VISION 2026: Global playbook 2026: Strategies for changing markets - David Tulk, Ilan Kolet

Ilan Kolet: [00:00:00] Hey, folks. Thanks, everyone, for joining. You're used to seeing three of us on stage. One of the advantages of us having one brain and being such a close-knit team and having this mind map is that when one person has to step aside, the conversation continues. I'm here with my friend of 24 years, David Tulk, to really get into things. Premier Ford mentioned a lot of really interesting topics, very different world than a year ago. Nobody buys me pizza but anyway, very different world than a year ago. What's the framework? How are we thinking about the world as it is now versus a year go? Take us through how we deal with those significant changes in the context of our process and portfolios. 

David Tulk: [00:00:50] First, let me just absolutely welcome everybody in the room as well as online. It's a very different world than when we were sitting here on this stage last year. I think a lot about the start of the year also and it kind of reminds me of a tweet that I came across, the first 10 years of January have exhausted me. The irony with that tweet is that tweet was sent out on January 17th so things have only escalated since then. I think it just speaks to the type of world we're navigating. When we're dealing with a lot of the inherent chaos in markets I think it's really just important to ground yourself in your investment process, try to take as much emotion out of it as possible, just really focus on that process. When you think of our team and our process, I think we've described this numerous times  but I think is good to reinforce it. Basically, we look at the world of investing through four different lenses. 

[00:01:45] First, and the one that's closest to our heart as reformed economists is the macro. We think about business cycle, we think about central banks, we think about inflation and how all of those different elements impact the performance of financial markets. Then we marry that top- down approach with all of the analysis we pull from underlying managers and analysts. I think that is an exceptionally important part of our process because it does differentiate us. We have analysts around the world who are meeting with companies and they're kind of giving us a real-time test of the macro thesis. We can have a macro theme but then we can talk to companies and say, are you actually doing what the macro data is suggesting you are? That's a nice complement to take those two parts together.

[00:02:29] We also pay a fair bit of attention to valuations in a relative valuation context, stocks versus bonds versus commodities. Why that's helpful is that it just makes sure that the investment theme we have has the right price. That's the motivator for us to follow it or to shy away from it. Finally, sentiment. We tend to be somewhat contrarian by nature so we tend to want to discount the market when the market knows something it shouldn't. We've seen lots of examples of that over the years as we've taken the other side of really important themes. That's the theory as it stands.

[00:03:04] To put it into practice, I think the most important way to think about it is just maybe roll the clock back and you see, hopefully, on the slide, we can pull up our positioning for our Global Balanced Managed portfolio, what this slide shows is, basically, the overweights and underweights we have across regional equity markets as well as across the fixed income portion of the portfolio, and as well to the currency. If we rewind the clock a little bit back about a year or so and think a bit about what we've done, there's really two major investment themes that you can see by comparing the diamonds in the chart to where we sit today. First and foremost is really just embracing that notion of US dollar debasement. This was a theme that we had earlier on last year. We were overweight US dollars, overweight US equities. We recognized that that was not the likely scenario and we adjusted very quickly.

Ilan Kolet: [00:03:57] Right. I mean, it's fascinating. The dollar debasement theme, the change in our currency positioning now versus 12 months ago is a central and very significant theme that we focused on. I think there's a statistic that really helps exemplify how big of a change this is. We manage, as we discussed, about $100 billion in multi-asset class fund of funds. In the first six months of last year we traded $47 billion of funds, futures and ETFs. Again, these are tactical funds and when the process requires a change in positioning we'll make those changes, as you point out.

David Tulk: [00:04:37] You can see in the slide, I mean, the most notable change in the diamond that extends the access to the downside is how we filled in the underweight to the Canadian dollar. You can also see it's also underweight US equities. We'll dig into a lot of that dollar debasement story as well. Part of that increase in the allocation to Canada is also reflected as that emergent theme that was very much echoed by the Premier earlier this morning. When we think a little bit about how the narrative around Canada has shifted from one where we have been cautious for a number of years to now where we think it's, arguably, darkest before dawn but the rate of change is something that we want to bring into the funds and something we'll also dig into as well. That kind of sets you up for how we see the world today. Let's just talk a bit about where we're going from here.

Ilan Kolet: [00:05:22] We'll dig into the Canada thesis as well. One of the pillars that you mentioned, the world that we all come from, 20+ years of combined central bank experience, is the macro. We're all, as you mentioned, reformed economists now on this side of the street. The macro, it doesn't feel that bad. I kind of describe the macro right now as a little bit like a meal you get on an airplane. Not really great but not super awful. I've taken too many flights maybe. Again, the way I think about the macro right now is central banks, from the macro perspective central banks have likely stopped hiking. The job market has not really imploded, it's fine. Inflation is much better than it was before. Fiscal stimulus is coming down the pipeline. From that perspective I think about macro as being, I would say, fairly supportive. Can you say the same with respect to that bottom-up pillar? Again, for us as economists it's always humbling what a company is saying and doing today is the economic data six or eight weeks later. What is that bottom-up pillar saying right now?

David Tulk: [00:06:36]  I think that's one of the reasons of relative optimism that we have. You can see just on our positioning slide just the broad contours of still being overweight stocks relative to bonds. It is a fairly constructive setup. A lot of that constructive setup comes from that bottom-up pillar. When we take a look at corporate earnings and expectations for corporate earnings this is where, again, we can leverage all of the analysts we have around the world because they can give us their earnings estimates compared to what the street is pricing in. That tends to be a pretty good leading indicator of markets underperforming or outperforming depending on where you sit relative to the street consensus. A lot of the optimism around corporate earnings, I mean, it's tied to the economy, as you described. When we look around the world recession probabilities are pretty low right now. Again, not fantastic but not horrible either. That does give a bit of a tailwind into that part of the economy and that part of our overweight to risk assets.

[00:07:32] A lot of it also is really premised on the notion of companies spending money on AI. I'm impressed we made it this long in the presentation without mentioning AI  because it is, as we outlined in our first quarter thought leadership piece, AI is really the theme and the question for 2026. To try to answer that question, unfortunately, I think we have to be honest with ourselves and really say nobody has any idea. Ss much as people have theories and you can try to troll through a whole pile of different sources of information at the end of the day no one really knows. What do we do in that context? We try to get an opportunity to talk to the people that best can at least offer an intelligent answer to that question.

Ilan Kolet: [00:08:15] Many of whom we'll hear from today.

David Tulk: [00:08:17] Exactly. You're having Mark Schmehl wrap things up, I believe, and he's very much tied into this space. We talk to all the analysts that support him and when we talk to those folks they will say as much as you can argue with relative valuations within the AI space they still have earnings that are higher than the street, and they still see that this theme is continuing and that they can still identify that this part of the market will out-earn the rest of the market. As a result, we want to have an exposure to that theme. We don't want it to, obviously, overwhelm the portfolio. If you think a bit about that positioning we have around US equities you'll see we're underweight but if you double click into that what you will see, really, is that we have allocations to managers like Mark Schmehl, like Will Danoff who are bringing those types of themes into the portfolio. In order to protect the wider portfolio against the US dollar debasement theme we're an underweight to the rest of the market in the US. That's how we try to bring those two themes together. It's really an interesting story with AI and we'll have to ultimately see how this technology is monetized from a revenue perspective, we want to see how it spreads through other industries, but as it stands today that runway is there and our analysts are giving us the indication that it's supportive and that's what's motivating the overweight we have to risk more generally.

Ilan Kolet: [00:09:37] Again, the most important takeaway from this slide, this is the regional breakdown of where we are, we are overweight risk, we're overweight equities, we're leaning into equities sourced from an underweight to bonds. It's interesting, when you said we hadn't discussed AI and we were already 10 minutes in, I often think the first rule of AI is always talk about AI. It's remarkable, it really is remarkable. I spend a lot of time on the road meeting with a lot of folks in this room coast to coast and folks joining us virtually, an area of the positioning, and something we've written about in our thought leadership, one of the ways that we build in diversification into these funds, and not an over exposure to the AI theme, is using geographic allocations to other parts of the world. One area where I would say we have been, as you mentioned, buying back and are now, I would say cautiously optimistic, is Canada. That's a significant change from how we have been positioned for the last 12 or 13 years. I would say, to be quite honest, this is an area, cautious optimism around Canada, where most folks in this room, you're too polite to do this but are kind of maybe raising an eyebrow and a little bit unsure of that cautious optimism. Talk to us about attractive valuations in Canada, what that means from a positioning perspective and how we're thinking about that.

David Tulk: [00:11:04] Absolutely. I share that sort of hesitation. You'll notice that we've tried to calibrate that position around Canada appropriately. If you go back in time and think of the longstanding challenges that motivated us to be underweight Canada, a lot of it was really based on a housing cycle and an extreme amount of leverage on household balance sheets. We've been worried about underlying productivity in Canada. We've been worried about Canada's place in the wider economy. Those fears certainly have been exacerbated by recent political developments. We're going through the renegotiation of CUSMA this year as well so there's inevitably a lot of likely volatility and headline risk around there. When we think about how economies evolve we're always focused on the rate of change. As bad as it might feel today in many parts of the economy is it getting better or is it getting worse? When we go through that analysis we are slowly getting a little better. If you think about the housing story, yes, it is still daunting but if you think of that cycle of mortgage renewals, which we graphically refer to as the pig moving through the python, you're slowly getting towards the back end of that python.

Ilan Kolet: [00:12:12] That's a lot.

David Tulk: [00:12:15] Again, the rate of change is starting to get a little bit better and rate resets will start to put a little bit less of a headwind onto that part of the market. You think about productivity, we heard from Premier Ford, we've heard from the federal level of government as well, there is a recognition that this is something that needs to be really addressed. There is big gap between recognition and action but if you look at budgets and you look at where the money is going, and this will take some time, but it does refer to that sort of positive direction for there. I guess, maybe the natural question is, well, why are you not overweight? We're not quite out of the woods yet. I mentioned trade and that's going to be something that we'll have to try to manage.

Ilan Kolet: [00:12:54] Certainly we saw after Davos the volatility in kind of sticking the landing.

David Tulk: [00:12:59] Absolutely. That will be something that will take some time. I think, honestly, when you look at how CUSMA ends up being renegotiated it's just a question of giving certainty. Whether the tariffs are here or here or anywhere in between you just want the sense that you can plan as a business and that clarity on that front as much as you can hope for I think just gives us that sense that things are starting to move in the right direction. All things told, this was kind of come across as a proof point in the performance of the TSX last year. Also, just tied into that really strong performance as I think investors start to recognize some of that improvement. A lot of that can also be tied to commodities, which I know we're going to unpack in a moment, but that's the positive rate of change that we want to be sensitive to as investors.

Ilan Kolet: [00:13:42] Right, right. It's interesting on Canada, I think a lot of people don't realize, or even know or remember, that last year the best performing geographic asset class in Canadian dollar terms was Canada. The worst was the US. I spent last week on the road out west and I still think this is an underappreciated fact. You and DW, we've discussed things going from very bad to bad, and that is a fantastic environment for our security selectors who are turning over the rocks to find the names that are priced for bad, very bad, and on their way to becoming less bad.

David Tulk: [00:14:25] I think there were two words in what you just said that is really interesting, in Canadian dollar terms. I guess, three words. Ultimately, that's a big part of the story.

Ilan Kolet: [00:14:32] All my words are interesting but yes.

David Tulk: [00:14:35] I don't know what to do with that. We can think a bit about that Canadian dollar terms because that's a big theme. I think we should spend some time talking about dollar debasement, US dollar debasement and really...

Ilan Kolet: [00:14:48] What does that mean?

David Tulk: [00:14:49] Basically, I think it means ... this is something that we even heard sort of late in the day yesterday from the president of the US, they kind of want to see a weaker US dollar. A lot of that, I think, ultimately, is motivated by, again, if you think of the amount of money that the US owes the rest of the world one way to get out from under that burden is to pay people back in depreciated dollars. That's one of the ways that countries historically have gotten out of debt is to just talk their exchange rate down so that a foreign creditor, such as we are, are paid back in diminished dollars. As a result, that's why we as asset allocators have basically eliminated all of the Treasury holdings we have. We just don't want to lend to the US, nothing to do with any of the political overlay just simply because of their objective to try to pay us back in depreciated dollars.

[00:15:37] Part of it also, I think you could frame it as an attempt ... and again, the jury's out as to whether this will be successful ... but to try and revitalize manufacturing and bring jobs back into the US and make your exports more competitive. That's also sort of inherent in seeing a weaker currency. I think this can continue. You've seen this certainly with the price of gold, gold has been an effective hedge against dollarization or dedollarization. We've seen also this around emerging market debt and local currency. These are allocations that we have recognizing that this theme, I think, unfortunately, has further to run. It's uncomfortable when you do have an asset class like gold that just moves in a parabolic fashion because there's no fundamentals that you can tie it to so you're left grasping at positioning and sentiment and fall down the Twitter rabbit hole and you'll see all the theories out there. Ultimately, that's really what we wanna do as asset allocators, we want to certainly participate in all stages of the market but in these times of sort of elevated uncertainty and lots of volatility we really want to just hedge away some of that downside risk.

Ilan Kolet: [00:16:39] You raised a few good points which is we don't necessarily know why or the motivation for dollar debasement. It may be manufacturing jobs or the coal jobs in West Virginia but something we talk about in our paper is this observational equivalence. Again, if you criminally investigate the head of the Federal Reserve and a member of the Fed and you have political appointees to the Fed and you fire the head at the Bureau of Labour Statistics and you have a trade war and you have overthrow in Venezuela, am I missing anything? Those are all things that feel observationally equivalent or equivalent to a policy of dollar debasement. We're takers of that, right? We can't control the outcome of that, we're takers. If we just bring up the positioning slide one last time, again, it goes a long way in explaining this position around gold. Let's touch on gold and if you can squeeze in a couple of comments on bonds. Remember bonds? Poor bonds. Bonds, the other part of this portfolio, how are we thinking about diversifying away from these risks and risk management?

David Tulk: [00:17:43] It goes back to the comments I made in terms of just not necessarily trusting the US as a place you want to invest in, or at least demanding a higher risk premium for investing in the United States. That's implicit in wanting to certainly be underweight duration so we get some potential rate cuts, maybe not today but later on this year from the US Fed. If that's driven more by political considerations as opposed to what's kind required economically for the state of the US that might have the appearance of lowering interest rates everywhere and helping with that affordability narrative. But if investors think about that cut as being consistent with a central bank that's lost its independence and its credibility you can see a larger term premium further out the curve. So you could see a steeper curve in that sense and that kind of defeats the point. So that's the danger of politicizing your central bank. When we think about our allocations into bonds we want to make sure still that we have that as a ballast but we also want to think about diversifying around that core investment grade allocation. Adam is coming up next, will talk about this as well, but we're looking more at credit and spread sectors, we still have some protection against inflation. We just wanna think very holistically about parts of our fixed income portfolio that are not as correlated with equity risk in that sense. That's really what we want to try to bring in.

Ilan Kolet: [00:19:04] We've covered a tremendous amount of ground here. I want to thank everyone again for joining us today. The Global Balanced Fund is 99% peers beaten over the last three years. That's the third year of double-digit returns, as we've talked about. We have a rule on our team of no celebrating so that's why DT looks so uncomfortable. Thank you everyone for joining today. We have Adam Kramer and Scott Mensi coming up next to talk about their funds. Thanks again, everyone.