Where to invest $1 million right now

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The Barenaked Ladies pondered the pleasant daydream of how to spend a million dollars in their 1990s hit. The premise is much less hypothetical for ultra-net-high-worth investors and family offices with portfolios in the tens of millions, if not more.

Given that most of these investors already have well-diversified portfolios, here are some thoughts from advisors on where they might invest $1 million today.

For short-term, low-risk needs

The fixed-income market offers better opportunities than it has for several years, particularly for short- to medium-term, low-risk investment strategies, says Leila Fiouzi, an investment counsellor with RBC Wealth Management in Toronto, which advises high-net-worth families and their foundations.

“There are really two plays,” she says, pointing to corporate bonds with durations of five years or less and government bonds with durations of five to 10 years.

Yields for government bonds are higher than they have been in more than a decade, while corporate yields are 100 to 800 basis points higher depending on credit risk, she adds.

“If you’ve done your homework, you will probably be able to generate some attractive returns by taking bonds at very opportunistic valuations today with good potential for repricing on the upside with more clarity on the economy in the future,” Fiouzi says.

Longer-term growth choices in the public markets

Equity markets are down significantly from their pandemic peak, but stocks are not on sale, says Eric Weir, chairman and chief executive officer of Northwood Family Office in Toronto. “We don’t see that opportunity staring us in the face,” he says.

In turn, he would not recommend investing in Netflix and Tesla. Then again, the money Northwood manages was not invested in these high-growth companies before the bear market emerged last year. Rather, the portfolios consisted of companies with stable cash flows that resulted in less downside than previously much-sought-after growth companies. “Our clients are actually up from where they started January 1, 2022.”

Stable, blue-chip companies provide a growing dividend along with capital growth, he adds.

“A good example of a company we have owned for a very long time through one of our Canadian equity managers is Royal Bank,” Weir says. Data from RBC shows dividends have steadily increased over the past 22 years while total return for the stock over the past five years is more than 56 per cent.

Those seeking equities that are more off the beaten path could look to the old man of clean energy, uranium, which has shown upside amid growing anxieties about climate change and the war in Ukraine.

Canada is home to large, rich deposits of uranium as well as leading producers such as Cameco Corp., says Ken MacLean, director of ColMac Capital in Calgary.

Among the smaller players is Nexgen Energy Ltd., which offers a potential growth play for portfolios, MacLean says. The company is preparing to begin mining one of the largest high-grade uranium projects in the world in its Arrow deposit in western Saskatchewan. Equally important, it operates in a much more stable environment than producers in Kazakhstan and Russia, he adds.

For a more broad-based, high-growth strategy, emerging markets are well-positioned after a rout over the last year, Fiouzi says. “The setup for emerging markets is looking good for 2023 and 2024,” she says, noting a key driver will be a reopening Chinese economy.

Emerging markets are considered a high-risk investment, with potentially higher growth for the long term than developed markets, so actively managed exposure is recommended to navigate risks. Among those growth opportunities is a “revenge spend” amid the Chinese economy’s reopening “because Chinese consumers are sitting on about $3 trillion dollars in savings,” she notes.

Private infrastructure for steady growth

Private infrastructure investments — such as data centres, wind and solar farms, ferry services and bulk storage facitilities — are offering an enticing mix of steady, mid-range returns, lower volatility than equity markets and a strong macroeconomic tailwind, Northwood’s Weir notes. “We believe investment in the private markets offers superior inflation protection along with very stable growth prospects,” he says. “Another plus: It’s easy to understand what you’re investing in — hard assets.”

Adding to the investment thesis is ongoing strong demand. The world has a $94 trillion infrastructure deficit, Ms. Fiouzi says. “And private investors are the ones to fund it because governments are so indebted.”

Although investors can buy exposure through public markets, private infrastructure typically offers higher returns with lower volatility, as well as decorrelation with public markets. These qualities have drawn institutional investors’ dollars for many years, but private infrastructure is also a good fit for family offices, offering generational wealth appreciation, she adds.

Weir says, “It’s also relatively low risk when done in developed markets.” He notes that annualized returns can be in the high-single-digit to low-double-digit percentage returns. “But you do give up liquidity.”

Often, private funds offer the best risk-adjusted exposure, invested in a handful of assets such as renewable energy, ports and airports. They offer long runways for steady growth regardless of public markets, Fiouzi says. “Given these characteristics, infrastructure is an interesting asset class especially when facing a potentially difficult economic period.”

Venturing even more off the path — VC and private equity

Venture capital funds and equity stakes in individual private companies can provide extra pop to portfolios when public markets are turbulent, Weir says. “In 2023, we see a good opportunity, with venture fund managers telling us they can now buy companies at a reduced price compared with a year or two ago.”

MacLean points to firms developing small-scale nuclear reactor technology such as TerraPower LLC, of which Bill Gates is a major investor. Also worth a look is the innovative logistics firm VEXSL, which transports high-risk, high-value sensitive products, he adds. “It’s an interesting company that has an armoured car business” but also uses new technologies such as blockchain to give it an edge in an industry ripe for disruption, MacLean says.

Campgrounds present another off-the-beaten-path, albeit lower-tech investment idea. “There is a lot of demand and limited supply,” MacLean explains, adding they “are always full” in the summer months. “They’re a just a good store of money.”

More from Canadian Family Offices:

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• Five tax changes for 2023 that business owners need to know about
• How Canadian family offices fit in with global peers
• Five smart ways to transfer wealth to your children, grandchildren

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