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There will be winners and losers as United States President Donald Trump shakes up the world order through tariffs and shifting military strategies, but one area poised to prosper is defence, says Jo Taylor, chief executive of the Ontario Teachers’ Pension Plan Board.

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“If you look for a sector where there’s going to be more activity and investment over the next five years, it probably is in defence, for all the reasons you know and you’ve seen,” he said.

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Since taking office in January, Trump has repeatedly spoken about a handful of global ambitions: taking control of the strategically important Panama Canal, taking over Greenland, a semiautonomous island economically tied to Denmark, and imposing economic pain on Canada with a view to making it his country’s 51st state.

In February, a broadcasted meeting between Trump and Ukraine President Volodymyr Zelenskyy in the Oval Office erupted into a testy exchange, with Trump saying Ukraine would be lost without U.S. support and that Zelenskyy didn’t “have the cards” to set the agenda on the U.S.’s attempts to broker a ceasefire with Russian President Vladimir Putin.

Taylor said the $266.3-billion Teachers’ pension plan, which on Thursday reported a total fund return of 9.4 per cent for the year ended Dec. 31, 2024, will be cognizant of its members’ views on assets in the defence sector when making investment decisions.

Last year, teachers’ unions called on the pension plan to stop investing in weapons manufacturers.

“We want to be careful about that … our values and our relationship with our members. They have strong views about what they are comfortable with us investing in in that sector and where they’d probably be less comfortable,” he said. 

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“We also screen companies out there where we think that doesn’t meet those objectives. But that will be one sector where you could say, ‘Look, actually, it looks like it’s going to have some future growth.’”

Taylor said tariffs and further trade threats Trump is making about Canada and other trading partners, and the resulting ripple effects, including countertariffs, are injecting uncertainty into investing.

Canada and the U.S. are where the bulk of Teachers’ assets reside, so the fund is looking very closely at the models it uses to determine whether to rebalance where to put its money.

The trade wars and other protectionist policies are likely to drive more need for local partnerships and potentially influence investments around the world, including in Asia, Taylor said.

“We haven’t decided yet to change any of our models about how we analyze or the risk we take because we’re at the lower end of the risk spectrum overall, and our portfolios are currently in the sort of neutral-to-defensive zone,” he said.

However, about $99 billion of Teachers’ assets are in the U.S., which remains a key part of the fund’s diversified portfolio of public and private assets, including infrastructure, private equity and real estate. 

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“We have significant assets in the U.S. It’s been a very profitable territory for us for a long time. It’s got a lot of attractive things still very much working for it,” Taylor said. “The question is: How much more do we want to build on top of that versus other parts of the world?”

He said navigating the Trump administration while maintaining good risk-adjusted returns will involve assessing regulation and other factors state by state. 

“It’s a state decision as much as a federal decision, so there’ll be certain states where it’s probably easier for us to see a way of navigating both regulation and future returns and where it’s more difficult,” he said.

Teachers’ often partners with other funds when investing, and Taylor said there is likely to be an uptick in this style of investing in the U.S. to reduce risks from potential hurdles such as regulatory changes.

“Probably now is the time to be doing more with local U.S. partners so that we actually get that covered to some extent, and also that local interpretation of what’s going to work and what’s not going to work so well,” he said.

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In some cases, Taylor said the Trump administration’s protectionist policies could influence where Teachers’ invests in other parts of the world.

“Taiwanese semiconductors would be an example,” he said, adding that if the fund invests in U.S. semiconductors, there could be prohibitions, regulatory or otherwise, placed on investments elsewhere. 

“At some point, it’s quite possible that we will find that,” he said. “Are you predominantly investing in the U.S. space, semiconductor manufacturers, or things out of Asia?” 

Teachers’ has turned in a 10-year annualized net return of 7.4 per cent and a 9.3 per cent return since inception.

• Email: bshecter@postmedia.com

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