$2.4 Billion Money Manager Bullish on Emerging Markets, Cuts Canada

In today's dynamic financial landscape, where economic indicators are in constant flux, understanding where to allocate investments can be daunting yet rewarding. Craig Basinger, chief market strategist at Purpose Investments, is navigating these waters with optimism, particularly focusing on international and emerging markets. His insights might just provide the guidance many investors need.

With approximately $2.4 billion under his management, Basinger believes the upcoming year holds promise for investors, contingent upon making informed choices. As he articulates, “2026 has a lot of good things going for it. There’s a pretty healthy economic backdrop.” This assertion is underpinned by a number of factors, from cooling inflation to increased fiscal spending in critical sectors.

Economic Factors Influencing Investment Decisions

Basinger highlights that fears of a recession seem to be dissipating, thanks to a variety of economic indicators that show improvement. Key drivers include:

• Growing investments in artificial intelligence and technology.
• Increased government spending, particularly in infrastructure and defense.
• A gradual decrease in inflation rates, making consumer spending more viable.

Despite this positive outlook, Basinger warns that much of the anticipated growth may already be reflected in current market prices, leading to a cautious approach. “It’s just become harder to find opportunities,” he states, emphasizing the importance of strategic asset allocation.

Current Portfolio Allocation and Performance

In managing the Purpose Active Balanced Fund, which blends active and passive management strategies, Basinger has adopted a conservative positioning. His fund's current allocation stands at:

• 57% in equities
• 31% in bonds
• 7% in diversifiers, including options
• 5% in cash

As of late January, the fund has experienced a return of 2.3% year-to-date, with a more impressive one-year return of 15%. Since its inception in October 2023, the annualized return has reached 17%, demonstrating the effectiveness of their investment strategy.

Reasons Behind the Positive Outlook for Emerging Markets

Emerging markets have long been viewed as a risky investment, particularly due to the perception surrounding China's economic stability. However, Basinger has shifted his stance, acknowledging the renewed growth potential. “Until 2024, we had no exposure to emerging markets,” he admits.

Reasons for this bullish sentiment include:

• Reaccelerating earnings growth in China and other emerging economies.
• Valuations that remain attractive compared to developed markets.
• Proactive monetary policies from central banks in these regions.

His firm has begun investing in specific ETFs to capitalize on this trend, such as:

• Vanguard FTSE Emerging Markets All Cap Index ETF (VEE-T) – offers significant exposure to technology in China and Taiwan.
• Invesco S&P Emerging Markets Low Volatility ETF (EELV-A) – focuses on markets like Saudi Arabia, South Africa, and Indonesia.

Why Focus on Developed Markets Outside North America?

Basinger has also increased his exposure to developed international markets, now comprising about 42% of the fund's equities. He notes that earnings growth is on the rise in areas such as Europe and Japan, presenting new opportunities for investors.

Japan, in particular, stands out despite its long-standing economic hurdles. Factors that make Japan an attractive investment include:

• A weak yen, which boosts export competitiveness.
• Improvements in corporate governance and shareholder returns.
• A potential for revaluation of equities as economic reforms take hold.

To diversify exposure, the fund incorporates:

• iShares MSCI Japan ETF (EWJ-A) for direct investment in Japanese equities.
• Purpose International Dividend Fund ETF (PID-T) which targets dividend-paying stocks in major developed economies.
• iShares Core MSCI EAFE ETF (IEFA-A) covering over 2,000 stocks outside of North America.

Adjustments in Canadian Market Exposure

While Canada remains a critical market, Basinger has trimmed his exposure to approximately 29%, down from a baseline of 35%. His rationale includes the complexities surrounding the Canadian economy, particularly in sectors like energy and industrials.

Factors influencing this decision are:

• Challenges in the energy sector due to global oil oversupply.
• Potential risks associated with the renegotiation of the Canada-United States-Mexico Agreement (CUSMA).
• The expectation that gains from Canadian markets may be harder to achieve in the coming year.

Basinger remains optimistic about Canada's long-term potential, but recognizes the need for strategic adjustments. His firm has already made moves to trim holdings in specific ETFs, such as:

• BMO S&P/TSX Capped Composite Index ETF (ZCN-T) – to better position the portfolio against potential market fluctuations.

In a rapidly changing economic environment, Basinger’s insights provide a roadmap for investors seeking to navigate the complexities of both international and domestic markets. His strategies highlight the importance of adapting to market conditions while identifying growth opportunities in emerging and developed economies.