Bristol Gate U.S. Dividend Growth Equity
Mandate commentary
Q3 2024
Highlights
① The S&P 500 Index finally caught its “breadth” in the third quarter with a reversal of the concentration that characterized its returns for the prior year and a half.
② Active central bank policies were key market drivers.
③ An improving market environment, as interest rates fall.
Mandate overview
The improvement in market breadth helped the portfolio to outperform the S&P 500 Index during Q3. As investor attention turns away from the Magnificent Seven with the benchmark index’s earnings growth increasingly driven by the remaining 493 constituents, the portfolio management team believes our high dividend growth universe represents an attractive investment opportunity.
Even with the relative improvement our universe experienced in Q3, the portfolio remains far below the average percentage of outperformers versus the Index. When the portfolio management team looks at our portfolio, we see sustainable tailwinds that are helping to drive earnings growth, free cash flow growth, and subsequently dividend growth to us as shareholders. The portfolio management team believes consistently generating results such as these will lead to attractive returns over time.
Mandate: outperformed the S&P 500 Index
Performance contributors
An overweight position and strong stock selection in the industrials sector, along with overweight positions in materials and financials, contributed positively to returns in the period.
On an absolute basis, Sherwin-Williams Co., Carrier Global Corp. and Lowes Inc. were amongst the portfolio’s best performers in the period.
Performance detractors
Stock selection in the information technology sector detracted from returns in the period.
On an absolute basis, McKesson Corp., Applied Materials Inc. and Microchip Technology Inc. were amongst the portfolio’s weakest performers in the period.
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
Since INC. (NOV. 14, 2016) |
BRISTOL GATE U.S. DIVIDEND GROWTH EQUITY |
8.55% |
15.48% |
32.94% |
10.39% |
12.51% |
14.17% |
Mandate repositioning
In terms of repositioning, there were no material transactions for the mandate in the quarter.
Market overview: markets rallied with expanding breadth
Investor sentiment shifted to a “risk-on” attitude in the third quarter, in response to changes in central bank monetary policy across key economies. It began with the Bank of Canada (BoC) and the European Central Bank (ECB) in the second quarter and continued into the third. The BoC was particularly active, making two additional cuts of 25 basis points (0.25 percentage points) to its overnight rate this quarter.
The U.S. Federal Reserve (the Fed) started its own policy easing with a surprise 50 basis-point (0.5-percentage-point) cut in mid-September, launching rallies in both bonds and equity markets. The Fed noted an increase in the unemployment rate and that the battle against inflation was no longer a primary reason to maintain a restrictive monetary policy.
Market outlook: the market environment is generally improving
Looking ahead, central banks in Canada and the United States will continue to focus on supporting labour markets. Stimulus measures in China could help boost domestic consumer demand by propping up the Chinese stock market, property market and economy. Despite geopolitical risks from the Middle East conflict and the upcoming U.S. election, the market environment is improving.
We see a soft-landing scenario emerging in the U.S. and other areas around the world. This should support equity markets and help bond returns, as interest rates continue to fall from where they are today.
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