Main Content
Friday, August 11, 2023 - 11:34

A message from Paul Holba, Senior Vice-President and Chief Investment Officer

Paul Holba

I’m Paul Holba, Senior Vice President and Chief Investment Officer at Empire Life Investments. As we close out the first half of 2023, we wanted to provide you with a summary of the way we see things.

73% of the S&P 500’s returns in the first half of the year can be attributed to the performance of a small group of stocks known as the “Magnificent Seven Stocks”, that’s Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet. In contrast, if we exclude these “Magnificent Seven”, the index returned 4.6% instead of the 17% observed. The level of market concentration is also worrisome. Out of every $1 invested in the S&P 500 index, almost 28 cents flowed directly into these seven companies.

We can observe a similar trend here in Canada where about 35% of the Index is represented by the top 10 stocks. It is unlikely for this level of concentration to persist over an extended period. In fact, it is more likely to unwind as market conditions normalize. Narrow rallies tend to lead to an increased risk of abrupt and turbulent shifts as this trend reverses course.

Both the Bank of Canada and the US Federal Reserve have started slowing down the pace of rate hikes. However, if we continue to see strong economic data, there is an increased likelihood of interest rates staying higher for longer. Earlier expectations for interest rate cuts before the end of the year have waned. As a result, short-term bond yields continue to rise, while long-term yields remain relatively stable, causing the yield curves in Canada and the U.S. to reach their most inverted level in decades. In the first half of 2023, the Canadian bond market recorded a 2.5% gain, with investment-grade corporate bonds slightly outperforming both government bonds and high yield corporate bonds.

Empire Life’s equity portfolios with a growth tilt delivered strong performance in the first half of the year. This success can be attributed to a diversified investment strategy that included not only the tech stocks poised to benefit from AI, but also a wider selection that have shown recession resilience.

As a result, our Multi-Strategy growth funds have been top performers. Value portfolios focused on quality maintain a defensive positioning. While this has impacted short term performance, we expect this diversified strategy will help reduce risks related to concentrated holdings and provide exposure to a broader range of long-term opportunities. Fixed income portfolios have had a slightly shorter duration that we have been gradually adding to. There are opportunities in higher quality short term corporates as we monitor positioning for yield curve steepening.

There are two vital elements to a successful investment strategy. First, active management at the security level and second, active asset allocation.

From a security selection point-of-view, staying true to an active management strategy may be instrumental in preserving wealth with a global economic slowdown impacting investor sentiment. This market impact is likely to progress unevenly across asset classes, emphasizing the importance of a nimble active asset allocation strategy.

For example, on a year-to-date basis, Empire Life Asset Allocation GIF returned 4% gross of fees, but the performance of its underlying components varied widely, from international equities gaining 7.2%, to bonds gaining 2.6%. We believe this relative performance dynamic between asset classes will continue to evolve.

At Empire Life, we believe we have the talent and the experience necessary to face whatever challenges and opportunities lie ahead. And we’d like to thank you very much for your continued support.


Segregated Fund contracts are issued by The Empire Life Insurance Company (“Empire Life”). Empire Life Investments Inc. is the Portfolio Manager of the Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Past performance is no guarantee of future performance. All returns are calculated after taking expenses, management and administration fees into account.