CIBC’s Mokhtari on how investors should deal with the surge in geopolitical volatility and the stocks he’s most bullish on

40% energy allocation (up from 30%) in Mokhtari’s March top-10 basket; he warns 2026 should bring elevated volatility through Q3 with stronger patterns in Q4. His top-10 picks returned 9.79% in February (+2.22pp vs S&P/TSX) and rallied 51.3% in 2025 versus a 28.3% TSX return, underpinning a defensive barbell, equal-weight approach. Tactical calls: favour quality/low-volatility/dividend ETFs (FCCQ-T, CQLC-NE, FLVC-NE, DGRC-T), watch WTI support near US$67–70 after a spike toward ~US$79–80, and TSX downside technical levels at ~32,500 then ~32,000.

Analysis

Current regime is best described as a ‘‘rotational volatility’’ environment: factor flows are compressing breadth (quality/low-vol/dividend bid) while price leadership shifts episodically into commodity and cyclicals. That combination steepens implied-volatility term structures and raises the value of convex hedges; gamma risk will dominate near-term P&L for directional exposure. Expect episodic 1–3 week reversals that bleed into month-end rebalancing windows rather than a single sustained trending move.

Within energy, technical exhaustion increases the conditional probability of an 8–18% pullback in WTI over a 2–8 week window absent fresh supply shocks; however, security-level cashflow profiles will decouple performance. Fee-for-service/midstream and royalty structures will show lower beta to oil and therefore act as ballast versus levered E&Ps whose free cash flow and capex optionality amplify drawdowns. Watch physical differentials, inventory surprises, and SPR diplomacy as the key catalysts that can invalidate a mean-reversion base case.

Financials and telecoms illustrate the ‘‘leader-vulnerable-to-rotation’’ pattern: momentum winners carry asymmetric mean-reversion risk if rates or breadth compress. A disciplined equal-weight sleeve in concentrated baskets reduces single-name blowup but increases exposure to sector-level reversals; pair trades (improvers vs overbought leaders) and time-limited option structures are higher-expected-utility implementations. Short-dated option hedges and rebalancing rules tied to realized-vol thresholds will materially improve drawdown control over a 1–6 month horizon.

Key Decisions for Investors

• PSK.TO — Buy on 5–10% pullback or initiate up to 3% portfolio weight now as defensive energy exposure (12–36 month hold). Target 20–35% total return over 6–12 months; stop-loss 10–12% (risk/reward ≈ 2:1–3:1).
• KEY.TO — Implement a 3-month call-spread (buy ATM, sell +10–15% strike) to capture midstream convexity while limiting premium paid. Position size 1–2% notional; max loss = premium, upside capped but >100% return on premium if underlying moves up 12–18% in time.
• POU.TO vs BMO (pair) — Long POU.TO funded by short BMO to isolate cyclical energy upside vs financial mean-reversion; target a beta-neutral sizing (start short 0.7x notional to long). Horizon 1–3 months, take-profit at 15% net pair move, stop-loss if POU drops 12% or BMO rallies 8% (expected R/R ~2:1).
• RCI (RCI) — Buy 2–4 month call spread to play continuation in telecom relative strength with limited downside. Allocate 0.5–1% portfolio, aim for 2:1–3:1 payoff on premium; close or roll if implied vol collapses >25% post-breakout.
• Hedge/Insurance — Buy 1–3 month Canadian equity put protection (e.g., TSX index puts or equivalent ETF puts) sized to cover 30–40% of directional long exposure when realized vol spikes > VIX 2-month moving average +30%. This tactical insurance reduces tail risk from multi-week rotations at a known cost and preserves optionality into summer re-entry opportunities.