After years of historically low interest rates, it’s getting more expensive for Canadians to borrow money. The Bank of Canada has hiked its key overnight rate several times so far this year.
While interest rate increases can benefit savers, higher borrowing costs also slow down economic growth. Consumers are less likely to go into debt to make a purchase, which causes businesses to be more cautious about raising prices. That’s why the Bank of Canada is increasing rates – to tamp down inflation.
“We’re seeing higher and more persistent inflation than a year ago, with gas, food and housing at multi-decade highs,” said John Graham, President & CEO of CPP Investments in a speech delivered to the Canadian Club of Toronto in June. “We expect inflation to remain elevated in the near term.”
The value of diversification and a long-term view
Interest rates go up and down over time, and we know that higher rates tend to drive stock and bond values down.
We’re not immune to market volatility, but CPP Investments is equipped to meet this challenge. Our focus is on the long-term resilience of the Canada Pension Plan (CPP) Fund, and so we prepare for a wide range of market conditions.
It’s one of the reasons we believe so firmly in active investment management, as opposed to a passive strategy which involves buying investments that track major indexes like the S&P/TSX Composite Index or the FTSE World Government Bond Index.
“We diversify across various asset classes and geographies, to mitigate concentrated risk and to deliver a stronger and more resilient portfolio,” said Graham.
Because of our active investment strategy, we are better able to build and maintain an investment portfolio that is resilient over the long-term in the face of whatever market and economic conditions we are presented with.
We employ experienced investment professionals from around the world who work together to make strategic decisions as conditions change. The CPP Fund is therefore not overly dependent on investment returns in any one country, currency or region.
“CPP Investments was built for times like this,” said Graham. “That doesn’t mean we’re immune to volatility in the markets, it means we’re well-positioned to weather the storm over the long term.”