En avant : Retour sur les événements d’avril

Kyle Cheropita: [00:00:01] Hello, and welcome to The Upside. I'm Kyle Cheropita. We're now into May and April had no shortage of headlines with several major stories playing out globally. Tariffs and trade wars continue to be top of mind, as was an election for us Canadians. Today, we'll be reflecting on the month of April featuring clips from our Fidelity Connects and Upside webcasts. Connects is live daily for advisors and then available on replay for all as a video podcast. The upside is our investor webcast with both clips and full shows streaming on Zoom, LinkedIn, YouTube, and more.

[00:00:37] The election is where we'll start off first. Shortly, we'll get into my interview with Michelle Munro, Director of Tax and Retirement Research, who joins the show to help Canadians understand the election's potential tax impacts on your financial plans. First, after Monday's election that saw Mark Carney elected prime minister, we welcomed an all-star panel onto Connects, featuring political strategist, David Herle, as well as Fidelity's David Wolf and Peter Bowen. Take a look.

David Herle: [00:01:02] I think if you want to understand the campaign, I think it's best understood around the decisions of four people that really led to this outcome. The first decision, and the first person, is Justin Trudeau, who resigned. Justin Trudeau doesn't resign, there's a more than 200-seat Poilievre majority sitting in the House of Commons right now. Second thing, Carney decides to enter politics and run. If the Liberals are led by any other leader in this circumstance they lose and lose badly. Carney was a deus ex machina in the gate. The person, and the third decision, is Donald Trump. Donald Trump decided to enter Canadian politics, not only impose tariffs on us but trash talk us, threaten our territory, demean our existence. That collapsed significantly the Bloc Québécois vote which went to Liberals and Carney to be the people who will fight Trump. Quebecers reacted to Trump more viscerally than anybody else in the country, presumably because they're aware of what the French language rights laws are in Louisiana.

[00:02:14] The fourth person, and the fourth decision, is Poilievre. Poilievre and his campaign manager, Jenni Byrne, and she articulated it for a number of years on the curse of politics, was there are more Conservatives out there than Erin O'Toole or Andrew Scheer getting to the ballot box, and if you run as a real Conservative, if you stop this nonsense about moderation and moving to the centre, if you want as a real Conservative there's a lot more Conservative votes out there. She proved that theory correct last night. They got way more votes than they've gotten for a long time. What they also did at the same time is scared of the bejesus out of most of the NDP vote. They were presenting such a stark Conservative option that the NDP literally collapsed in the face of it. I would say three-quarters of that NDP vote went to the Liberals and about one-quarter, in some key ridings, went to the Conservatives. That, in a nutshell, is what got us, I think, to where we are today.

David Wolf: [00:03:12] I think over time markets are going to tend to like this outcome. The reason I say that is I think there's been sort of an undertow in Canadian assets, whether it be Canadian dollar, TSX, even to some degree sort of pricing in bonds, that had to do with the markets not being thrilled about the economic and fiscal management at the Federal level under the Trudeau government. Mark is very different.

Pamela Ritchie: [00:03:45] And you call him Mark because you know him well, because you worked with him at the Bank of Canada.

David Wolf: [00:03:49] I served as his advisor when he was governor of the Bank of Canada, obviously, many years ago now. I can testify to the fact that he's really smart and really disciplined and really hardworking and cares a lot about policy. He's going to be in the weeds on fiscal, on economic, on tax policy, et cetera. I think there's also, the prime minister is the prime minster and he has this expertise, but I think it's being underestimated, there are some other really good, experienced people coming into government as well. For example, a couple of other folks that I used to work with, it's a small world here in Canada, Carlos Leitão, who, I believe, won election in Quebec, used to be finance minister of Quebec, was long-time chief economist at Laurentian Bank, and then Tim Hodgson, who used to run Goldman Sachs in Canada and was with us at the Bank for some time as well, these are really experienced hands and I think, unlike what we've had in the Liberal government for 10 years, Mark is going to have some help. I think, ultimately, yes, we can talk about the specific policies that may or may not come to pass but just having that expertise in government I think, ultimately, is gonna be favourable as far as the market's view on what's happening in Canada.

Kyle Cheropita: [00:05:12] For more on the election's impact on your wallet here is Michelle Munro. Michelle, thanks so much for joining me today.

Michelle Munro: [00:05:20] It's great to be here. Thanks for having me, Kyle.

Kyle Cheropita: [00:05:22] We're here today to talk about the election and the election's result impact on Canadians and their financial plans, potential tax implications. Just for context for our viewers, it is the afternoon after the election, Tuesday, April 29th. Why don't you talk to us a little bit about what happened yesterday and what might be coming next from the government.

Michelle Munro: [00:05:40] Let's focus a little bit on the tax aspect of the election. As we know, Liberals, at this point it's a minority government. There's some people who are recounting ballots but we'll continue with that. From a tax perspective the Liberal platform is that they propose to reduce the lowest tax bracket by 1% from 15% to 14%. That will impact Canadians. It won't take effect until July 1st. When it's fully phased in it's about $400, $500 per person who are paying taxes. You know, Kyle, I'm a tax accountant, watch the pennies, or nickels and dimes as the case may be, and let the dollars take care of themselves.

Kyle Cheropita: [00:06:33] Right. Now, a lot of seniors across the country we've got to think about as well, anything going on with the RRIFs that they need to think about?

Michelle Munro: [00:06:41] Thinking about RRIFs, there's a RRIF minimum withdrawal each year and what the proposal is is to reduce that minimum withdrawal one time by 25%. What that does is it allows seniors the flexibility, potentially keep more invested if they don't need that minimum RRIF withdrawal, and more invested means compounding returns and a larger nest egg. As investors, that's a positive thing.

Kyle Cheropita: [00:07:09] It is, it is. I also wanted to ask you about capital gains. I feel like over the last year or so, just keep hearing about capital games, capital gains, kind of going hand in hand with all the swirls with the government. What's going on there?

Michelle Munro: [00:07:20] We have to roll back to the 2024 federal budget, so just over a year ago. They announced that, in general, there was going to be a capital gains increase from one-half to two-thirds inclusion rate. There was a carve out but that was general. Well, it didn't get passed and then the government was prorogued and then we have this election. I like the certainty. Now the Liberal platform is very clear that they're going to cancel it. From a tax perspective we like that certainty as well. That's the key point there. We'll have that one-half inclusion rate so no changes.

Kyle Cheropita: [00:08:05] Speaking of certainty, you also get that through something like a budget. Now that we have the election that took place budgets usually follow, I believe. What's next there?

Michelle Munro: [00:08:14] I think it was more in some of the statements that came out, we should expect that there'll be a federal budget before the end of June, so before the beginning of July. With that we'll have the actual finalization of some of these proposals that will come through.

Kyle Cheropita: [00:08:32] We'll have to have you or one of your colleagues back to walk us through what happens.

Michelle Munro: [00:08:36] The last number of years I've been able to go to the federal budget lockup. What that is, you're in a ballroom and it's secured. You have to give up your cell phone and any external devices. There's actually armed guards there making sure everybody complies, not that would ever be an issue. With that you get an advanced reading of the federal budget, and with a hundred of my closest tax colleagues are looking through that and finding out, well, what does that mean? We're really looking at it through what does it mean for Canadian investors.

Kyle Cheropita: [00:09:12] That's really cool. Is that in Ottawa?

Michelle Munro: [00:09:14] Yeah, it's in Ottawa. We get to speak with Department of Finance individuals. That's really interesting 'cause you get in and you're looking at the actual words in the budget, the proposed legislation, and what do you mean by this and what you mean ... and really understand some of the mindset behind the changes and what the Department of Finance is thinking. From a tax perspective it a really interesting event to go to.

Kyle Cheropita: [00:09:40] That's very cool. Now, when you're with me here today I also wanted to ask you about TFSAs, RRSPs, very important products. Any updates with TFSAs this year?

Michelle Munro: [00:09:50] Tax-free savings accounts, they were introduced in 2009. Anyone over the age of 18 is able to contribute. In 2025 the maximum TFSA contribution limit is $7,000.

Kyle Cheropita: [00:10:05] Is that up a bit from before?

Michelle Munro: [00:10:08] When they first introduced in 2009 it was $5,000. It's gradually increased. At one point they got up to $10,000 and then they came back down and gradually increasing again. You know what, Kyle, this brings up a good ... if somebody was 18 in 2009 the cumulative TFSA contribution room would be $102,000, pretty significant. A couple different things here, thinking about somebody who's more of a senior who hasn't been able to contribute to that, and maybe they've sold a property, a cottage, maybe their principal residence, and sitting on some cash, taking advantage of that $102,000 to invest in, and I'm saying invest, actually, because the name is tax-free savings account. Often people think, oh, it's a savings account, a high interest savings account or something. No, we need to think like investors. It's a tax-free investment account. Think of using it for investments in mutual funds, exchange-traded funds, ETFs, stocks, bonds, what have you. There's a lot of opportunities with that as well.

Kyle Cheropita: [00:11:28] There is, there is, and a lot of products available from, say, Fidelity, for someone who could invest. RRSPs, I also wanted to ask you about. Those, I know, are very unique to the individual but anything that you can say about those right now?

Michelle Munro: [00:11:40] Registered retirement savings plans, they've been around for 50+ years related to earned income. The maximum contribution, annual contribution, limit for 2025 is $32,490. As you said, it's individual so best check your notice of reassessment, maybe go to My Account on CRA's website to find out what is the actual balance that you could contribute in 2025.

Kyle Cheropita: [00:12:12] Good to know, good to know. Now, we're lucky to have you in the studio here with me today because frequently you're travelling all across our great country. You've been coast to coast lately. What are you hearing from people out there? You're talking with advisors, investors.

Michelle Munro: [00:12:28] Literally, coast to coast. In March I was in Halifax one week and the next week I was in Vancouver, and I go everywhere in between, speaking with investment advisors, financial planners and their investors as well, talking about a variety of tax related things but bringing it back to sort of the fundamentals. The newsreel, we're talking about the Canadian federal election but I think the global newsreel, every day there's something new. It leads to people's feeling uncertain. It's human nature when one feels uncertain to sort of default to negative, the worst bit of doomsday, if you will.

[00:13:17] People who work with a financial advisor ... I think it should actually be financial coach because it's instructive but it's also that emotional aspect. Bringing it back to a bit of those fundamentals, what is your financial goals? Retirement is typically the biggest one for individuals. It's a long term goal. With that, thinking about what is your time horizon. Even somebody who's in retirement, retirement could last years, decades, a long time horizon, and then thinking about, well, what is that asset allocation, what is appropriate for that individual and their risk tolerance? All those pieces together is really where a financial advisor really helps clients.

Kyle Cheropita: [00:14:07] That value of advice. 

Michelle Munro: [00:14:09] That value of advice. We talk about that and having a written financial plan. We do an annual retirement survey and we ask those who have a written financial plan and those who don't how you feel prepared financially for your retirements and financial goals.

Kyle Cheropita: [00:14:24] Any key trends or anything that you're seeing right now?

Michelle Munro: [00:14:27] It's no surprise. Those who have a written financial plan feel better prepared financially. What comes consistently year after year is not even feeling better prepared financially but it's also emotionally, socially, even physically, from having that written financial plan. Anything written, you write pen to paper, it gives you that discipline to achieve one's goals. With anything, working with an expert to help you achieve those goals, create that written plan, the value of financial advice.

Kyle Cheropita: [00:15:05] Exactly. This year's report, I believe, is due to come out soon.

Michelle Munro: [00:15:09] It will come out in the middle of June. June is going to be a busy month.

Kyle Cheropita: [00:15:13] It will be here before we know it.

Michelle Munro: [00:15:15] We will have that annual retirement report. It will probably be in a Federal budget so you'll have to have me back and we'll do a deeper dive into both.

Kyle Cheropita: [00:15:24] We will. Hopefully, a Stanley Cup for a Canadian team in there too.

Michelle Munro: [00:15:26] Let's hope.

Kyle Cheropita: [00:15:27] Knock on wood. We'll definitely have you back. Pleasure having you here with me today. Thanks so much, Michelle.

Michelle Munro: [00:15:32] Great to be here. Thanks, Kyle.

Kyle Cheropita: [00:15:33] Continuing on the Canadian theme, next we'll hear from portfolio manager and Director of Research, Reetu Kumra. Reetu pulls back the curtain to see what has led to the TSX outperforming the S&P 500 and the Dow so far this year. She'll also touch on as Director of Research how the Fidelity Canada portfolio managers and analysts have used shared research to try and stay a step ahead of this year's volatility, which contributes to Reetu finding both long and short opportunities right now for Fidelity Canadian Long/Short Alternative Fund.

Reetu Kumra: [00:16:04] I'm sure you've heard many members of our team talk about the fact that the market can handle good news, the market can handle bad news but the market does not like uncertainty. Those are the times that we're in. At this point it feels like we are late in the cycle.

Pamela Ritchie: [00:16:21] Does it? I mean, if you should sort of pick a cyclical story does it feel like we're in late cyclical?

Reetu Kumra: [00:16:24] Yeah, I would say so, in my opinion. Whether this turns into an economic downturn or even a recession will be very much dependent on how the tariff situation evolves as well as the duration. The market at the moment is a scenario that's been baked in by the market as stagflation, and so that could be something that we end up seeing. I think what's important to keep in mind in this context though is that we've a tremendous amount of volatility and with volatility we have opportunity. We have the opportunity right now to buy incredible businesses for cheaper valuations than we've seen in the past few years. Our team is taking advantage of that and the research team is doing an absolutely incredible job just trying to make sure the funds across the platform are positioned the way they should be positioned and understanding what our risk-reward is right now.

Pamela Ritchie: [00:17:19] Let's talk more about research but specifically how it kind of fuels the fund that you manage, ultimately, because it does come down to that, doesn't it?

Reetu Kumra: [00:17:26] Absolutely. I can't talk enough about my research team, the research team here in Canada. There are typically about nine individuals on this team. They are phenomenal at what they do. They've gone through our grueling interview process where they've met every single member of the investment team through a set of interviews as well as doing a stock pitch at the end for the entire team. They just have this fire to generate alpha for our fundholders. Case in point is what has transpired over the last few months. These tariffs were first announced at 7:00 p.m. on November 25th. Every single investment team member, research team member, had a complete analysis in terms of exposures to each and every one of their companies, understanding what the valuation looks like, understanding where we should step in, what the risk-reward looks like, understanding the drivers, before market opened the next day, which is absolutely incredible. It really talks about the power of our research team.

[00:18:35] As a result, this team is in the trenches. They know exactly where the assets are, where the sales are, where the exposures are, who the competitors are. They're focused on the stock drivers, valuation, dissecting balance sheets. They've done an incredible amount of scenario analysis so that when we had the beginning of February happen where there was a potential for tariffs and then again the beginning of March and then eventually liberation day, as news flow has evolved they have been doing such a great job in equipping the entire team and our products in terms of where we should be positioned.

Pamela Ritchie: [00:19:15] It must be such a live document for each company because it's constantly being changed and added to when you hear more about autos or less about autos and so on. Tell us a little bit about how you have put that research to work within this fund. It's a long/short fund and it's focuses on Canada which, I think, to a lot of people, we've all thought we need to be invested in Canada but maybe somewhere else, maybe the US, as well. Give us sort of the pitch for Canada right now.

Reetu Kumra: [00:19:45] Absolutely. It's interesting because the narrative around Canada has not been positive. If we think about what we have heard in the past, we have a lot of leverage within the consumer base. If you think about what happened during the GFC, the US consumer delevered but the Canadians just kept going up in terms of leverage.

Pamela Ritchie: [00:20:09] We kept buying more expensive houses.

Reetu Kumra: [00:20:11] Exactly. And then marry that with the fact that we have higher interest rates than what we've seen in the past and we have a wall of mortgage maturities coming up this year and next. That doesn't sound very good. Then you tack on the tariffs that have emerged, as well as election risk, and the top-down narrative does not sound good, and not to mention productivity as well, the lack of productivity relative to our friends south of the border. While that all is very true I think what's important is to understand Canada from a bottom-up standpoint as well as understand the TSX from a bottom-up standpoint. When you look at the mix of the TSS, we have roughly 40% that are interest rate sensitives which, typically, in general terms, do well when we have a monetary easing cycle. You have about 30% that are resources. Within that 30% there's a 10% slice that's gold. We all know that gold has been doing quite well. The rest of it being industrial commodities as well as energy. Then you have the remaining 30% that is very much consumer and industrial businesses where, if I had to put them in broad categories you have your cyclicals like your transports and autos, you have your quality compounders like grocers and C-stores, then you have your defensive category which is waste names as well. For example, I used to cover the C-stores when I was an analyst. That was back in 2012. Couche-Tard at that point was a $5 billion market cap and it was primarily Canada, a little bit of US. Now it is a $70 billion market cap and it's global. It's going...

Pamela Ritchie: [00:22:00] It's all over Europe, maybe Japan.

Reetu Kumra: [00:22:05] Exactly, maybe Japan. Those are the types of businesses that we have that are more global in nature. Of course, in today's market we're very much focused on the impact given the geopolitics around the world but we have really good businesses in that third category. It's not surprising when I kind of lay it out in that sense that the TSX is outperforming the S&P 500. That's exactly what this fund is trying to capitalize on, the opportunities, regardless of what the top-down narrative is the opportunity is both on the long and the short side.

Kyle Cheropita: [00:22:36] Staying with Canada we also heard from Fidelity True North Fund portfolio manager Max Lemieux joining Connects early in the month during that bout of market volatility. Max shares how he aims to win through being defensive. Take a look.

Pamela Ritchie: [00:22:50] How are you going in to invest in companies, presumably with a bit of a defensive concern about everything but also looking for opportunities of these changes.

Max Lemieux: [00:23:00] We have to be selective, we have to be tactical. Again, uncharted territories but if we know that the impact means probably pressure on earnings we have to look at companies like if it was a potential recession. Then, for sure, we have to be on the defensive. The cash level has gone up a little bit. You want to keep some dry powder just to be opportunistic. When we start to have days where market is down 4% sometimes there's dislocation because we've seen over the past few weeks hedge funds, margin calls, the leverage in the system is coming down, in the financial system I mean from the financial actors. We see also dislocation on long term interest rates that go up as opposed to going down. It's a lot of things, indicators to watch for but I think to play defense, gold, as you know, as of December it was a decent exposure for True North. I believe it was maybe 8 or 9%. You look at gold versus the cryptos, we've talked about this in the past and I always had a preference for gold. Again, it's a very subjective instrument but for once in the recent history I would say it's acting definitely more as expected given the turmoil that we see in the world, a lot of foreign countries being a bit worried about the US and how they're going to be treated, we see this trend on gold that, at least, maybe it's just going to be a plateau but it seems to be a defensive place.

[00:24:43] There's also the utilities which are defensive. No matter what happens ... there are also pipeline companies, there are different pockets also. Let's say most of the market is not necessarily impacted by the tariffs themselves but it's a second derivative, what if there's a slowdown, what if earnings come down? Then you have to look at companies also in the consumer staples. You and I might definitely reduce or stop going to the restaurants but we'll keep going at grocery. That will continue to be a source of earnings growth, especially if there's a bit more inflation. Typically, it's also good for grocers. It's really stock by stock. There are companies that continue to be on the lookout for acquisitions. We have no idea if this Japanese situation between Couche-Tard and 7-Eleven will work out. That's what we do all day long. We keep speaking to the companies, we attend the conferences. As you know, the incremental data point that we get from companies will help us to navigate this. That's why exactly like COVID we have to make sure that we're on it and we don't miss a beat.

Kyle Cheropita: [00:25:56] On Fidelity Connects in addition to featuring Fidelity's portfolio managers and subject matter experts we'll often feature political guests, regulatory experts and business leaders. This month as part of our CEO series we welcomed Steve Huffman, co-founder and CEO of Reddit. For those who may not be familiar with the platform Reddit is a massive online network of communities where people dive deep into topics they are passionate about from investing and personal finance to technology, science and pretty much everything in between. Here  Steve spoke with host Agnes Doherty about Reddit's growth and how it continues to reshape the future of online engagement.

Steve Huffman: [00:26:35] It's been a lifetime for us on the internet. In 2005 when we started it, this was basically before social media existed. What we were doing is we were trying to build a place simply where you could find new and interesting links online. It was literally just links. Users would submit links, they would vote on them up or down and then eventually you could have conversations about those links. In the very early days Reddit was just one community, one big pile of links. We used to describe it as like the billboard top 40 but for internet links. Good stuff would stay at the top for longer and less good stuff would kind of rise and fall more quickly. That was the very beginning. Since then Reddit has evolved into a massive community of communities that covers basically every topic, experience in the human experience imaginable. Reddit is a place where you can find other people going through the same thing, or people who have gone through the same thing.

[00:27:50] I actually think the best analogy for Reddit is to think of Reddit as a city. Just like real world cities are technically physical things built out of steel and cement, cities are really living organisms. What can you do in a city? You can live and work and play and go shopping and eat. You can, basically, experience all of humanity in a city. In fact, I think cities are inseparable from humanity. Reddit is like a digital city. You can go there to share a few laughs. You can go there to learn. You can go there to research. You can go just to be connected with your fellow human beings. You can go to give or receive advice. You can make product purchasing decisions. Reddit really is this ... just like real world cities are actually kind of like living organic things Reddit itself is a kind of digital version of that. It's a living organic space on the internet where you can connect with people about anything and everything.

Agnes Doherty: [00:28:58] I read this interesting stat recently, in the US Reddit was the sixth most searched word on Google last year. People are actually going to Google to search for Reddit and I find that so fascinating. I'm just wondering what's your opinion on why you've seen such an explosion of user growth in more recent years.

Steve Huffman: [00:29:21] People on the internet want what Reddit has, which is authentic information and viewpoints, perspectives, advice about everything. It's actually funny, in the last 90 days Reddit's still the sixth most searched term, literally the word Reddit on Google. Internet users are going to Google and then typing in the word Reddit because they know that's the best way to get an authentic answer. In the last few months the word Reddit is positioned between the words news and the word Trump, which I think actually probably puts us in the right spot on the internet culture map, which is right in the middle between those two things. At the end of the day, people want what Reddit has which is an authentic place to connect with other people. One of the things I think we're really proud of at Reddit, or the way we look at our work, is that we're fulfilling the promise of the internet, connecting people regardless of geography or language around common interests.

Kyle Cheropita: [00:30:32] I hope you enjoyed all of those segments. As mentioned, for more you can find each clip as a full video podcast available on YouTube, Spotify, Apple Podcasts, and more. We had a lot of great content this month we couldn't get to in today's show. Dan Kelley, who manages Fidelity Founders Class, and Étienne Bouchard, Director of ETFs and Alternative Strategy, for example. Please look up the Fidelity Connects podcast. I'm sure there is something for everyone. As always, for more from us  please keep an eye on Fidelity Canada's LinkedIn, YouTube or Instagram. Thanks for watching today, and I hope you'll join us again on The Upside. I'm Kyle Cheropita.