only the costume changes: bank notes printed against gold that was not there, stock bought on a 10 per cent margin in the 1920s, the leveraged buyouts and honestly named junk bonds of the 1980s. Each generation is certain it has invented something; each has merely

Galbraith insists these episodes never end gently, that the crash is always accompanied by “a desperate and largely unsuccessful effort to get out.”

rediscovered leverage in another form. The oldest rule on Wall Street, in Galbraith’s telling, is that financial genius is merely a rising market. Consider the 1928 vintage shared in the 1929 chapter of Euphoria. The Goldman Sachs Trading Corporation issued stock to buy stock, then conjured Shenandoah, which conjured Blue Ridge, each owning the one beneath it in a tidy pyramid of borrowed enthusiasm. The Trading Corporation’s own shares ran from US$104 to $222.50 within months, then to $1.75 by 1932. The modern version travels under a name built to reassure: private credit. Lending has migrated out of the regulated banks into funds that borrow to lend, lever the fund itself, and repackage the loans into private collateralized obligations familiar to anyone who lived through 2008. The numbers today are not small. Direct-lending assets stand near $1.8 trillion, closer to $3 trillion once undrawn commitments are counted. Morgan Stanley predicts that, of the roughly $3 trillion the world will spend building AI data centres by 2028, about half will be financed by private credit; the two great enthusiasms of the age are now strapped to each other. The International Monetary Fund flagged “multiple layers of leverage” and “stale and potentially subjective valuations,” but was ignored until the loans began to misbehave. In late 2025, the auto parts maker First Brands failed, and lenders who believed

In A Short History of Financial Euphoria, Galbraith argued that the mechanics of a bubble never change.

they had financed it at five times leverage found the real figure closer to 20 once its off-balance-sheet borrowing surfaced; its senior loans now trade at about a third of face value. Weeks earlier, the subprime lender Tricolor collapsed amid allegations that it pledged the same collateral to several lenders at once, an innovation with four centuries of precedent, and its AAArated paper fell to about 12 cents on the dollar. Jamie Dimon supplied the review: when you see one cockroach, there are probably more. In A Short History of Financial Euphoria, Galbraith insists these episodes never end gently, that the crash is always accompanied by “a desperate and largely unsuccessful effort to get out.” There are signs the tide may be turning. In early 2026, Blackstone’s flagship non-traded credit fund received about $3.7 billion in redemption requests, nearly ten per cent of net asset value, against a cap that generously permits five per cent a quarter. And because no euphoria is complete without fresh buyers, regulators have cleared privatecredit managers to sell into the $13 trillion defined-contribution retirement system, introducing the American 401(k) to an asset class it cannot easily exit. The reassurance has arrived on schedule. The failures, we are told, are idiosyncratic, matters of fraud rather than of the system. Galbraith catalogued this reflex: the urge to normalize each mania as a routine turn of the business cycle, and the theological insistence that the market is

sound and any fault lies outside it. In 1926, the culprit was a pair of Caribbean hurricanes; after the 1987 crash, the federal budget deficit; in 2026, a handful of bad actors. The one suspect rarely questioned is the speculation itself. Which brings us to Galbraith’s most useful number. Financial memory, he judged, lasts about 20 years, the time it takes for one disaster to fade and a new generation to arrive, sure of its own originality. The 2008 crisis is now 18 years behind us. The people who built today’s private-credit market did not underwrite through the last crisis, and the market they built has never been tested by a full default cycle. Galbraith declined to predict when each new reckoning would arrive, on the grounds that anyone who claims to know “does not know he doesn’t know.” The book will not give you the timing, only remind you that the next time a room of geniuses explains why the old rules no longer apply, you have read the chapter before and know how it ends. A Short History of Financial Euphoria is worth reading for the pattern rather than the history. Galbraith’s argument is that euphoria is cyclical and endlessly costumed, from tulips to trusts to junk bonds to private credit, and that the costume is what fools each generation into believing the cycle has been repealed. Any investor who can name the current innovation will find it described here under an older name.

Areg Avetisyan, CFA, is a finance professional with over eight years of experience across institutional asset management, family office and capital markets. Areg has spent the last six years producing investment research, client communications and reporting for institutional and private clients. He is the founder of Cortex Partners Inc. and serves on the Strategic Content Creation and Editorial Committees of CFA Society Toronto.

GLOBAL MARKETS

Moving beyond static diversification: Regime-aware, tail-risk-sensitive portfolio construction By Sanaz Danielle Fotoohi, CFA, MBA, AFM This article examines a dynamic approach to portfolio construction and regime-aware investing where diversification could fail during market structural shifts. It draws on six source articles: When Diversification Fails by Sébastien Page and Robert A. Panariello; Diversification during Hard Times by Najah Attig and Oumar Sy; Asset Allocation Models and Market Volatility by Eric Jacquier and Alan J. Marcus; International Asset Allocation with Regime Shifts by Andrew Ang and Geert Bekaert; A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle by James Hamilton; and Why Static Portfolios Fail When Risk Regimes Change by Bruno Luiz Buriozzi.

The last decade has challenged one of the fundamental assumptions underlying portfolio construction: that historical relationships between asset classes provide a reliable guide for future allocation decisions. During the COVID-19 liquidity market shock of 2020, diversification failed because liquidity disappeared, investors sold risky assets simultaneously and correlations rose as investors sought cash. Two years later, diversification failed again, but for an entirely different reason. Inflation, aggressive monetary tightening and rising interest rates caused stocks and bonds to decline together, producing one of the worst years on record for the traditional portfolios. Despite similar outcomes, these failures were driven by fundamentally different factors. They were not the result of poor security selection or inadequate diversification, rather of relying on static assumptions about risk in a market environment where risk evolves over time. Diversification is conditional and timedependent. Regimes are not temporary

deviations around a single average state; they represent structurally different macroeconomic fundamentals and environments with respect to expected returns, volatilities, correlations, liquidity conditions, factor exposures and downside risks, and portfolio weights must change with them. Regime shifts and left-tail correlation rise are closely intertwined, and a regime-aware, tail-risk-sensitive framework can identify when the assumptions behind the current portfolio become unreliable in order to adjust exposures before static diversification leads to self-enforced deleveraging.

Risk changes through regimes Financial markets are characterized by structural shifts and tend to fluctuate between low-volatility and panic-driven high-volatility states that fundamentally

Rather than viewing risk as a constant, we should recognize that volatility, correlations, expected returns and liquidity are conditional on the prevailing economic regime.

alter the relationships that matter most to portfolio construction—stock-bond correlation, equity-credit correlation, cross-country correlation, industry correlation, liquidity premia and volatility. While traditional strategic allocation frameworks often assume that long-run averages are sufficient guides for future risk, true portfolio risk is often determined by extraordinary conditions when these relationships become unstable. James Hamilton’s pioneering work introduced the concept that economic time series transition between distinct regimes rather than evolving smoothly. Instead of assuming a single stable datagenerating process, regime-switching models recognize that economies alternate between expansion and contraction, with each state exhibiting different statistical characteristics. This insight extends to portfolio management because the relationship among asset returns also changes as macroeconomic conditions evolve. Rather than viewing risk as a constant, we should recognize that volatility, correlations, expected returns and liquidity are conditional on the prevailing economic regime.

This means that portfolio risk should be viewed as state-dependent. A portfolio that appears diversified in one regime may become concentrated in another if its assets become exposed to the same macro factor. Each regime requires different defensive positioning, illustrating why portfolios optimized for one environment may perform poorly in another. Regimeaware investing therefore begins with identifying the prevailing regime and recognizing that the investment opportunity set itself changes over time.

Correlations rise during periods of market stress A change in regime goes beyond market volatility. Correlations between risky assets typically increase when new risks emerge (i.e., the COVID-19 pandemic) and during periods of market stress as systematic risk overwhelms idiosyncratic factors, reducing the effectiveness of diversification precisely when investors need it most. Left-tail correlations are consistently higher than those observed under normal market conditions, indicating that portfolios often contain substantially more downside risk than suggested by historical averages.

The asymmetric relationship between the left-tail (downside) and right-tail (upside) correlations can adversely affect the benefits of portfolio diversification. Jacquier and Marcus explain an important mechanism behind this correlation breakdown. When market-wide factor volatility rises, systematic risk becomes more important relative to idiosyncratic risk. Assets that normally differ due to sector, country or security-specific characteristics begin to move together because a common factor dominates their return variation. A large portion of the variation in correlation structures can then be attributed to variation in market volatility. This has direct implications for risk modelling. A covariance matrix¹ estimated from full-sample or trailing historical data can understate portfolio risk if it does not adjust for the current volatility regime. Volatility is not only an input into risk; it is also a signal about how diversification itself may change. A regime-aware model should expect correlations among risk assets such as stocks and bonds to rise when market volatility increases are driven more by broad

Diversification often appears effective when measured across the entire return distribution, but the investor’s real vulnerability lies in the left tail.

macroeconomic or liquidity shocks, such as inflation and interest rates, than by business cycles and risk appetites. Page and Panariello show that full-sample correlations are misleading and should not be used in risk models without stresstesting correlation assumptions and adding tools such as downside risk measures and scenario analysis. Full sample correlation is an average of extremes, and conditional correlation reveals how, during crises, diversification across risk assets almost completely disappears. Diversification often appears effective when measured across the entire return distribution, but the investor’s real vulnerability lies in the left tail. During selloffs, correlations across risk assets tend to rise; during rallies, correlations may fall. This is the opposite of what investors want. A portfolio can appear efficient on average while being exposed to severe loss when risk assets move together.

A regime-aware portfolio construction framework Expected returns, volatility and correlations vary across regimes, and portfolio weights should depend on the current regime. It is worth noting that identifying the current regime or its characteristics is no easy task. Portfolio construction, therefore, becomes a dynamic process in which asset allocation adapts as the probabilities of different economic regimes change. Such an approach requires continuously reassessing whether the assumptions underlying the strategic allocation remain valid.

A table that measures the variance of multiple variables, i.e., how the returns of unique assets move in relation to each other.

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This implies that diversification should follow the dominant source of return variation. For example, if the shock is regional, country diversification may matter most. If the shock is sector-specific, industry diversification may matter most. If the shock is inflation or rates, duration exposure may stop diversifying equities. If the shock is liquidity, even assets with different fundamentals may sell off together. The portfolio construction process must map assets to their underlying drivers rather than assume that labels such as “equity,” “bond,” “credit,” “real estate” or “alternative” are sufficient. For example, Merton (1974) defined a corporate bond as a combination of a risk-free bond and a short put position on the company’s assets; as the probability of default increases, the risk characteristics of debt approach those of unlevered equity. Hedge funds are typically short volatility and liquidity risk, which is comparable to writing an option on the equity index; this justifies the jump in left-tail equity beta during financial crises. Private assets are exposed to many of the same factors that drive stock and bond returns. In stable regimes, when volatility is low and correlations are behaving as expected, there is less need for defensive or regimedriven adjustments, and portfolios can remain closer to their strategic allocations. Diversification across asset classes, regions, industries and factors is likely to be more reliable, and security selection may matter more. In crisis regimes, when volatility and correlations typically rise, the priority becomes capital preservation. A wide variety of portfolio optimization methodologies directly address the non-normal left-tail risk, with the most flexible being full-scale optimization. Looking beyond diversification, to manage portfolio risk, investors should leverage tail-aware analytics prior to making trading

and portfolio construction decisions and calibrate their risk tolerance accordingly. Tail risk hedging with equity put options or proxies and explicit downside protection could become increasingly important for assets with non-linear payoffs. Managedvolatility overlay strategies that scale down risk assets when volatility is high and offset tail-risk correlation spikes, defensive momentum strategies with risk factors that embed short positions, and selective use of derivatives that reshape the left tail all provide better left-tail protection than traditional diversification. A practical framework for regime-aware portfolio construction can thus include the following: 1. Identify the prevailing macroeconomic regime by monitoring indicators of growth, inflation, interest rates, liquidity, monetary policy and financial conditions 2. Determine which risk factors dominate market behavior under the current regime 3. Update forward-looking assumptions for expected returns, volatility, correlations and downside dependence using conditional rather than historical estimates 4. Optimize the portfolio using these regime-specific inputs, incorporating scenario analysis and stress testing to evaluate resilience to adverse outcomes 5. Monitor regime-transition indicators continuously and adjust portfolio exposures as evidence suggests that a new regime is emerging This framework moves portfolio construction toward a more dynamic, adaptive process that recognizes the structural changes of markets over time.

In crisis regimes, when volatility and correlations typically rise, the priority becomes capital preservation.

Conclusion Portfolio construction must evolve from a historical analysis to an adaptive, forwardlooking, dynamic process. This process recognizes that markets shift between states, volatility contributes to correlations, left-tail dependence overwhelms long-term averages and diversification, and the best method integrates the underlying driver of the crisis and asset returns into decision analytics. Regime-aware, tail-risk-sensitive portfolio construction strengthens the principles of diversification or optimization by acknowledging that the investment environment is structurally shifting and dynamic, and portfolios should adapt as the nature of risk changes, moving the discussion from reactive risk management to proactive portfolio construction.

Sanaz Danielle Fotoohi, CFA, MBA, AFM, is a volunteer member of CFA Society Toronto’s Strategic Content Committee and Editorial Committee, and a contributor and regular features editor for The Analyst.

CHARTERHOLDER PROFILE

Charterholder Profile: Lynn Wang

Wealth Advisor at Aethalon | iA Private Wealth Inc. By Lauren Huneault

In 2019, Lynn Wang, CFA, CAIA, CFP®, TEP, CLU, FRM, took a major career risk: she left her corporate position for self-employment at iA Private Wealth Inc., launching her own wealth management brand, Aethalon.

While it may seem a bold move, Wang had a plan (she always has a plan!), and she also had support from the CFA Society Toronto community. Wang first became engaged with CFA Society Toronto in 2018, when she participated in the mentorship program. Along with the many other benefits, Wang found her mentor’s insights instrumental to her career growth, especially when it came to her major entrepreneurial shift. Wang’s financial career started with an operational role at Citi in 2013, before she took a position at CPP Investments in 2014, where she spent four years in four different roles. Throughout this period, she worked toward earning her CFA charter, becoming a charterholder in 2017. Her passion for investing was inspired by reading private investment memos at CPP Investments, and when an opportunity to join the investment strategy team at TD showed up, she took it. It was here that Wang learned about CFA Society Toronto and joined the mentorship program, which sparked the next phase of her inspirational career journey.

We caught up with Wang to learn more about how she’s building her own brand and engaging women, plus the next generation, along the way. She also shares the pivotal role the Society has played throughout her journey and her advice for those looking to build their own successful futures in the finance industry.

Why did you decide to make the major leap of building your own brand, and what challenges have you faced? While I was at TD, I applied for CFA Society Toronto’s mentorship program and got one of my best mentors, Jamie O’Reilly, who is a past program participant. He is a senior executive at a bank and helped me discover my true passion: empowerment. I realized I never felt particularly happy with my own achievements, but when I was able to empower others to achieve, I felt fulfilled and satisfied. This helped me decide to leave corporate and become self-employed in private wealth management. This was not an easy decision and surprised many people in my circle. Next, I established my brand and team.

Lynn Wang, Career Highlights

• Wealth advisor at Aethalon | iA Private Wealth Inc. and founder of Aethalon • Previous roles, including at Citi (2013-2014), CPP Investments (2014-2018) and TD (2018-2019) • Recipient of CFA Society Toronto’s Spirit Award • Vice-chair of Next Gen Steering Committee • Dedicated volunteer with CFA Society Toronto, VersaFi, Women in ETFs, Ascend Canada, China Youth of Tomorrow, RAIN Career Institute

CHARTERHOLDER PROFILE

My goal was also to help empower women in the industry. Women are severely under-represented in the asset and wealth management industry. My goal was also to help empower women in the industry. Women are severely under-represented in the asset and wealth management industry. I was on the Employment Equity Committee at CPP Investments and had first-hand exposure to it. Today I see the shift in my industry happening. One trend is that it’s becoming more relationship-based than transactionbased, and I believe women can excel in relationship-based roles. I established my own brand so that female advisors who want to join an existing team have the option to work within a female-led environment.

What are the challenges and rewards of building your own business? It was very challenging at the beginning, and I spent a lot of time, almost a year, doing my due diligence to understand the industry. In the first five years of my career, I constantly looked for challenges and opportunities to broaden my experience and knowledge and switched jobs quite a few times, but now I’ve been here for more than seven years. So that shows you I do love this career. It’s hard, especially at the beginning, to build your own business, because I didn’t acquire anyone’s book – I literally acquired each client one by one. Initially, it was a very slow process. But the rewards have been worth the challenges and patience. This career suits me perfectly in many ways. Professionally, I enjoy reading, analyzing and investing. Even if I retired

today, I would do the same thing: reading, analyzing and investing. On a personal level, I enjoy earning people’s trust. Charlie Munger believed, “There is huge pleasure in life to be obtained from getting deserved trust.” I couldn’t agree more. It’s also a huge responsibility, which motivates me to become better. I can empower clients in many aspects of their lives, and I see the results directly. Supporting clients to achieve their goals has become my goal, and it is the most rewarding and fulfilling thing for me.

With this empowerment goal in mind, can you please provide an example of how you helped one of your clients solve a problem? My goal and style are to provide clients with empowerment at the exact moments they need it most, without them asking for it, and then step back behind the scenes when things are working well for them. One example involves a client near retirement who suffered a great deal of stress at work, which started to take a toll on her. We ran a comprehensive retirement plan, which showed she had built a large enough nest egg to retire early. I encouraged her to take her overall well-being into consideration when envisioning the life she wanted to enjoy during retirement, reassuring her I would be there to assist her financially. She wanted to work for a couple more years but eventually decided to take a short-term leave to recharge.

Before the client returned to work, she showed a lot of trepidation during a regular update call. I could tell she needed more than a phone conversation, so I planned a lunch visit to reassure her, both emotionally and financially, so that she knew that returning to work was optional and she had the choice to retire early comfortably. The meeting went well, and she became much more confident about the future.

Where have you focused your CFA Society Toronto volunteer efforts since your early experience with the mentorship program? I started as a project volunteer and in the mentorship program. I benefited so much and I felt obligated to give back to the community. When an opportunity in the University Relations Committee came up, I applied immediately and was lucky to be admitted. I have been to almost all campuses representing CFA Society Toronto. It was a great experience. I signed up for most committee work and won the Spirit Award once. I am now vice-chair of the Next Gen Steering Committee and have moved to a more strategic role. I still sign up for outreach activities, but I like to give opportunities to newer committee members who want to participate more. I was also a mentor with the mentorship program for a few years.

What has resonated with you most throughout your experience with the Society? All the people I’ve met at the Society always look for challenges, seek new initiatives, learn from each other and try to improve. I like to be surrounded by people like that. I love to hear their stories, and it motivates me to do better and stay competitive in the market. You never know what you will do in 10 years. I love my work, and I am not worried that I will

 FUN FACTS: become obsolete someday, because I have a great capacity to learn and a strong network to support me along the way. I came to CFA Society Toronto not for business value, but for intellectual and emotional value, and most importantly, I found my company of lifelong learning in this journey.

Your career journey has taken many twists and turns. What would you say is the most valuable lesson you learned in this field along the way? Empathy and humility. Different from my previous corporate jobs, this career provides me with a more comprehensive understanding of different walks of life. It makes me realize that I am privileged in many ways, including my education and training in business and finance. I have had the opportunity to work at some of the best financial firms and to volunteer and give back alongside an exceptional group of people. Clients who have experienced many challenges in life, survived and thrived really inspire me and motivate me to be a better version of myself. Extraordinary stories in ordinary lives are the most valuable experience in this work.

What advice do you have for those who are new to the industry, or the Society? CFA Society Toronto is the best source of insights and connections in the finance industry. I encourage people to consider networking a second job and continue doing it regardless of whether you need

to find your next job. This is especially important for young people. Sometimes the biggest benefits don’t show up immediately, but in the distant future. In the age of AI, what can’t be replaced are your network and connections, and the insights and information that are exchanged offline. Disclaimer: The information has been shared by Lynn Wang, who is a Wealth Advisor at Aethalon | iA Private Wealth Inc. Opinions expressed are those of the wealth advisor only and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates. This interview was edited for length and clarity.

Lauren Huneault is a content and marketing professional with 15 years of experience in content creation and strategy. Lauren has spent the last 14 years focused on producing relevant educational content to help aspiring and current business owners successfully navigate the challenges of the Canadian business landscape. She has served as writer and editor of trade publications including Your Convenience Manager, Octane and Franchise Canada.

Charlie Munger believed, “There is huge pleasure in life to be obtained from getting deserved trust.” ©

Activities for fun outside of work and volunteering: I enjoy reading and Pilates. I have two rescue dogs; the first one was from a local rescue, and the second one was an overseas adoption. The rescue was only able to arrange the dog to fly the first 8,000+ kilometres, and I arranged a last-minute trip, flying the last 3,000+ kilometres to meet and accompany her back home. I like to spend time with them – they provide not only joy but valuable life perspectives to me.

Last great book you read: I finished a book earlier called Chasing My Cure, by David Fajgenbaum. It is a very touching and inspiring story. The author was diagnosed with a rare disease while in medical school, with no cure and not even a standard diagnostic methodology. Bearing severe and life-threatening symptoms, he soldiered on, developed the diagnostic and treatment approach, and saved himself. Other than being incredibly inspiring, this book has a perfect combination to fulfill my curiosity toward people and sciences. Dream travel destination: I like to explore different cultures and perspectives. There are many places I want to visit later, as my focus now is taking care of my growing clients and building the business.

INVESTMENT INDUSTRY

The price of persistence Why the next oil shock will be measured in months, not dollars By Ed Ho, CFA

The most revealing fact about a recent oil shock was not the price move. It was the silence that followed.

Crude rose sharply as tensions around the Strait of Hormuz threatened one of the world’s most important energy corridors. Traders repriced risk, governments talked about security of supply and energy equities briefly caught the market’s attention. Then the companies that would have to convert a temporary shortage into new production largely held their course. Budgets stayed intact. Forecasting models did not change. Cash continued to flow toward debt reduction, dividends and share repurchases. The market shouted. Capital allocation barely looked up. That gap is the real subject of oil-price shocks. Financial markets naturally focus on magnitude: how quickly crude moves and whether it crosses US$80, $100 or $120 a barrel. Companies, governments and longhorizon investors must answer a harder question. How long will the new price last? Price measures the intensity of a shock. Duration determines whether it becomes an operating assumption.

What time does to price The economic literature has long distinguished a dramatic price print from a sustained departure from trend.

James Hamilton’s work on oil shocks showed that the largest effects can emerge several quarters after the initial move, when higher energy costs have had time to reach transportation, wages, inflation expectations, monetary policy and consumer behaviour. This is the useful lesson of the 1970s. The decade was not transformative merely because oil became expensive. Oil stayed expensive long enough to change decisions throughout the economy. Companies redesigned supply chains. Consumers changed what they bought. Governments rethought energy policy. Central banks confronted inflation that could no longer be dismissed as transitory. Today’s economy is less oil-intensive. Vehicles and industrial processes are more efficient, services and technology account for a larger share of output, and countries have more alternatives, inventories and hedging tools. A short shock may therefore be absorbed more easily than it was 50 years ago. That raises the threshold for a price move to become economically consequential. It does not make duration less important. It makes persistence the better test.

Aleksy Wojcik, CFA, portfolio manager at Sionna Investment Managers, puts the global backdrop in broader terms. Efficiency and substitution have loosened the link between oil demand and economic growth but have not eliminated the world’s need for energy. “The global energy pie continues to get bigger,” he says, driven by population growth and rising energy use per person. Much of the world still consumes far less energy per capita than North America, Europe, Japan or South Korea. The result is not a simple contest between oil and the energy transition. Natural gas, renewables and nuclear power can all grow while total energy consumption also rises. China and India may expand cleaner technologies while keeping coal and other domestic resources for reliability. AI data centres, reshoring and industrial investment add even more demand for power, infrastructure, equipment and capital. For investors, the implication is not that every energy source must appreciate. It is that transitions occur inside a growing physical system, not outside it. Replacing one fuel can take decades, and the pressure to secure dependable supply can strengthen before substitution is complete.

The myth of the global breakeven

The global energy pie continues to get bigger.

A single global oil price creates the illusion of a single global investment threshold. But the world’s barrels operate on radically different clocks. An existing Middle Eastern field, a new deepwater development, a Permian shale well and a Canadian thermal

project do not respond to the same price in the same way, and national oil companies may produce for revenue, market share or strategy rather than for the returns a publicmarket investor would demand. Wojcik’s estimate is that US$65 to $75 West Texas Intermediate is needed to bring on medium- to long-term resources. He described that range mainly as a fullcycle threshold for the next tier of U.S. shale, covering everything from land and royalties to drilling and development. The best tier-one locations can still work at lower prices, but they are finite and increasingly concentrated among a handful of large operators. That distinction matters. A spike above US$75 may tempt some private shale operators to drill, prove well data and dress acreage for sale. It does not justify a new offshore platform, a pipeline or a multi-decade project. Nor does it mean the marginal barrel will come from the same basin five or 10 years from now. Shale’s advantage is speed; its curse is decline. A well can reach production within months, but Wojcik notes that a strong Permian well may lose 60 to 70 per cent of its output in the first year, with rising water-handling costs and a growing gasto-oil ratio adding pressure thereafter. The investment must earn its return early, or not at all. Long-life projects run on the opposite clock. They demand more capital upfront and

a longer wait for first production but can deliver decades of reserves and cash flow. Duration is embedded twice: in how long a price must remain credible before capital is committed, and in how long the asset will produce once built.

Trained not to trust the spike The industry’s reluctance to respond is not simply caution about geopolitics. It reflects a painful renegotiation of its social contract with investors. During the last build-out, producers routinely spent all their cash flow and sometimes more. Debt-funded expansion and production growth were treated as evidence of success, even when returns were weak. The U.S. shale revolution reinforced the habit by supplying fast, scalable barrels and rewarding companies simply for drilling. Lower prices, investor frustration and the COVID-19 shock broke that model. Producers cut leverage, promised slower growth and redirected cash to shareholders. Wojcik describes the new approach as closer to harvesting: improve the asset base, “sweat” existing

infrastructure and return excess cash rather than chase volume at any price. Travis Wood, managing director at National Bank Capital Markets, sees the same discipline in company budgets, with a focus on both return on capital and return of capital and a preference for “value over volume.” Even after the recent price increase, he found no meaningful change in the capital plans of the companies he follows. Large global producers look similarly restrained: a temporary disruption around Hormuz is more likely to be met by restoring trade flows and drawing on existing supply than by approving a wave of greenfield projects. This may be the best practical definition of duration. A shock becomes meaningful when it changes behaviour that management teams had promised not to change.

Strategic is not the same as bullish The original portfolio question is whether oil is returning as a strategic rather than tactical allocation after years of investor underweighting. The answer is more nuanced than a permanent sector overweight.

A shock becomes meaningful when it changes behaviour that management teams had promised not to change.

INVESTMENT INDUSTRY

A tactical investor reacts to an event: war, sanctions, an inventory draw, an inflation scare. A strategic investor maintains a framework for oil even when it is absent from the headlines. That framework asks what price assumptions are embedded in valuations, whether management can earn acceptable returns at conservative prices, how quickly reserves decline and whether capital allocation remains disciplined. Wojcik contrasts short-term trend-following with a three- to five-year assessment of intrinsic value. “We look at the risk-reward of investing in companies, what is being discounted in their share price today versus our modelling of their intrinsic value in the future,” he says. “When risk-reward is skewed in our favour, we invest, and when euphoria exists, we trim, right-size or eliminate positions.” That is not an argument for owning oil at any price. It is an argument for treating energy as a continuing analytical responsibility. Oil remains cyclical. High prices can weaken demand, encourage new supply and accelerate substitution. A compelling scarcity story can still be a poor investment when it is already fully reflected in the valuation. The strategic allocation is attention itself: the willingness to study a small sector before a crisis makes it fashionable again.

Canada’s pipeline paradox Canada turns the global duration problem into a physical one. Its producers have longlife resources and, in many cases, competitive full-cycle economics. Yet a supportive world price is not enough to unlock major investment when the next barrel may not have a reliable route to market. Wood points directly to pipeline capacity:

“Despite the higher oil prices, the universe has no plans to add capital for growth in this market.” With existing pipes constrained and limiting near-term egress, added production can widen the discount on Canadian crude rather than capture the full international price. This creates a chicken-and-egg problem. Producers want firm transportation capacity and policy support before committing billions to assets that may operate for decades. Pipeline developers and governments need confidence that enough production will exist to justify the infrastructure. Both require decisions that outlast the current price cycle and, often, the government that approves them. Wojcik reaches a similar conclusion from the portfolio side. Canadian thermal projects can be attractive over 10 or 20 years because their reserves are longlived and later modules can share existing infrastructure. Their disadvantage is concentrated at the beginning: larger upfront capital, several years before first oil, and uncertainty about egress, carbon policy, labour and construction costs. The Canadian barrel is a reminder that price can be necessary without being sufficient. The duration of commodity prices matters, but so does the expected duration of market access, regulatory policy and cost discipline. A company cannot finance a 30year asset on a six-week promise.

Watch the budgets, not the tape The next oil shock will arrive as a number. That is how markets communicate urgency and create an immediate set of winners and losers. But the peak price is only the beginning of the analysis.

The durable indicators move slowly: producer budgets, long-term price assumptions, reserve replacement, contracts, inventory policy, infrastructure commitments and the balance between reinvestment and shareholder returns. They show whether the world is adapting to a disturbance or accepting a new regime. There is no universal amount of time that marks that transition. The more practical test is whether those indicators begin to move. By that measure, the recent shock has not yet produced a meaningful change. Wojcik’s global perspective supplies the demand-side tension: a transition toward new technologies is underway, while the world’s total appetite for reliable energy continues to expand. Wood’s Canadian perspective supplies the constraint: even attractive resources do not become investable without durable access to markets. Neither argues that investors should chase the next spike. Their common point is more demanding. Before a price move warrants changing a portfolio, it should first change the behaviour of the companies, governments and consumers that determine supply and demand. The quoted price of oil tells us what a barrel is worth today. Its real price is the length of time the world is prepared to believe it.

Ed Ho, CFA, MSc, is an energy strategist and consultant working at the intersection of finance, policy and the energy transition. A former portfolio manager, he brings an investor’s discipline and a candid storyteller’s voice to complex energy issues, using factbased diplomacy to build understanding and consensus.

Replacing one fuel can take decades, and the pressure to secure dependable supply can strengthen before substitution is complete. 18

AI WATCH

AI-driven portfolio management: Current trends and what comes next By Attika Raj, CFA

Portfolio management has come a long way from the 1950’s reliance on static mathematical frameworks and fundamental analysis to the current quantitative, predictive and adaptive analytics techniques and AI-augmented portfolio management of 2026. However, industry reports such as BCG’s 2026 Global Asset Manager report indicate that asset managers trail banks and fintech firms in scaling AI across core processes, and that the industry remains in an early transition at present. This article examines how AI adoption is shaping the industry and future outlook.

AI adoption and value creation for investment managers According to SimCorp’s 2026 research report, 70 per cent of investment managers deploy AI, but 63 per cent of firms still lack unified data across front, middle and back offices. This critical gap undermines AI readiness. In such scenarios, the value creation and return on investment for AI deployments envisioned by these firms, given their growing AI investments, are in question. Shabnam Sorkhi, CFA, PhD, senior principal at Simcorp, a leading portfolio management solutions firm, explains, “Most firms are creating value through targeted use cases rather than enterprise-wide transformation. The future return on investment is expected to come not only from cost savings, but from faster decision-making, improved risk management, greater automation, enhanced client outcomes and the ability to generate investment insights across the entire portfolio lifecycle.”

Market Maker who develops and operates automated market making systems in Canada, explains, “Building a competitive edge such as a proprietary security-specific dataset and a robust judgment overlay is more crucial to generating better return on investment on AI investment than building sophisticated workflows, since AI accuracy and efficacy rely on its inputs.”

AI. Sorkhi shares that the reason for this vendor consolidation push is that “AI agents can only operate effectively when they can access and act on consistent data across workflows; otherwise, they risk producing fragmented insights and suboptimal recommendations.”

AI augmented portfolio management software capabilities

Prerequisites for utilizing full AI potential

AI-enabled portfolio management software in the modern age promises to radically transform the industry with the advent A crucial prerequisite to fully utilizing AI’s of some fascinating and ultra-powerful potential is the user-friendliness of AI capabilities. Examples include generative agents. This could drive AI adoption and AI solutions for instant insights and efficiency higher. Campbell explains, “AI investment queries like Blackrock’s Aladdin systems need to be intuitive, interactive copilot and strategy analytics solutions like and very simple to use, allowing vital judgment overlays so humans can navigate Planisware Strategic Portfolio Management for creating a roadmap and objectives and control the agents.” view to align investments with strategic User-friendly versions of AI agent workflows themes. Another solution is Simcorp One’s integrated platform, which is designed for asset managers would most certainly to streamline operational workflows and require infrastructure and data support. provide real-time cross-asset data access The 2026 Simcorp report highlights that and total portfolio views. 58 per cent of firms are prioritizing vendor consolidation as a prerequisite for scaling

AI systems need to be intuitive, interactive and very simple to use, allowing vital judgment overlays so humans can navigate and control the agents.

David Campbell, CFA, MBA, president and co-founder of ICP Securities, a registered

AI WATCH

AI agents can only operate effectively when they can access and act on consistent data across workflows; otherwise, they risk producing fragmented insights and suboptimal recommendations. The industry is moving from generative AI to “agentic AI workflow systems,” which are more autonomous, requiring little human intervention. In such a scenario, buy-side firms may hesitate to hand over multistep execution workflows to these agents due to risk management and operational challenges. A likely solution would be to adopt controlled, agentic AI workflows bound by risk limits rather than deploying fully autonomous AI agents to execute portfolio management functions. This view is also supported by Sorkhi, who says, “Buy-side firms are unlikely to hand over investment workflows to fully autonomous agents without oversight, but they will increasingly adopt governed agentic workflows where agents execute multi-step tasks within clearly defined controls.”

AI may build that confidence by being on average more correct than a human, but there is a magic line of errors which, if crossed, can dwindle market confidence in AI agents.”

Reshaping risk management

This is also reiterated by Sorkhi: “The key issue is not the use of AI itself, but whether it is deployed within a governed and transparent operating model. AI agents should operate within controlled workflows, trusted data environments, auditable decision processes and clear human accountability.”

As AI agents handle more complex workflows, sufficient model risk management is also expected to become complex and difficult. Hence, the future outlook includes agentic AI enhancements beyond the traditional explainable (XAI) techniques (SHAP, LIME, etc.) so risk and compliance teams can trace exactly why a recommendation was made. Sorkhi also notes, “The focus is moving beyond traditional explainability techniques toward governed agentic workflows that provide end-to-end traceability of how a recommendation was produced.” The traceability, explainability and transparency are not only crucial for regulatory compliance, but also to generate market and investor confidence. Campbell explains, “Markets run on confidence.

Ethical concerns and resource constraints outlook As institutional investment managers utilize large-scale AI agents and infrastructure, questions arise about the ethical impacts of these on small investors, financial market integrity and society at large. The advent of AI, like any other technology, is seen as a harbinger of progress, sophistication, increased efficiency and cost reduction, especially in financial markets. However, it must be deployed responsibly within robust risk frameworks.

Campbell presents an optimistic view: “During the last five decades, as institutional money managers have become sophisticated, they have also striven to establish best practices to safeguard investors and client interests. For example, just as CFA Institute established the CFA Code of Ethics in the past, regulatory bodies or professional organizations may come up with an AI usage code or standards to safeguard the broader society interests.”

As the computing and energy demands of AI infrastructure skyrocket, questions also arise about the environmental sustainability of scaling these autonomous agents. Campbell envisions, “This question is bigger than the industry, and in due time, a central organization may be established in future to create global standards or a framework and regulate AI resource use.” Technological innovations as well as industry focus may also accelerate their efforts to resolve these constraints as value creation of using AI agents solidifies. Firms may focus on producing efficient, agentic workflows with lower computing costs and demands and technological innovation may reduce future demand. This optimism arises from past technological evolution trajectories, such as how much physical space 1970s computers required compared to presentday laptops, or how a 500 gigabyte hard drive was a massive data-centre concept in the early 2000s compared to being a baseline laptop capacity today. As we find more benefits in a technology, we have historically worked to make it cheaper and easier. Going by the same principle, if the industry sees true value in AI augmentation of its capabilities, more efforts to solve resource constraints will be made.

Attika Raj, CFA, is a seasoned quant finance professional currently working at TD. She has wide experience in quant research and modelling, investment management and financial advisory. Attika also actively volunteers with CFA Institute as CFA grader and Editorial Committee member for The Analyst.

FIXED INCOME

The forgotten asset class: Fixed income in a volatile world By Angha Gupta, CFA, MBA, FSA

For decades, bonds were seen as stability, dependable income and diversification in portfolios. They rarely generated the headlines that technology stocks or speculative alternatives generated.

Fixed income is not one asset class

That is, until the COVID-19 pandemic brought the sharpest global inflation surge in decades and one of the fastest interestrate tightening cycles on record. Government bonds declined alongside equities, liquidity evaporated in parts of the credit market and securities once viewed as defensive experienced significant price swings.

Fixed income itself has become something of a misleading term. The modern universe encompass a wide ecosystem of securities whose risks, return drivers and portfolio roles can differ significantly.

This experience serves as a reminder that while fixed income remains an essential asset class, it is no longer the simple “buyand-forget” allocation many investors remember. Instead, today’s bond market has become broader, more sophisticated and increasingly dependent on active decision-making. The days when bonds could simply be viewed as the “safe” portion of a portfolio have largely passed.

The growing diversity of the asset class has created opportunities for investors, but it has also added complexity. Consider two hypothetical investments during the pandemic period: a bond issued by a highly leveraged hotel real estate investment trust and a bond issued by a large technology company. Both securities are labelled bonds, but their outcomes differed heavily. Hotels faced shutdowns, collapsing travel demand and severe cash flow pressure, while many technology companies benefited from the acceleration of digital adoption during the pandemic.

This article shares insights from experts Jeff Carter, CFA, portfolio manager, deputy chief investment officer and chief risk officer at Canso; Gary Morris, CFA, president and chief investment officer at Cidel Asset Management; and Leanne Ongaro, CFA, vice-president, portfolio manager – fixed income at CI Global Asset Management. Increasingly, success depends not on whether an investor owns bonds, but on which bonds they own, how they interact with one another and whether they are positioned for the market environment ahead.

Why the old bond playbook no longer works For much of the last 40 years, declining inflation and steadily falling interest rates created a supportive environment for bond investors. Coupon payments generated regular income, while falling yields boosted bond prices, creating an additional source of capital appreciation. Investors could achieve attractive returns in a passive portfolio without any complex portfolio decisions. That environment has shifted. Persistent inflation, shifting central bank policy, geopolitical uncertainty and changing patterns of global capital flows have introduced new sources of volatility into fixed income markets. While many segments of the bond market generally exhibit lower volatility than equities, they are not immune to significant drawdowns.

Traditional government bonds remain an important foundation for many portfolios, but they now sit alongside investment-grade corporate debt, high-yield bonds, preferred securities, private credit, floating-rate loans, structured products and convertible securities. Some behave more like equities during periods of economic expansion, while others are designed to perform during market stress.

Let’s also explore private credit. Once largely confined to institutional investors, private credit has become increasingly accessible to retail investors seeking enhanced yields. This can also be seen in the numbers, where global private credit assets under management grew from roughly US$1.2 trillion in 2020 to nearly US$2.0 trillion by mid-2024. Yet those higher yields often come with trade-offs, particularly around liquidity. Unlike publicly traded bonds, private credit investments may be considerably harder to sell during periods of market stress – a characteristic that can become particularly important precisely when investors need flexibility most. Further, securities that appear similar on paper can produce vastly different outcomes. A callable bond and a convertible bond issued by the same company may have similar maturities and identical

underlying credit quality, yet one may be driven primarily by interest rate changes, while the other behaves more like an equity investment because of its conversion feature. The takeaway is that sector exposure, credit quality, maturity, duration and embedded features all matter. Treating fixed income as a homogenous category can lead to surprises during periods of stress.

The days when bonds could simply be viewed as the “safe” portion of a portfolio have largely passed.

Looking beyond yield For many investors, the word “risk” in fixed income means interest rates. But interest rate sensitivity is only one piece of a much broader puzzle. There are five risks that deserve attention: • Interest rate risk – bond prices generally move inversely to interest rates, i.e., when yields rise, bond prices fall • Duration risk – longer-maturity bonds are typically more sensitive to rate changes than shorter-maturity bonds • Credit risk – the risk that an issuer’s financial condition deteriorates or it fails to repay its debt • Liquidity risk – the risk that an investment cannot be sold quickly at a reasonable price during stressed markets • Reinvestment risk – the risk that future income must be reinvested at lower yields For professional managers, understanding these nuances is essential. For individual investors, it highlights why fixed income deserves more attention than it often receives.

Passive indices also allocate more capital to issuers with the most outstanding debt — meaning investors may unintentionally concentrate exposure in the largest borrowers, not necessarily the strongest ones. Active managers can adjust duration, rotate between sectors and shift exposure as valuations change. This flexibility has become increasingly valuable, because opportunities rarely emerge uniformly across the fixed income market. Perhaps the biggest fallacy in today’s fixed income market is that a higher yield automatically represents a better investment. The reality is considerably more nuanced. Experienced credit investors often begin by asking a different question: Why is this bond offering a higher yield in the first place? Higher yields often compensate investors for greater risk, whether through weaker credit quality, lower seniority, embedded options or reduced liquidity.

Why active management has returned to centre stage For much of the long bull market in bonds, passive strategies benefited from declining interest rates and broad market exposure. Today’s environment demands something different. Inflation expectations shift. Central banks adjust policy. Credit spreads widen and contract. Liquidity can disappear overnight.

Occasionally, markets become overly pessimistic. Periods of heightened volatility can create pricing dislocations where fundamentally strong issuers trade at yields that exceed their underlying risk. Identifying these opportunities requires detailed credit analysis and a deep understanding of how individual securities are structured.

FIXED INCOME

Jeff Carter, CFA, is a portfolio manager, deputy chief investment officer and chief risk officer with progressively senior roles since he joined Canso in 2015. Prior to Canso, Jeff spent over 17 years at Bank of America Merrill Lynch in various trading roles and was responsible for the bank’s Canadian Commercial Real Estate securitization functions.

Conversely, securities that appear attractive based solely on their yield may carry risks that are not immediately obvious. Private credit illustrates this balance particularly well. As Ongaro notes, “If a yield appears too good to be true, there is often an underlying reason.” For investors, the lesson is simple: yield should be the beginning of the analysis, not the end.

Security selection matters more than ever One theme emerged consistently among all three experts interviewed: security selection has become a defining characteristic of successful fixed income investing. Two bonds can offer nearly identical yields while presenting very different risks. Even two bonds issued by the same company may offer very different levels of protection. Beyond the issuer itself, investors should consider factors such as credit quality; maturity and duration; liquidity; seniority within the capital structure; covenant protections; embedded options such as calls, puts or conversion features; and expected recovery values should financial conditions deteriorate. Market volatility can also create opportunities. Periods of stress frequently produce indiscriminate selling as investors seek liquidity or reduced risk exposure. During these episodes, prices can temporarily disconnect from underlying fundamentals. Active managers often search for these dislocations by examining unusually wide credit spreads; pricing differences between comparable securities; inconsistencies along an issuer’s yield curve; securities with stronger fundamentals than current market prices imply; and sectors where market sentiment has become overly pessimistic. These dislocations can create opportunities, but only for investors who understand the underlying structures.

Leanne Ongaro, CFA, vice-president, portfolio manager – fixed income, began her career with CI in 2004, joining the CI Global Asset Management portfolio management team in 2007. She is responsible for investment-grade fixed income assets, focusing on corporate bonds and preferred shares.

A different way to think about bonds For investors, the implication is clear: successful fixed income investing is increasingly about understanding what you own, why you own it and how it fits within your broader portfolio.

The evolving role of bonds in portfolios Despite recent challenges, fixed income remains relevant. If anything, today’s higher yields have strengthened the case for bonds within diversified portfolios.

The last five years have shown that fixed income is no longer the quiet corner of the investment universe. It is broader, more dynamic and more nuanced than ever before. For investors willing to understand that complexity, it may offer more opportunities than at any point in recent memory.

Higher interest rates have restored much of fixed income’s traditional income-generating role. While volatility remains a consideration, today’s yields provide investors with a stronger foundation for long-term returns than the ultra-low-rate environment that followed the global financial crisis. Technology is also reshaping the market. Advances in electronic trading, data analytics and artificial intelligence are making increasingly sophisticated strategies accessible to a broader range of investors. As Morris notes, however, “Technology is unlikely to replace experience. Understanding how different risks interact will remain essential as the market continues to evolve.”

Gary Morris, CFA, MBA, is president and chief investment officer at Cidel Asset Management, leading the firm’s investment strategy and overseeing its investment team. With more than three decades of experience in fixed income investing, he has held senior portfolio management roles at leading Canadian financial institutions and founded the independent fixed income firm Lorica Investment Counsel.

Angha Gupta, CFA, is an associate director at Fitch Ratings. She holds an MBA from Ivey Business School and is an FSA Credential Holder from the IFRS Foundation. She is the features editor on the Editorial Committee at CFA Society Toronto and events director at Ascend Canada. 2026 CFA Society Toronto. All rights reserved. The Analyst | Fall 2026

GLOBAL MARKETS

Capital rotation: Follow the money, not the economy By Ryan Sheriff, CFA

With a credential earned, real education begins There is a rite of passage for newly minted CFA charterholders. It arrives when the realization sets in that years of rigorous study have only scratched the surface of what drives markets. Financial theory is elegant. The Capital Asset Pricing Model and Modern Portfolio Theory are clean, logical frameworks. But as practitioners quickly learn, elegance rarely survives contact with real-world markets. The year 2026 offers a case in point. Finance textbooks posit that equities, bearing greater risk than bonds, should compensate investors accordingly. This equity risk premium serves as the foundational logic behind every multi-asset portfolio. Yet earlier this year, the trailing earnings yield on U.S. equities dipped below the yield-to-maturity on U.S. Treasuries. The riskier asset was – by this measure – compensating investors less. It is exceptions like this that earn economists the charge of “physics envy.”

There is a yearning to reduce complex and dynamic systems to repeatable laws, only to be humbled by the markets’ refusal to comply. Sir Isaac Newton understood the feeling. After surrendering to the mania of the 1720 South Sea Company bubble and watching a fortune evaporate, he remarked, “I can calculate the motion of heavenly bodies, but not the madness of people.” Against this backdrop, this article explores capital rotation and how flows shift across asset classes throughout economic regimes. Through conversations with Juan Correa, chief strategist of global asset allocation at BCA Research, and Kevin Headland, CIM, co-chief investment strategist at Manulife Investment Management, The Analyst examines not only what happens, but what drives these shifts – and what investors can take away for the cycles ahead.

Capital rotation in theory The theory of how capital flows across market regimes is well-documented. Stagflation, characterized by rising inflation alongside slowing growth, is challenging

The gap between investment theory and practice explains why tactical asset allocation has a reputation problem.

for both equities and bonds. A Goldilocks environment of rising growth and contained inflation benefits both. An overheating economy favors equities over bonds. And in a slowdown, bonds generally outperform. Over the long run, both asset classes are anchored by fundamentals. For bonds, the starting yield-to-maturity is the clearest guide to long-term returns. As Correa notes, period-to-period deviations come down to interest rate expectations. A growth slowdown matters not because growth is slowing, but because the market anticipates rate cuts. An overheating economy sends the opposite signal. A stagflationary environment constrains the central bank’s ability to ease even as growth deteriorates, punishing bonds from both sides. For equities, Correa frames long-term returns as a function of earnings growth and changes in the price multiple. With earnings generally growing through most periods, equity returns across regimes are primarily driven by changes in price multiples. In stagflation, the risk-free rate stays elevated while the risk premium rises, compressing multiples from both sides. In a slowdown, the equity risk premium initially widens as fear takes hold, then reverses as investors price in central bank intervention. The crash of 2008 and the junk rally of 2009 illustrated both ends of this dynamic.

GLOBAL MARKETS

When liquidity is ample, a structural bid underlies markets. When liquidity is scarce, the opposite holds. Dramatic examples of overleveraged hedge funds receiving margin calls and unwinding positions make the headlines. Regime change The gap between investment theory and practice explains why tactical asset allocation has a reputation problem. Its track record has been underwhelming and easy to dismiss as market timing dressed in academic language. Correa’s own research provides empirical grounding for that skepticism. A BCA study of 79 U.S. public pension funds managing US$3.2 trillion in assets from 2008 to 2022 found that the value derived from tactical asset allocation was, at best, marginal. It was strategic asset allocation, the longterm policy mix, that explained nearly all the performance differential between top and bottom performers. “Prior to COVID, you could look at asset allocation like a 100-piece puzzle,” Headland explains. “You had certain economic factors and signals; it was almost foolproof. Now it is a 1,000-piece puzzle.” The twofactor, four-quadrant model of growth and inflation no longer captures the full picture. Geopolitical risk, the proliferation of retail investors and the ease of access to exchange-traded funds have made sentiment and momentum dominant forces in asset prices.

policy made a static 60/40 strategy difficult to beat. The 2020s have been fundamentally different: elevated volatility, wide dispersion across asset classes and geographies and asynchronous global cycles driven by geopolitical fragmentation. “There is more alpha in tactical rotation going forward,” says Correa, “and more investors are starting to realize it.”

Liquidity conditions are critical While long-run fundamentals endure, tactical asset allocation operates in the shorter-term world of changing multiples and risk premiums. And it is liquidity, Correa argues, that ultimately drives those shorterterm moves. His definition is deliberately broad: liquidity is the capital available and willing to flow into risk assets. When liquidity is ample, a structural bid underlies markets. When liquidity is scarce, the opposite holds. Dramatic examples of overleveraged hedge funds receiving margin calls and unwinding positions make the headlines. But Correa notes that the genuine drivers of liquidity are fiscal policy, monetary policy, corporate balance sheets and household behaviour. The aggregate conduct of these actors shapes the liquidity backdrop far more than any single forced seller.

And yet both Correa and Headland make a compelling case for a revival in tactical asset allocation. The 2010s were, in Correa’s words, a “purely beta world”: synchronized “That willingness to step in has been a big global business cycles, compressed return support for markets,” Headland notes, dispersion and accommodative monetary referring to the structural shift since 2008 in

governments’ and central banks’ readiness to intervene at scale. The result is that sentiment, rather than fundamentals, increasingly shapes capital flows. This heightened policy intervention carries risks. Sentiment-driven flows can push price multiples and risk premiums to unsustainable levels. “When it is all sentiment-driven,” Headland cautions, “there is no foundation to support the trade.”

Historical analogues Four market episodes spanning three decades support the case that liquidity conditions, more than economic fundamentals, valuations or even the nature of the underlying shock, have been the primary determinant of market returns. The dot-com era and the COVID-19 recovery bookend this dynamic. In the late 1990s, easy monetary conditions and financial innovation inflated a market well beyond any fundamental anchor. Equity valuations were already stretched by 1997, three full years before the peak, yet the market continued higher as speculation fueled a self-reinforcing cycle. What finally pierced the bubble was not a valuation correction but an underappreciated liquidity shock: the mass expiration of initial public offering lock-up periods flooded the market with shares, abruptly reversing the private liquidity that had sustained the boom. Two decades later, the policy response to the COVID-19 pandemic demonstrated the opposite force. The largest fiscal and monetary liquidity injection since the Second World War turned what might have been a prolonged bear market into a positive year for equities. The sharpest economic contraction in modern history was overwhelmed not by improving fundamentals, but by the sheer volume of liquidity deployed.

The 2008 crisis illustrated the most dangerous variant: liquidity risk that is hidden until it is catastrophic. “The biggest risk normally comes from things you think are low risk but are not,” says Correa. Mortgage-backed securities appeared safe, enabling extreme leverage to accumulate across the financial system. When they proved far more volatile than assumed, that leverage amplified losses into a systemic balance-sheet recession – a fundamentally different animal from an ordinary economic downturn. The 2022 stagflation shock made plain that the post-2008 reliance on policy intervention has limits. With inflation constraining the central bank’s ability to ease, both equities and fixed income sold off simultaneously and traditional diversification failed. When the liquidity backstop is removed, the rules of the game change.

Principles, not playbooks The consistent advice from both Correa and Headland distills into three principles: be flexible, maintain a wide aperture and apply healthy doses of human judgment. Flexibility matters because constraining portfolio construction also constrains alpha potential. The pension funds in Correa’s study that struggled most with tactical rotation were those most bound by their allocation targets. Their “tactical” rotations amounted to little more than glorified rebalancing. Investors anchored to static weights and a narrow set of traditional asset classes will face the same limitation in capturing the dispersion the 2020s are producing. A wide aperture means resisting any single signal. Rotation strategies that relied solely on historical returns in economic regimes were bound to struggle, missing the

Rotation strategies that relied solely on historical returns in economic regimes were bound to struggle, missing the liquidity signals that so often drive shorter-term outcomes.

liquidity signals that so often drive shorterterm outcomes. The BCA MacroQuant model aggregates hundreds of inputs across technical indicators, monetary conditions, business cycle measures and valuations, illustrating the breadth required. But even then, Correa finds the model most useful not for its aggregate score but for understanding what is driving it. “The model is an input to calibrate judgment, not a substitute for it.” Headland concurred. The Multi-Asset Solutions Team at Manulife pairs quantitative models with qualitative insights from specialized global research “hubs.” This ensures that real-world and on-the-ground context informs decisions rather than relying solely on historical data patterns. Capital rotation is not a science. It may be fitting, then, that in a profession where theory so regularly breaks in practice, the most dangerous words in finance occasionally prove to be the most useful. “This time is different” is rightly treated as a warning against complacency. But in the world of tactical asset allocation, the willingness to ask what is genuinely different, and act on it, may be exactly what separates those who capture the rotation from those left behind by it.

Ryan Sheriff, CFA, CAIA, MBA, is a senior director on Manulife’s Global Manager Research team. He has over 12 years of experience in portfolio management and investment due diligence, including directing allocations across a range of public and private markets.

Why infrastructure belongs in a modern investment portfolio

Investing in private infrastructure has historically been the domain of institutional investors and pension funds – until recently. The appeal is clear. From airports and utilities to modern data centres, these assets provide essential services that are governed by long-term contracts or regulation. The result: stable, inflation-protected cash flows, and portfolio diversification that few asset classes can match. Barriers to access for this asset class are now decreasing thanks to new investment fund structures, including open-ended vehicles such as mutual funds with lower minimum investments. “What has changed isn’t the investment thesis, but access. Retail investors are being invited in,” says Darrin Pickett, portfolio manager, Global Infrastructure Investments at RBC Global Asset Management. As investors rethink diversification in portfolios tailored for today’s markets, he says infrastructure – with its low correlation to stocks and bonds – has emerged as a compelling alternative. “A convergence of structural forces is turning infrastructure into one of the defining investment opportunities of the decade,” Mr. Pickett says. “Behind the surge in interest lies a powerful set of long-term drivers, sometimes described as the four D’s: digitalization, deglobalization, decarbonization and demographics.” For example, the push toward net-zero emissions is fuelling massive investment in grid modernization, energy storage and renewable power generation. At the same time, the digital economy demands an ever-expanding backbone of fibre-optic networks and mobile towers. Meanwhile, geopolitical tensions and supply chain disruptions are increasing, prompting many countries to invest more in domestic infrastructure, from energy systems to manufacturing capacity. Population growth, particularly in urban centres, also continues to strain existing

infrastructure, calling for expansion and renewal of water systems, transit and other critical systems. A recent PwC report states that annual global infrastructure spending is forecast to rise to US$6.9-trillion in 2050 from US$4.4-trillion in 2024, driving a cumulative investment of US$151.1-trillion, translating into a deep and growing pipeline of opportunities. Governments alone cannot fund the entire increase in infrastructure spending, so private capital will play an increasingly important role going forward. Infrastructure’s central role in both economic competitiveness and national security is creating longterm, policy-backed investment opportunities. To Mr. Pickett, the areas of digital infrastructure, energy transition and regulated utilities (especially those investing in grid expansion) offer some of the best opportunities in today’s market. Geographically, he says, North America, Europe and Australia remain the most attractive regions due to transparent regulatory frameworks. To harness those opportunities, the RBC Global Infrastructure Fund focuses on contracted or regulated infrastructure in Organisation for Economic Co-operation and Development (OECD) markets. It targets the lower end of the risk spectrum and includes companies that span toll roads, airports, ports, communication towers, fibre to the home, smart metres, water desalination, renewable power and regulated utilities.

Why infrastructure belongs in a modern investment portfolio

Mr. Pickett says RBC GAM maintains a unique approach to sourcing and executing investment transactions. In its partnership-based and open-architecture model, the fund co-invests alongside leading institutional investors, pension funds and sector specialists.

Infrastructure investing isn’t without risk, however. Regulatory changes, political pressures and financing costs can all affect returns. These are capital-intensive, longduration assets, and performance is measured over years, not quarters.

“This structure expands access to a global deal pipeline, enabling selectivity across geographies and sectors, and ensuring that the most capable partners are matched to each opportunity,” Mr. Pickett says.

Still, for many retail investors the question is no longer whether infrastructure belongs in a portfolio, but how much. Institutional allocations may provide a useful benchmark, typically in the range of 10 per cent or more. For individuals, Mr. Pickett says a 5 to 15 per cent allocation is often a reasonable starting point, depending on risk tolerance and investment horizon.

Despite the growing popularity of infrastructure investing, many retail investors still have misconceptions about the asset class. Some see it just as roads and bridges, or mistake it for a strategy with low returns. Some also view it as a short-term investment opportunity, which can be traded tactically like an ETF. however, its strength lies in its riskadjusted returns, combining income, inflation protection and downside resilience over the long term in a way that few asset classes can match.

The key is to treat infrastructure as a complement to equities and fixed income, one that can enhance diversification while providing a steady stream of income. “Infrastructure investing rewards patient investors. It’s best viewed as a strategic allocation, not a tactical trade,” Mr. Pickett says.

Produced with RBC Global Asset Management by Globe Content Studio the content-marketing division of The Globe and Mail. Originally published June 4, 2026. The Globe’s editorial department was not involved.

This article is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC Global Asset Management Inc. (RBC GAM) takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. Please consult your advisor, read the prospectus, and Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®/™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc., 2026 (07/2026) 026GAM034_GlOBEADvISORARTIClE_WhyINFRASTRUCTUREBElONGS_ACC_v507/30/2026

DIVERSE DIVIDENDS

ETF leadership legend Global X Canada president and CEO Rohit Mehta is combining global influence with local expertise to provide Canadians with innovative investment solutions By Lauren Huneault (Editor’s Note: This article is based on Season 1, Episode 4 of Diverse Dividends, CFA Society Toronto’s video podcast series, featuring Rohit Mehta)

There are those who are born natural leaders, destined for success, and who inspire others to achieve remarkable things. Rohit Mehta, president and CEO of Global X Investments Canada (Global X Canada), a financial services company that offers exchange-traded funds (ETFs), is such a leader. “What I knew I loved early on was the financial services industry and interacting with people,” says Mehta. “I had different opportunities to lead, I really loved that, and I feel like I excelled at it. At that point in time, I started seeing an opportunity to lead an organization, and many of my mentors would say, ‘You have the skill set or the disposition to be a successful leader in this industry.’” Looking at Mehta’s career trajectory and everything he has accomplished, it’s safe to say Mehta and his mentors have been proven right.

“That really provided me with a foundation on the wealth side. It really solidified my love for this industry and my passion for it,” says Mehta. After university, that passion led him to the asset management world, starting at VenGrowth Asset Management, which later became First Asset. There he spent 10 years, focusing on ETFs and taking on increasingly senior positions, up to president, along with a role within the executive team at CI Financial. After a stop at Guardian Capital LP, Mehta landed in his current role leading Global X Canada (Horizons ETFs at the time).

Early foray into finance Mehta’s start in the financial services industry was an auspicious one. In high school, he met his parents’ financial advisor, and, after asking many insightful questions, was offered his first job: a summer position with RBC Dominion Securities. The only catch? He had to wait until the following summer, when he would be eligible at the age of 17.

The three Ps of leadership

That summer at RBC Dominion Securities in Sarnia, Ontario, where Mehta grew up, led to additional summer positions, including during his university years at Western University, in the London, Ontario office (where he also happened to meet his wife).

Global X Canada has more than $40 billion in assets under management and more than 100 ETFs in its portfolio, making it clear that Mehta and the rest of the leadership team have established a strong path to success in the market. He says leadership needs to be encased

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Mehta says support from his parents, immigrants to Canada “who came here to build a family and to give us opportunities”; his wife, who is his biggest supporter and advocate; and his mentors have helped him to build his impressive career and become a trusted and proven leader.

Under Diverse Dividends:

in honesty and integrity, and that it comes down to three foundational principles. “As we build at Global X, we’ve really framed it around three p’s: performance culture, product innovation and the power of data. As we build as an organization, those are our guiding values. Performance culture turns into transparent, inspired, empowered, accountable, rewarded [teams],” explains Mehta, who also highlights the importance of diversity of thought in achieving common goals.

Building brand awareness Mehta played a key role in the 2024 organizational rebrand from Horizons ETFs to Global X Canada. He says the driving force behind the change was building awareness of its parent company, South Korea-based Mirae Asset Global Investments, and the global firepower that comes with it. Shortly after Mehta joined Horizons ETFs, he went across the country to connect with partners and clients, where he learned there was very little understanding of Mirae, which had purchased the company in 2011. “I started sharing facts and information about Mirae – we’re an $80 billion organization, we’re privately owned, we have businesses in 19 markets around the

Under CFA Society Toronto: ©

Diverse Dividends is CFA Society Toronto’s new video podcast series from The Analyst, which aims to explore the rich mosaic of the finance and investment industry. Each month, Diverse Dividends features candid, indepth interviews with industry leaders across the finance and investment world as they share their insights on mindsets, strategies, and lessons that drive their success. world, we’re one of the largest ETF providers globally, with over $150 billion in global ETF assets,” notes Mehta. This prompted the executive team to come together in 2023, and the rebrand launched on May 1, 2024, when the company also rolled out 17 new ETFs. “Ultimately, if I frame what it brought together, it was our global strength and our local expertise. And the global strength today is incredibly important for organizations. They want the comfort of knowing you have this global strength to tap into, whether it’s for resources, whether it’s for knowledge – just overall, a global network is incredibly important. And then we’re able to couple that with local expertise.”

Preparing for the future Mehta highlights three main trends that will impact the financial services industry in the years to come: the aging population, wealth transfer and technology. He notes that AI is already impacting all facets of life and will continue to take centre stage. “It’s really enhancing how we can do things, whether it’s speed, efficiency, risk management. With that theme in mind, we’ve built solutions, whether it’s trying to get exposure to companies that are in AI infrastructure or that are using AI in their system.” Mehta also notes that the power of innovation will continue to drive Global X Canada forward, highlighting the work of the digital ©

innovation and data analytics group in bringing systems together with a data visualization tool, something that’s being rolled out by Mirae globally.

Why listen? •

Above all else, passion fuels success Along with strong skills, expertise and inspiration, it’s Mehta’s longstanding passion for the financial services industry that has put him in the leadership position at one of Canada’s largest ETF providers. His advice to anyone who wants to carve out their own path, whether in this industry or any other, is to make passion the priority. “Be curious, take initiative and find your passion,” advises Mehta. “Figure out what you want to do, and it’s okay to try something and figure out that it’s not right for you. The career life is a long period of time, so it’s important to find something that you really love doing.”

•

ctionable insights: Gain A concrete ideas to boost resilience, leadership, and innovation. Unfiltered dialogue: Learn how industry pioneers navigated setbacks and seized opportunity. Community connection: Join fellow members in thoughtful discussions that spark inclusive change.

Where to find us Listen during your commute, enjoy it at home for a deep-dive session, or watch Diverse Dividends for a richer, more immersive experience. Join our growing community and take away actionable ideas that can transform both your mindset and your bottom line. Podcast apps: Subscribe on Apple Podcasts, Spotify, SoundCloud, or YouTube • Online: Stream full episodes at cfatoronto.ca •

Don’t miss a single episode! Tune in to Diverse Dividends wherever and however you love to listen and reap the dividends of diverse experience!

ADVOCACY CORNER

CFA Societies Canada Quarterly Update What’s new with advocacy at CFA Societies Canada? Advancing investor protection, industry professionalism and market integrity across Canada, CFA Societies Canada focuses attention on pressing advocacy files dominating the regulatory agenda. Ensuring fair, equitable and sustainable outcomes for stakeholders is more important than ever. Through our growing relationships with policymakers and regulators, we are working on several important initiatives. Below is a summary of three areas where we have recently provided comment letters. To see the comprehensive catalogue of our commentary letters, visit us online at cfacanada.org/advocacy.

Published CFA Societies Canada comment letters OSC – Consultation on a MachineReadable Regulatory Dataset The Canadian Advocacy Council (CAC) supported the Ontario Securities Commission’s (OSC) proposed machinereadable regulatory dataset, noting that it could reduce compliance costs, lower barriers to entry and support useful regulatory technology. It recommended publishing the dataset as derivative and non-authoritative, rather than as a substitute for enacted law. The CAC also urged the OSC to design the dataset for AI and automated use with clear metadata on authority, currency and provenance; align it with established legislative data standards; and provide open access to the core dataset. It further recommended a clear correction process, disclosure of any commercial partner’s role(s) and confirmation of OSC ownership of annotations and taxonomy.

CIRO Bulletin 26-0039 – Rule Consolidation Project The CAC supported the Canadian Investment Regulatory Organization’s (CIRO) Rule Consolidation Project and its move toward harmonized, principlesbased regulation across Investment Dealers and Mutual Fund Dealers. Its main concern was that reporting, investigation and complaint-handling requirements could be inconsistently understood and applied unless CIRO issued interpretive guidance timed to be effective for when

the rules take effect. The CAC supported competency-based supervisor proficiency requirements and did not identify implementation impacts that would prevent Mutual Fund Dealer Members from complying on time. It also recommended a post-implementation review 18 to 24 months after implementation to assess consistency, operational impacts and whether the rules were achieving their objectives.

CIRO Bulletin 26-0089 – Proposal to Harmonize CIRO Continuing Education Programs – Phase 2 The CAC supported CIRO’s Phase 2 Continuing Education (CE) Harmonization Proposals, including calendar-year cycle alignment, proration, harmonized definitions, extended reporting timelines, the shift from “credits” to “hours” and expanded continuing education requirements for senior executives. However, the CAC cautioned that the framework appeared overly focused on reducing burden and did not sufficiently replace the eliminated accreditation, audit and topic-list mechanisms with new quality safeguards. The CAC recommended recurring CIRO-developed Continuing Education content on key topics, guidance on appropriate continuing education by registration category and mechanisms to verify participant understanding. It also urged CIRO to add firm-level accountability for systemic continuing education failures ©

and to preserve continuing education compliance status at departure through the National Registration Database rather than eliminating terminated-individual reporting. Other letters filed: • CIRO Bulletin 26-0040 – Proposed Dual Registration Requirements – Proposed CIRO Rules • CSA – Proposed Amendment to National Instrument 55-104 Insider Reporting Requirements and Exemptions Relating to Investment Funds and Certain Structured Products • CIRO Bulletin 26-0066 – IDPC Rules – Proposed Amendments Respecting Client Delivery Obligations

Have your say If you would like to participate in advocacy activity related to these letters or future policy and regulatory initiatives, provide comments on ongoing initiatives, or learn more about volunteer opportunities in advocacy, please contact info@cfacanada.org. Follow CFA Societies Canada on LinkedIn.

NEW MEMBERS

Welcome new members and CFA charterholders CFA Society Toronto would like to welcome and congratulate all new members and CFA charterholders. Visit the online version of The Analyst on our website at cfatoronto.ca/insights-and-updates/the-analyst

New members since May 28 - September 16, 2026

Nadeem A. Abbasi, CFA

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Youssef Bellamine

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Can Ayas

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Zihan Fang

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NEW MEMBERS

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Baljinder jit Kaur

Dr. Rashid Mehmood

Sonia Bhawna Golaub, CFA

Nicholas Roy Kelly

Vedant Nirav Mehta

Alex Jordan Griffith

Shanzeh Khurram, CFA

Aly Khan Junior Merali

Steve Gui-Diby

Dobromir Kichukov, CFA

Arwen Zoë Milne

Ahmet Onur Gultepe, CFA

Rebecca Rose Knebel, CFA

Mehul Mittal

Ishan Gupta

Amirali Koohpaie, CFA

Connor Moore, CFA

Ben Harrison Smith, CFA

Sehaj Kulshrestha

Connor Moroney

Muhammad Hassan

Michael Alexander Kutcher

Charlie Thomas Morrow

Cindy He, CFA

Ana Kvaratskhelia, CFA

Iason Mouzourakis

Robyn Hemminger

Nicholas LaMonaca

Zuhayr Shadaab Mujahid, CFA

Matthew John Holland, CFA

David Langlois

Nasrat Muradi, CFA

Jordan Houle, CFA

Clara Lee, CFA

Bilal Mustafa, CFA

Ko-yi Hsu, CFA

Jielin Lei, CFA

Kevin Na

Huiming Hu, CFA

Ru Xi Li, CFA

Max William Naylor, CFA

Andrew Michael John Hunter, CFA

Qigeng Li, CFA

Kennedy Ann Neichenbauer

Amandeep Iqbal Singh, CFA

Yuhang Li

Thanujan Nesarajan

Martin Oseremen Irabor

Xizi Li

Thanh Tung Nguyen, CFA

Noah Jacka, CFA

Yixin Liang, CFA

Artem Novyk

Abigail Liesbet Maureen Jansen, CFA

Yingxi Lin, CFA

Ramisa Hoq Oishee, CFA

Shan Jiang, CFA

HENGJUN LIN

Obumneme Odira Okonkwo, CFA

Xiaojun Jiang, CFA

Hengjun Lin

Dominic Jiaseng Ong, CFA

Yingwen Jiang, CFA

Peili kelly Lin

Maurice Chinonso Onyeikedi, CFA

Kelan Jiang, CFA

Lu Lin

Ifeanyi Nnenna Otisi

Rui Jiang, CFA

Mun Ka Ashley Ling

Nicolas Douglas Christopher Ouellette, CFA

Aidan Brook Johnson

Odinaka Franklyn Linus-nwokonkwo, CFA

Brian D. Pacampara, CFA

Rincy Joseph

Yuexin Liu, CFA

Cadet Pacouloute, CFA

Anlin Pang

Gagandeep Kaur Sandhu

Charlotte Elizabeth Torrie, CFA

Gokul Parasuraman

Harry William Sandrelli, CFA

Akemini Umoren

Raj Pareshkumar Patel, CFA

Ubaidulla Sathar, CFA

Bertrand Carpio Ungshang, CFA

Neel Patel, CFA

Christopher Thomas Scalzitti, CFA

Xiaoyang Wang, CFA

Robin Pathania, CFA

Royden Semedo

Bo Xu Wang, CFA

Rajlaxmi Mohan Patil

Seyedsobhan Seyedzadeh

Shen Wang, CFA

Alexander Joseph Pavlin

Ansub Shafique

Lingling Wang, CFA

Chantale Pelletier, CFA

Riya Shah, CFA

Xiaoying Wang, CFA

Matthew Salvatore Perillo, CFA

Aryeman Suniel Shah, CFA

Collins Wanjira

Benjamin Stephane Perrais, CFA

Conor Alexandre Shanahan-Guay, CFA

Benjamin Wen, CFA

Suchith Maxon Monthu Pinto, CFA

Mudit Sharma, CFA

Eric Alexander Williams, CFA

William T. Podolsky

Suruchi Sharma, CFA

Christopher Arnold Witte, CFA

Nurdin Premji

Michael R Shea, CFA

Chu Ning Wu, CFA

Prod Prod

Jewin Prashant Sheth, CFA

Chunyi Xia

Ahmad Qaderi

Sagar Shukla, CFA

David Xiao

Zhen Qiao, CFA

Iurii Shykota, CFA

Liyan Xie, CFA

Sandesh John Rajanathan, CFA

Adam Gregory Siek, CFA

Youcef Yahya, CFA

Raymond Rajaram, CFA

Gurshaan Singh, CFA

Shi Hui Yang, CFA

Rajvinder Kaur

Shrey Singhal

Jonathan Yang, CFA

Munib Rashid

Abhishek Singla, CFA

Arnaud Nelor Youmssi Wafo

Robin Yashpal Rawat

Iain Hart Agostino Smith, CFA

Hamoda Youssef

Tatiana Razmashkina

Michael Spagnoletti

Yong Hai Yu, CFA

Akhil Jack Regi, CFA

Kevin Grant Spiering, CFA

Jeremy Gonzales Yumul, CFA

David Frank Rhodes, CFA

Nathaniel James Stein, CFA

Yihang Zhang, CFA

Adrian Riverso, CFA

Jolaade Sulaiman, CFA

Victor Yuyang Zhang

Sofiia Romanovska

Azeem Amir Ali Sutar

WenJing Zhao

Neville Rose

Nour Ali Yousef Taher, CFA

Yinjia Zhu, CFA

Francis Roy

Duncan Richmond Tait, CFA

Yibei Zhu, CFA

Lucy Ruan, CFA

Hao Bin Tang, CFA

Hongyi Zhu

Hayssam Sabra, CFA

Carlos Enrique Tapia Mechato

Rima Zubaidi

Samim Sadeghi

Jonathan Michael Taylor

Andrew Alexander Sage, CFA

Godfrey Goodluck Temba

Arni Saha, CFA

Vaikunthan Thanarajah

Rahul Saili, CFA

Audie Desean Cecil Thomas

Alireza Samanian

Evan Bucosky Tighe

| Fall 2026