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When investing, it is helpful to balance a short-term perspective with a longer-term perspective and look for trends that could turn into opportunities or real risks.

Over the next 12 months, there will be some important differences between Canada and the United States that, if you’re not careful, could impact both your portfolio and your daily life. In particular, we’re concerned that Canada may already be in a recession, masked by our high levels of immigration. You can see this in the rising unemployment numbers and negative real gross domestic product per capita.

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Therefore, now is not the time to take risks such as over-leveraging to buy a home or even a business, assuming you have access to financing at all. Combined with the significant changes in capital gains tax rates, it may be worth selling any rental or income properties and reconsidering reinvesting free cash flow in an existing business opportunity or starting a new one, at least until we have more clarity on where the bottom is in the broader economic environment.

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Meanwhile, the U.S. economy is doing well and is on much more solid footing than the Canadian economy. Growth is moderate, inflation is falling, and unemployment is low. The bottom line is that the average American is doing much better than the average Canadian, who is held back by significant financial problems and much higher taxation.

This will undoubtedly have an impact on our currency as the Bank of Canada will have to cut rates faster than the US Federal Reserve. We fear that the situation will only get worse as our federal government only reinforces the policies that got us into this situation in the first place in order to get re-elected in 2025.

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In the long term, this means that the US will likely continue to significantly outperform developed economies around the world, especially Canada. This country needs a serious change in economic policy to reverse our current trajectory, which seems very unlikely next year, at least until the next election.

In terms of the impact on equity markets, investors are focusing on areas with the greatest potential, such as the megacaps of the US technology sector and, more recently, on segments that are more dependent on the overall economy, such as the Russell 2000.

Overall, we worry that some risks are not being taken into account, such as the level of leverage in the system, as we saw two weeks ago with the partial unwinding of the yen carry trade. However, dips like this have proven to be good opportunities for younger investors targeting long-term growth, but they could become traps for older, more conservative investors, so it is helpful to employ risk management tactics during periods of complacency.

Since the majority of our clients fall into the latter category, we have focused on three main strategies. The first is structured notes as a bond replacement, although we have recently been focusing more on those with so-called monthly quotas, which pay a high single-digit or low double-digit coupon each month, provided the underlying index does not fall below a certain threshold.

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We also like interest rate-sensitive sectors such as utilities, telecoms and global infrastructure, which will benefit from falling interest rates. We also like sectors with U.S. revenues, such as Canadian oil and gas companies, which have tremendous upside potential, as demonstrated by Tourmaline Oil Corp.’s takeover bid for Crew Energy Inc. last week at a 70 percent premium.

Finally, we also value hedged exposure to U.S. equities via a direct options overlay on a broader U.S. equity exchange-traded fund such as the SPDR S&P 500 ETF Trust or the iShares Russell 2000 ETF, buffered ETFs, and hedged ETFs such as the Simplify Hedged Equity ETF.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., doing business as TriVest Wealth Counsel, a private and institutional investment firm specializing in discretionary portfolio risk management, investment due diligence/monitoring, and advanced tax, estate and wealth planning. The opinions expressed do not necessarily reflect those of Wellington-Altus.

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