Volatile markets reward active management

Geopolitical risks, interest rate risk and AI disruption are creating volatility in equity markets, and that’s why active management is so important today, says Catharine Sterritt, lead portfolio manager, Canadian equities, CIBC Asset Management. 

“Clearly, diversification is so critical,” she said in a March 10 interview. “But we also think that there’s a lot of benefit from bottom-up stock picking, where you’re looking for stock-specific catalysts and situations that offer some isolation to the macro environment.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Sterritt said bottom-up stock analysis focusing on companies with M&A opportunities will help identify winners. She also looks for companies that could benefit from long-term trends like growth in nuclear power.

“This will allow us to be well-positioned as we move through the balance of 2026, because there’s a lot of other events still coming down the pipe,” she said. Among the most pressing market-moving factors are CUSMA trade negotiations, the U.S. primaries and potential resolutions in various geopolitical risks.

Commodities

Sterritt said Canadian oil equities are well-positioned to outperform this year, despite ongoing disruption in oil markets resulting from geopolitical risks.

“Canadian companies are a beneficiary of that because they will get the higher cash flows and the higher pricing. And we’re particularly well-positioned also on natural gas.”

Further, Canadian oil companies tend to have clear shareholder return initiatives, she said, including buybacks. And strong oil prices through January and February have continued to drive energy returns.

It’s important to note that energy equities are more correlated to oil prices one year out than on the spot price, she said. After the Iran tensions escalated in late February, spot WTI briefly surged from around US$60 to above US$100, while longer-dated oil futures moved far less, reaching roughly US$68 by mid-March.

“But the equities themselves, like a bellwether Canadian stock like CNQ, was only up 5% through that same period,” she said. “You wouldn’t expect that the equities, which are really trying to capture the long-term opportunity, would move with the short-term volatilities.”

Meanwhile, some parts of the equity market have seen greater dislocation amid geopolitical risk and U.S. dollar strength, she said. The U.S. dollar’s safe-haven appeal has hurt copper and base metals in the past, as well as gold equities. But long-term U.S. deficits and debt suggest potential dollar weakness ahead, offering some opportunities.

“Gold is a longer-term beneficiary because the world is more unsettled, and the central bank’s push for diversification will continue, and so we do expect to see gold equities resume their prior strength,” she said.

AI equities

While AI is here to stay, the winners and losers of the AI race are yet to be determined, Sterritt said. Early AI equity gains went to large global majors as they ramped capex to expand data centre capacity. But as spending grew, concerns over debt funding, higher operating costs, and depreciation have led to margin compression in the large caps.

Software platform companies are also facing margin compression as AI-driven productivity reduced the hours needed per user, pressuring their usage-based business model.

“We do think there’s going to be opportunities — that the winners in the software area from AI are going to be the companies that have large moats with proprietary software, and have very strong customer relationships,” Sterritt said. Among Canadian beneficiaries, she identified Thomson Reuters, WSP and Shopify.

“AI will allow them to slice and dice that and better prepare for forward bids.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.