Market Update October 2025

Key points from this month’s update:

• The U.S. government shutdown is noise, but it reinforces our neutral stance on U.S. equities.
• International equities are compelling — cheaper, more diversified, and potentially boosted by currency.
• Alternatives like our Alterna Private Income Portfolio continue to deliver exceptional, world-class risk-adjusted returns.
• Beta still matters. Lazy portfolios are costly over time. Active management and diligence make all the difference.
• Gold and copper remain central — one as a safe haven, the other as a growth-linked asset.
• Tariffs, technology, and transition will drive volatility and opportunity in the years ahead.
• And finally, at MLD, our edge isn’t just access to exclusive opportunities — it’s the discipline, the problem-solving, and the stewardship that underpins every client relationship.

Transcript

SPEAKER_00 0:01

Hello and welcome back to Money Matters, the monthly market update from MLD Wealth. I'm Chad Larson, portfolio manager and wealth advisor here at MLD. Every month I try to give a clear and unvarnished view of what we're seeing in markets, how we're positioning portfolios, and most importantly, what it all means for you as investors trying to navigate an increasingly complex world. This episode is going to cover a lot of ground of some key points. First, why markets are largely shrugging off the U.S. government shutdown, but why we're still tilting more defensive in U.S. equities, why, again, international equities look increasingly attractive, a deeper look at alternatives, especially the alternate private income portfolio, and what a sharp ratio really tells us. Why beta, the bread and butter publicly traded exposure, still matters more than people realize as well. How we use ETFs, tactical tilts without single name risk, commodities, gold and copper in focus, the forces of tariffs, technology, and transition, three dynamics that are shaping global markets in ways that will create both winners and losers. And finally, beyond the headlines, what really sets MLD apart. So let's get into it. So, first off, the U.S. government shutdown and market resilience. We're starting with the U.S. government shutdown. If you've been following headlines, you know this isn't the first time Washington has played chicken with itself, and markets have seen this movie before. Here's the thing: investors hate uncertainty, but they've also learned to discount short-term political theatrics. This is why historical shutdowns don't create lasting market damage. Yes, this disrupts government services, delays payments, and chips away at consumer confidence. But in terms of actual corporate earnings and long-term valuations, the effect is generally very muted. That's why the market is shrugging it off. But that doesn't mean we're ignoring it. To us, it's another reminder that U.S. equities are priced for perfection. Valuations remain elevated, concentration risk is at historical levels, and policy risks like this only add to that fragility. So while others are charging headlong into U.S. stocks, we're saying let's be careful, let's be defensive, and let's remember that risk management is just as important as chasing returns. US versus international equities. This is the case for rebalancing. One of the most important portfolio shifts we're recommending right now is rebalancing, not away from U.S. equities, but away from being overweight U.S. equities and into international markets. Why? Three big reasons valuations, diversification, and currency. With respect to valuations, the Schiller-CAPE ratio for U.S. equities is back near historically stretched levels. Comparable to the dot-com bubble and 2021 peaks. When CAPE gets above 30 or 35, history tells us forward 10-year returns collapse into the low single digits, sometimes even negative. International markets, meanwhile, are trading at steep discounts. In fact, the valuation gap between the US and the rest of the world is at a 30-year extreme. Diversification, U.S. markets are dominated by a handful of mega cap tech stocks. That's great when those names keep running, but it's dangerous if sentiment turns. By contrast, international markets are led by very different sectors: industrials, financials, commodities, exporters. That's healthy diversification for a global portfolio. And currency. Let's tilt a little bit and talk about alternatives and really what Sharp ratio means and matters because this is an area we've really carved out in Canada with a leadership position at MLD. It's something that we're called on. I recently spoke at a conference in Toronto on a panel around the benefits and the inclusion of alternative assets. It's not the only thing we do. And rather, rather than just focus on the performance number, let's talk about risk-adjusted returns. The alternate private income portfolio has delivered inline its target rating returns between 8% and 10%. That's strong. But returns on their own don't tell the whole story. The standard deviation was just 2.6%. For context, broad equity markets typically fluctuate with standard deviations north of 12 to 15%. These standard deviation bands are the first tolerated and probable mean of where we can see likely volatility. The smaller the standard deviation is, the more consistent the return is. So we're achieving the results, but with very little volatility. The sharp ratio, which measures return relative to volatility, came at 1.74. Anything above one is good. Anything above 1.5 is exceptional. A sharp ratio of 1.74 means the portfolio is generating world-class risk-adjusted returns. Investors aren't just getting paid for risk, they're getting rewarded disproportionately well. That's the difference between investing for headline performance and investing for durable outcomes. Alternatives like this don't always make the front page, but they quietly deliver consistency, stability, and long-term compounding. And that's exactly what we want as an anchor allocation. I'm going to switch to beta. Again, so much often I'm called for for comment and recognized as a leader within the alternative space. As you know, recently I was named advisor of the year in Canada for alternative investing. But why beta still matters and the cost of complacency? So now, even while we talk about alternatives again, let's not lose sight of the fundamentals. Beta matters. Each week, you know, I see new clients coming in from big banks with what I call lazy portfolios. These are cookie-cutter models, often left untouched for years, no real diligence or optimization or process on whether the managers are still earning their keep. And here's the danger opportunity loss. I recently reviewed a portfolio that was technically up on the year and year over year, and the investor felt fine. But through diligence and through analysis, compared to the benchmark, it was lagging by a wide margin. Some of the strategies were upwards of 700 basis points or 7% per year underneath their benchmark. If you're going to take equity risk, you should be receiving equity-like compensation in return. So over time, that gap compounds into a serious drag on wealth. Losing out on gains is often more damaging than enduring short-term losses because it eats away at your long-term compounding power. This is why manager selection, monitoring, and rebalancing matters. At MLD, we accept that underperformance happens from time to time and no strategy wins year over year, but we won't sit idle by what clients stick with broken strategies. That's why what differentiates an actively managed, diligently monitored portfolio from generic versions that we see day in, day out. I want to talk a little bit about ETFs. If you're a private client of MLD, you see ETFs. I don't want to use the term but littered within accounts. They are there strategically. These are tactical tilts without single name risks. So, you know, before we move on, I want to talk about how we implement many of these views because process matters as much as the view is itself. So at MLD, we believe active management with targeted rules-based exposure, and our preferred tool for the latter is using ETFs. Why? Because ETFs let us express our view on a sector, geography, asset class, currency, or style, cleanly, cost-effectively, and with daily liquidity without taking on the idiosyncratic risk of a single stock. Here's the philosophy: a big share of what moves an individual stock, especially over the intermediate horizons, is the industry or sector it lives in. There's deep research showing that industry momentum explains much of what people think of as stock momentum. In plain English, when a sector has winded its back, many stocks in that sector tend to benefit together. So we'd rather capture the tailwind at the sector level than bet the farm on one or two names. Zooming out even further, decades of work, think Brinson, Ibotson, Kaplan, they show that your asset mix drives the majority of the variability in your portfolio returns over time. That doesn't mean that manager selection and security selection doesn't matter. They do. But the first order driver is exposure, which buckets you own and in what size. ETFs give us ETFs give us precision in those buckets so we can dial up exposure or down as conditions change. So how do we use them in practice? Sector tilts. If we see durable fundamentals, say in aerospace and defense that I was talking about recently, or healthcare or semiconductors and AI or infrastructure, you can own the whole cohort via liquid sector ETFs. That way we participate in the theme while avoiding single-name blow ups. We've done this with gold as well. Geography and currency. We can add international exposure with or without currency hedges, depending on the US dollar backdrop. That lets us separate the equity call from the FX call and manage risk more surgically. Style and factor. Want quality defensive when we tilt cautious or value cyclicals when we lean pro-growth? We can rotate quality, dividend, low volatility, value, momentum sleeves, uh, and with a few trades, again, without picking winners or losers one by one. Asset classes complements from investment grade credit to real assets, treasury inflation, protected securities. ETFs let us adjust the ballast in portfolios quickly when macro wins shift. The benefits are straightforward. Low single name risk. We reduce the chance that one earnings miss or headline wrecks a thesis. High confidence implementation. If the sector is our edge, we express the sector, not a guess on which stock will lead it. Speed and scalability. We can add, trim, or remove positions intraday, which is invaluable when volatility spikes. Cost and tax efficiency. We keep friction low and let more of the return compound. Cleaner risk management, because ETFs map neatly to sectors and factors, we can monitor exposures and rebalance with precision. To be crystal clear, this is not passive for the sake of passive. It's active portfolio management that uses passive building blocks to capture macro and sector tailwinds, while our active research determines which tilts to hold when and at what size. We still do deep manager diligence. We still select specialists where they add value. But when the view is sector, factor, country, or currency, ETFs are often the best instrument. The goal is simple: build resilient portfolios that participate broadly when themes work and de-risk quickly when the facts change. And that's how we compound capital without needing to be a hero stock picker every quarter. I'm going to switch to commodities. It's a theme that I can, you know, at this point I want to say pounded the table on over the last year, which remains a core piece of how we're building some resilient portfolios that are forward-looking. Gold's still very much core overweight. Gold has been of the strongest contributors to returns this year, and it continues to justify its role as a central holding. In 2025, it broke through 3,600 an ounce, a historical milestone and momentum. What are we at here today? 3882. We closed out. Forecasts suggest more upside ahead. Goldman Sachs sees 4,000 by mid-2026. And in stress scenarios where confidence in the Fed wanes, aka government shutdowns, some analysts suggest gold could even push towards 5,000. And what's driving this? Several forces. Structural demand from central banks, which continue to diversify reserves, ETF inflows, and investors seek stability in a world of elevated debt and political uncertainty, and low real rates, which erode the appeal of bonds and boost the attractiveness of gold as a store of value. So gold remains unique, that is both a defensive hedge and an offensive return driver in this cycle. That's why it continues to be an overweight position in portfolios. I want to talk about copper. I honestly can't remember if I've really hit on copper a lot, but I'm going to give it a little bit of uh breadth uh here. So why we're bullish. So, but while gold has been the headline, um, you know, it's time to maybe talk a little bit about copper because we believe it's just as critical in shaping the future of global portfolios. Copper isn't just an industrial commodity anymore, it's the backbone of electrification and a strategic asset in the global energy transition. So we see both cyclical and structural reasons to be bullish. Bullish momentum and analysts forecasts copper has quietly surged in 2025, with ComX futures nearly $5 a pound. That's about $11,000 per ton closing at all-time highs. Forecasts remain constructive. Goldman Sachs projected $10,160 by the year end. We're through that. UBS is right at $11, and longer-term models show copper potentially reading reaching $15,000 to $16,000 per ton by 2028. So we see structural uh shifts and tailwinds shaping up. It's not here yet, but it's quietly starting to happen. Um, so we're going to be increasing those weights here. So what's compelling here isn't the rally just on speculation. It's grounded in real supply tightness. Markets are on backwardation, arbitrage pressures are evident, and near-term shortages are acute. Structural support from electrification and infrastructure, the drivers of copper demand are long-term and durable. EVs, you know, again, you know, they use three to four times more copper than traditional cars, with 20 million EVs projected to be sold in 2026. Demand is surging. AI and data centers are consuming massive amounts of power, which means more copper for transmission and grid infrastructure. Grid hardening and urbanization worldwide are accelerating electrification and infrastructure upgrades. Goldman estimates copper demand at 30 million tons by 2030. But here's the bottleneck: it takes 16 to 25 years to bring a new mine online. That's a structural supply challenge with no quick fix. Macroeconomic and geopolitical context. Copper is now being treated as a strategic commodity. The U.S. has imposed tariffs on semi-finished copper, reshaping trade flows. China dominates refining capacity and continues to use stimulus measures to support copper and intensive industries. Meanwhile, geopolitical instability in regions like Latin America, where much of the world's copper is mined, is amplifying supply chain risk. Copper has become both an economic barometer and a hedge against instability. Diversification edge in a volatility lands, in a volatile landscape, you know, finally copper offers a unique diversification profile. It correlates with global growth. So it participates in economic upswings, but it also benefits from supply-driven price spikes. I've always said for years, you know, copper or copper is a growth commodity. The world's growing, copper's going up. But for portfolios, copper ETFs and mining equity exposures provide tactical and strategic benefits. So increasingly, copper is being called the green metal hedge, complementing gold in portfolios geared toward energy transition and sustainability themes. So putting it all together, you know, I've mentioned why do we remain bullish? Momentum is strong and technical support further gains, forecast calling for um higher copper prices, structural demand from EVs, AI, and infrastructure is accelerating. Supply bottlenecks and geopolitical factors are supportive, and as a portfolio diversifier, providing growth-linked exposure alongside gold's defensive qualities. So that's why both gold and copper remain central in the strategy. Gold provides the ballast, copper provides the growth linkage. And together they anchor the commodity sleeve in our portfolios in a world being reshaped by electrification, uncertainty, and transition. Tariffs, technology, and transition, triple T. These are thematic forces. So let's zoom out to these three macro forces that I believe will define the next few years. Again, tariffs, technology, and transition. Tariffs, trade frictions are mounting. Initially, preemptive actions boosted trade flows, but now the delayed effects are starting to bite. The real risk isn't higher prices, it's higher unemployment if production slows. This could pressure central banks to cut rates even further. Technology, the AI boom is real and it's global. U.S. companies are pouring capital into data centers, chips, and software. China's doing the same with heavy government support. This spending cycle is unlike anything we've seen in decades and has the potential to lift productivity, reshape labor markets, and sustain economic resilience, even as other sectors slow. Transition. Institutions like the Federal Reserve are under pressure. Geopolitical realignments are creating new winners and losers. Energy transitions, demographic shifts, and physical constraints are reshaping what normal looks like. These transitions create volatility. They also create opportunities, if you're positioned correctly. The bottom line, clashing forces create dispersion. Some companies, sectors, and regions will thrive while others struggle. Our role is to identify those fault lines and align client portfolios with the likely winners. Getting kind of to the last little piece beyond the headlines and what really sets MLD apart. Too many firms chase what's hot. Real estate was marketed as an easy bet for years. We're seeing many firms throw up gates or redemptions again, investors. Then it was crypto and megacap stocks. And yes, those trades work until they don't. You know, to MLD, we try to take a different path. We start with each client's risk budget and liquidity needs. We build portfolios that are resilient, diversified, and disciplined. We don't chase flows or headlines. We solve problems and manage risk. And I'll add something personal here. I manage a mutual fund. It's prospectusly cleared. If you're a private client, you'll have exposure to it likely. It's almost unheard of in Canada for a retail advisor to also manage a prospectus cleared fund, uh, let alone uh with a five-year track record of consistently beating its benchmark. That's something I don't talk about enough, but it speaks to the depth and breadth of what we do at MLD. Yes, we are innovators in alternatives, but we also do the traditional stuff really well. You know, closing uh and key takeaways, um there was a lot to go through. Um as always, thank you for listening to MLD Money Manners. Uh, I'm Chad Larson. Myself or any member of the MLD team is available to you, uh, or those that you find close that you need think need a second piece of advice. Um, everyone's riding high in the markets right now. Um, and we're not uh, you know, I don't go to bed um staring at the ceiling, wondering when it's gonna happen. It will. Um things have been incredibly good for a long time. That's why we're trying to be nimble, trying to be pragmatic, uh, trying to be thoughtful at pairing risk. Um, and I'm incredibly uh proud of what we've been able to accomplish here. Uh, thank you so much for your trust and support. Uh, and I look forward to speaking with many of you over the next coming months. Uh, weather's starting to change. Um, I hope everyone is well. Take care, and we'll talk soon. Thank you.