In an era of private market growth, equity experts argue why public equities still matter in portfolios
Public equities have weathered a storm of uncertainty over the past year. From trade tariffs and geopolitical tensions to a hyper-focus on AI, institutional investors are rethinking how macro trends factor into their portfolio decisions.
But should pension funds lean into these big-picture themes or tune them out?
For Christine Tan, portfolio manager at Sun Life Global Investments (SLGI), ignoring macro forces is no longer a viable approach.
“We've been in very much a honeymoon period of this globalization where there were very limited geopolitical concerns and geopolitical risks,” she said. “2020 reminded us just how globalized the supply chain had become.”
And while private markets have expanded rapidly and many top companies choosing to stay private for longer to avoid the pressures of public disclosures, Tan believes public markets still offer broader investor access and deeper liquidity and underscored public equities will remain a core component of institutional investing.
“Public equities are not going away anytime soon. It’s a very natural extension of the capital structure,” she said. “The liquidity profile of public equities will always be one of the key benefits for pension investors and for global asset allocators.”
Tan emphasized that macro themes like AI, energy transition, demographics, and inflation are increasingly shaping institutional asset allocation strategies, including for pension funds. These long-term trends offer the potential to reduce portfolio cyclicality and unlock more stable growth opportunities across asset classes.
“The benefit of thinking about these macro themes is there would be multi-year drivers,” she said, pointing to examples like digitization and AI adoption, which are evolving well beyond their early stages.
“We’re going to go from the early stages, where the markets are focused on what we call the picks and shovels… to AI 2.0, which is the users of AI,” she explained, noting that businesses applying AI to boost revenues or drive efficiencies are becoming key investment targets.
Other enduring themes include aging demographics - driving interest in healthcare and social infrastructure - and a new era of structural inflation, driven by tariffs, supply chain duplication, and rising fiscal spending.
“It's almost this perfect Goldilocks environment but as we go into a world where there are going to be trade tensions and a duplication of supply chains, there's going to be, potentially manufacturing in higher labour cost environments. What is the new level? Is it 2 per cent? Is it higher? What does that mean for interest rates? What does that mean for your bond allocation?” she said.
While Tan acknowledged that long-term thematics are important, she cautioned against ignoring short-term market dynamics.
“Don’t get too caught up in too long-term of the themes, because there are going to be cyclical components that you want to be invested in,” she said.
Meanwhile, Sadiq Adatia, chief investment officer at BMO Global Asset Management, doesn’t downplay the pressure macro issues have placed on public equities.
“Everything was murky,” he said, referring to the first half of 2025. “A lot of companies weren’t giving you earnings guidance, or they were giving you multiple scenarios and having you kind of pick which scenario is going to play out. It’s been very difficult from that standpoint.”
But as the year progressed, he added, tariffs were lower than feared and consumer spending remained resilient.
“We expect the markets to continue to go higher by the end of the year,” he said.
Still, Adatia observed that institutional portfolios continue to lean more heavily toward US equities, both because of their growing weight in benchmarks and because of the dominance of technology in global growth.
Adatia argued that pension funds cannot afford to ignore large US tech names, given their influence on both benchmarks and long-term performance.
“If you’re in the US market, you’re going to have big exposure to those big names,” he said. “Pension plans should want to have that participation. Otherwise, if they don’t, they’re so far behind the benchmark,” he said, adding that AI’s integration across industries makes exposure even more critical.
“Everybody’s heard about ChatGPT, so everybody [is] utilizing piece of AI in their own stories. Why would you not expect your pension plan to also be invested in some of those themes as well?” he added.
While trade tensions and tariffs may make some hesitant to buy US assets, Adatia stressed that over the long term, avoiding the US altogether would be costly because pension funds will “otherwise miss a big part of the return spectrum,” he said.
While allocations may evolve over time, he emphasized that US equities remain central to meeting return expectations.
Tan explained Canadian pension funds typically maintain an overweight to domestic equities, not in absolute terms, but relative to global benchmarks, noting 20 to 25 per cent of their equities would be in Canada and compares to Canada’s low single-digit weight in the MSCI All Cap World Index.
However, she doesn’t see funds increasing their Canadian exposure further. Instead, the focus has been on maintaining balance and staying diversified, she said. When domestic markets outperform, institutions are more likely to rebalance back to their strategic weights than chase performance.
Similarly, Adatia stressed that equities should ultimately be guided by fundamentals, even if markets sometimes get distracted by external noise, emphasizing this year has been particularly noisy, making the rally somewhat surprising, but he believes investors have largely chosen to focus on longer-term drivers rather than short-term disruptions.
According to Adatia, confidence has been supported by expectations that inflation will stay contained, earnings will remain steady, and consumers will keep spending.
“That should continue to drive markets higher,” he said, pointing to the flow of capital into equities despite the uncertainty.
“There is a lot of noise,” Adatia said, “but there are a lot of things that could still support this market to go higher from here.”
