The free ride for conservative investors is over. Plus, the GIC rate surprise

Investors have been getting a bit of a free ride from low volatility Canadian stocks in the post-financial crisis era, frequently generating index-beating returns and strong dividend income from the most predictable and reliable companies on the market. The good times for these investors, however, may be over according to CIBC managing director of global market research Ian de Verteuil. and where analysts agree most on earnings growth forecasts.

In the first instance, low volatility stocks in the telecommunications and utilities sectors have been adversely affected by higher long-term interest rates. The yield on the S&P/TSX Utilities Index, for example, currently 4.8 per cent, looked a lot more attractive when the risk-free yield on the government of Canada 10-year bond was below 2 per cent after the financial crisis. Now, however, the 10-year yield is more competitive at 3.

Interest rates and bond yields fell in more or less a straight line from 1990 to mid-2020 when they had little or no room to fall further. Every move lower was good for the equity market and particularly for low-but-stable profit growth companies paying a dividend.

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