VELA Podcasts

In the first Polestar Podcast of 2025, Kevin Parton and portfolio manager Keith Allan recap 2024’s market performance, driven by tech giants like NVIDIA and Microsoft, powered by AI innovation. Unlike past bubbles, this growth was built on strong fundamentals.

Looking ahead to 2025, with interest rates and inflation cooling, portfolio strategies may shift from cash to fixed income and alternatives. With Trump’s return to office, U.S. equities are poised for potential gains, while Canadian markets face uncertainties from trade tensions.

 

 

Key highlights of this episode:

• How tech giants like NVIDIA and Microsoft drove explosive market growth in 2024.
• Debunking myths about speculative growth and highlighting the solid fundamentals behind last year’s success.
• What interest rates drop mean for your portfolio—and why cash might no longer be king.
• How the new political landscape could shape opportunities in U.S. and Canadian equities.
• Practical tips for balancing risk, seizing opportunities, and staying aligned with your financial goals.

 

 

About the Guest – Keith Allan

Keith Allan is a Portfolio Manager with Harness Investment Management. Harness has engaged in a strategic partnership with VELA Wealth and provides discretionary portfolio management for many of VELA’s clients. With more than 15 years of buy-side investment management experience, Keith brings a wealth of knowledge and experience to provide insight and guidance to clients regarding their investment portfolios. At Harness, Keith is responsible for developing and maintaining investment portfolios for VELA clients. To learn more, please visit Harness Investment Management team page.

 

About the Host – Kevin Parton

Kevin Parton, CFP professional, specializes in personal and business financial planning, tax reduction, and estate planning. Kevin is diligently concentrating on client education as a powerful strategy for building financial certainty. As no financial situation is the same, Kevin and his team monitor clients’ plans and implement personalized strategies to reduce their personal and corporate taxes, and protect their income, assets, and loved ones against the financial consequences of a serious illness, injury or death, ensuring clients maintain financial certainty and peace of mind. To read more, please visit the VELA team page.

 

The episode is also available on:

  

  

 

 

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

 

The Podcast Transcript:

Kevin Parton:
I’m Kevin Parton, a Partner and Financial Advisor at VELA Wealth. This is our regular segment of Polestar Podcast – quarterly Market Update—the first of 2025. I’m here, as always, with portfolio manager Keith Allan. How are you doing today, Keith?

 

Keith Allan:
Hey Kevin, I’m doing well. Thanks a lot for having me.

 

Kevin Parton:
Always good to have you on here. I’m excited because this is the first quarterly update I’ve been part of since joining the firm. It’s a great opportunity to reflect on how the last year went, what we anticipated for 2024, where we ended up, and what things look like moving forward. That will guide the flow of our conversation today. So, let’s start right at the top—how did markets perform in 2024, and what were the key drivers behind those results?

 

Keith Allan:
Well, overall, risky assets performed quite well. If you were long equities, particularly U.S. equities, you likely did very well in 2024. That’s not to say Canadian equities didn’t perform well—they also had a strong year.

Looking at specific indexes like the S&P 500 and the NASDAQ, these were the ultimate market drivers. Much of that can be attributed to big tech companies like Microsoft, NVIDIA, Amazon, and Google. These heavyweights really propelled the market forward, which is why the NASDAQ performed exceptionally well, delivering close to a 30% return for the year.

Overall, anyone invested in North American equities likely did well. There were several factors contributing to this, which we can dive into later, but to answer your question succinctly—markets performed very nicely.

 

Kevin Parton:
Awesome. That clearly ended up being the case. I was listening to the Q1 podcast we recorded back in March 2024, and one of the key topics was whether we were in a bubble. At the time, it felt like a very timely and relevant discussion. What did we observe throughout 2024 in the tech sector that addressed those concerns about being in a bubble?

 

Keith Allan:
Anytime you talk about a bubble, it implies there’s no real reason or solid foundation behind the growth—no clear fundamentals driving the market or sector performance.

It’s like the game “Telephone,” where kids sit in a circle and pass a message along. By the time it gets back to the original person, the message is completely distorted. Similarly, in a bubble, information gets cascaded and distorted, often without any foundational truth. People start buying into the hype based on speculation rather than earnings, revenues, or fundamentals.

But in 2024, the situation was different. Tech companies weren’t just taking off arbitrarily—they had real earnings and revenues to back them up. Take NVIDIA, for example, which benefited from the rise of artificial intelligence. AI became the new wave, offering a tangible, foundational driver of growth.

That’s not to say the growth wasn’t stretched in some cases, but it wasn’t baseless speculation or “pixie dust,” as we saw during the tech bubble of 2000. Back then, there was no foundation to justify valuations—it was pure speculation.

In 2024, we also had favorable conditions like low interest rates. Companies could borrow at better rates, reinvest in growth, and strengthen their foundations. On top of that, Trump’s pro-business stance, especially regarding corporate America and the tech sector, likely contributed to this momentum.

For example, Elon Musk—arguably the biggest tech entrepreneur in the U.S.—riding alongside Trump in his private jet says something. It signals a favorable environment for tech companies. This alignment of factors helped drive the NASDAQ to nearly 30% returns and the S&P 500 to around 25%.

So that’s where we ended up—a strong year for equities, particularly in the tech sector.

 

Kevin Parton:
So, end of the year—strong equities. It seems like anyone who stayed invested throughout 2024 did quite well. We’ve now seen two consecutive strong years, 2023 and 2024. If we look back further to 2020 and 2021, we’ve had five out of the last six years deliver incredibly strong performance from an equity perspective.

At the beginning of each of those years, predictions were flying around. That brings me to an interesting point: everyone is incentivized to make a prediction. But how many of those predictions have been accurate over the past five years? What were people saying at the beginning of 2024 that turned out differently than expected?

 

Keith Allan:
One thing I’ve noticed is that a lot of people who make predictions are natural hedgers. It’s easy to come out and say, “I think the market will sell off” or “I think we’re in a bubble.” Let’s be honest—this is Behavioral Finance 101.

If you make a bearish prediction and the market does sell off, you look like a genius. If the market doesn’t sell off, people aren’t too upset because their portfolios have gone up. No one is turning around saying, “What an idiot you are!” Instead, they’re happy with their returns, even if the forecast was wrong.

On the flip side, if you predict the market will do really well and it doesn’t, people get upset. Not only are they frustrated that they’ve lost money, but they’re also pointing fingers, saying, “What a dummy you are for getting it wrong!”

That’s why we tend to see more bearish forecasts at the start of the year, especially from people in the media, like those on BNN, MSNBC, or in financial publications. I don’t blame them; no one wants to look foolish or admit they were wrong.

For me, though, I focus less on bold predictions and more on where we’re at right now. It’s a bit cliché to say, but I take it day by day. What are the fundamentals? What are the facts in front of us? What has happened leading up to this point, and how does that inform what’s likely to come next? That’s how I approach forecasting. Does that make sense?

 

Kevin Parton:
It does, and I think that approach resonates. That’s why I like going back to review what was said at the start of the year, what we were talking about, and what actually came to fruition. It removes the illusion of a crystal ball.

As you said, it’s about focusing on the fundamentals—understanding what makes sense in the moment. Sometimes that’s about investment selection, other times asset allocation. The key is recognizing that no one knows more than anyone else when it comes to predicting the future. It’s all about managing the things you can control.

Speaking of fundamentals, you mentioned that inflation came down last year, as did interest rates. We’ve already discussed the equity market boom, but what happened in the bond markets as a result of decreased inflation and interest rates? Was there any correlation?

 

Keith Allan:
Yes, absolutely. As we’ve discussed before, most people understand the relationship between interest rates and fixed-income assets. When interest rates drop, the value of fixed-income assets typically rises. This is because existing assets with higher rates become more attractive compared to newly issued ones at lower rates.

That said, in 2024, cash was yielding around 5% in high-interest savings accounts. It became a fixed-income substitute for many investors since it provided a decent yield with virtually no risk. With fixed income, there’s always some level of risk, so the question became: why take on extra risk when cash is offering such favorable returns?

That was the strategy we promoted to clients in 2024. However, I’m inclined to move away from that mindset in 2025. As interest rates begin to come down, I think there will be a higher appetite for traditional fixed-income investments over cash in client portfolios.

That doesn’t mean the transition will be straightforward. For example, the duration of fixed-income assets—how sensitive they are to rate changes—may not behave in the typical lockstep manner. There are still other factors at play, such as inflation and currency dynamics, particularly the strength of the Canadian dollar.

If demand for the Canadian dollar drops, it could create inflationary pressures that further complicate the fixed-income environment. So while dropping interest rates would normally signal a move to go long on bonds, it’s not that simple right now.

Overall, there are a lot of variables to consider for fixed income in 2025. It’s a more complex landscape than simply reacting to interest rate movements, and that’s where our focus is this year.

 

Kevin Parton:
Well, we’ll use that as a segue into looking ahead. Stocks performed well last year. Fixed income was a solid option, particularly when it offered better yields in recent history. Cash, too, was yielding quite high, and we were recommending or placing people into cash positions for liquidity and good returns. That dynamic, however, may be changing as we move forward.

Now, as we approach a new political chapter with the inauguration of President Trump just seven days away, let’s consider how the political and economic landscape might evolve. Historically, the Republican Party has been pro-business, which impacts the markets. Trump is a businessman who’s had four years to reflect. In many respects, he’s coming into this term as a different figure. When you think about market predictions and potential economic shifts, what are some of the things being discussed in portfolio management circles about Trump’s return to office and its potential implications?

 

Keith Allan:
We touched on this during our intro call last week when we outlined the topics for this podcast. I mentioned then that I don’t approach Trump’s presidency in terms of Republican versus Democrat dynamics. Let’s be honest—he isn’t a traditional Republican president. He’s a businessman, first and foremost, and his actions reflect that identity more than party lines.

Yes, he represents the Republican Party, but that’s more by process of elimination. His focus has always been on self-interest and the interests of those close to him. That’s who America elected, and voters had every right to make that choice. I don’t want to turn this into a political discussion, but the fact is, Donald Trump is a businessman who’s made—and lost—billions of dollars throughout his career.

It would be naïve to think he’ll leave this presidency with capital markets in worse shape than when he started. His ego and self-serving nature mean he’ll do everything he can to showcase a thriving economy. He’ll want to point to strong metrics and say, “Look what I’ve accomplished—corporate America has never been healthier.”

I’m bullish on the U.S. stock market for the next two to three years. That’s not to say there won’t be challenges. For instance, the S&P 500 currently has a price-to-earnings ratio of over 30—an all-time high—which might suggest a pullback is imminent. A short-term sell-off wouldn’t surprise me, but that could create buying opportunities for investors.

I’m less bullish on Canadian markets, especially if Trump’s proposed tariffs and trade restrictions materialize. These could significantly impact Canada’s economy, particularly if we’re operating with a weaker dollar, say at 69 cents. Tariffs of 25% on exports to the U.S. would hurt both countries, but as Canada is often in the shadow of the U.S., we’d feel the impact deeply.

Economically, tariffs don’t benefit anyone—they hurt both parties. My hope is that these are merely rhetorical bargaining tactics on Trump’s part. If so, perhaps cooler heads will prevail, and we’ll avoid long-term economic strain. Overall, I remain more bullish on U.S. equities than Canadian ones, though I anticipate potential pullbacks, especially in the first or second quarter of 2025. These could present opportunities to deploy the higher-than-usual cash reserves we’ve held in client portfolios.

 

Kevin Parton:
That makes sense. It’s helpful to have a clear picture of where portfolios stand, with cash on hand to take advantage of any pullbacks. If Trump’s focus is on leaving office with a stronger economy, corporate America seems poised to benefit. When someone is highly self-interested, you can usually trust them to align with their goals—and those who share those goals may see favorable outcomes.

So, looking at 2025, what strategic moves might you make within portfolios? Are there adjustments in equity or fixed income allocations you’re considering?

 

Keith Allan:
Building on what I mentioned earlier, we’re considering tilting portfolios more toward U.S. equities within our equity allocation. For example, we run U.S. Dividend and Canadian Dividend portfolios, as well as Core Income and Diversified Income portfolios, which include Canadian equity components. Within these, we operate within specific allocation bands.

Given the potential for stronger growth in U.S. equities, we may adjust those bands to increase U.S. exposure in portfolios like Core Income and Diversified Income. For portfolios that are currency-specific, such as Canadian- or U.S.-centric portfolios, allocations will remain consistent within those currencies.

On the fixed income side, things are less clear. While interest rates are dropping, the yield curve may not return to a traditional shape where long-term rates exceed short-term rates. Factors like inflation, currency values, and potential trade restrictions create uncertainty in the fixed income market.

That said, as cash yields decline, there could be an opportunity to reallocate from cash to shorter-duration fixed income assets. If rates drop further, the value of these assets might increase, providing attractive returns.

Finally, we’re also exploring alternative assets to diversify portfolios beyond equities and fixed income. While crypto remains outside our core strategy, we’re looking at commodities, options, and private assets like private equity and private debt. We hope to add private real estate to client portfolios this year as well. These alternatives can help clients achieve meaningful returns while reducing reliance on traditional markets.

That’s how we’re approaching portfolio management as we enter the first quarter of 2025.

 

Kevin Parton:
We’ll see how things start panning out and whether any changes occur. But just to summarize quickly: we talked about last year being a strong year for markets, driven primarily by tech and AI, as evidenced by the performance of the NASDAQ and S&P indexes. Some of the big seven tech companies delivered truly astronomical returns.

We’re now seeing inflation and interest rates start to come down. Cash was a great position for liquidity and yield last year, but that dynamic is beginning to shift. Looking ahead, we may need to consider repositioning portfolios. Based on our discussion, the “America First” mandate and the U.S. government’s approach to corporate America might make American positions in a portfolio more favorable for long-term results.

As you mentioned, this is a day-to-day process. What makes sense now might not hold true in a week, two months, or even three months. However, what always makes sense is ensuring your portfolio’s mix of fixed income, cash, and alternatives aligns with your goals, timeline, and comfort level. Ultimately, the market’s movements don’t matter as much as making sure your portfolio is suited to your needs.

This has been a really informative and enjoyable conversation. On that note, we’ll wrap up this quarter’s discussion. Thank you so much for your insights again, Keith. I’ll check back in with you in a few months.

 

Keith Allan:
Thanks a lot for having me, Kevin. It’s always enjoyable.

 

Kevin Parton:
OK, cheers.

 

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.