ClearBridge Canadian Equity
Mandate commentary
Q3 2024
Highlights
① The mandate delivered strong absolute returns in the third quarter of 2024, supported by a broadly positive Canadian equity market.
② Active central bank policies were key market drivers.
③ An improving market environment, as interest rates fall.
Mandate overview
The mandate underperformed the S&P/TSX Composite Index in the third quarter of 2024. Negative stock selections were the primary detractors from relative performance, further augmented by moderately negative sector position effects.
Overweight positions in the underperforming consumer staples and industrials sectors detracted from relative performance, as did the underweight position in the financials sector. This was partially offset by the overweight position in the outperforming utilities sector.
Adverse stock selection in the energy and industrials sectors detracted the most from a stock selection standpoint. This was partially offset by positive contributions from select companies within the utilities sector.
From an absolute return standpoint, the most material positive contributors to the mandate’s performance were holdings within the financials, utilities, information technology and materials sectors.
Mandate: mandate had a strong absolute return
Performance contributors
Positioning in utilities: an overweight position and stock selection within the utilities sector was the largest positive contributor to relative performance.
Canadian Natural Resources: the underweight position in the underperforming stock was the largest contributor from a single stock standpoint.
Performance detractors
Positioning in industrials: an overweight position and stock selection within the sector was the largest detractor from relative performance.
Boyd Group Services: the overweight position in the underperforming BYD was the largest detractor from a single stock perspective.
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
since INC. (NOV. 14, 2016) |
CLEARBRIDGE CANADIAN EQUITY |
9.58% |
15.29% |
24.39% |
12.04% |
11.37% |
9.91% |
Mandate repositioning
Trading activity in the third quarter of 2024 was broad based with buying centred around more out-of-favour cyclical names. Transactions also included trimming select holdings on strength, including a few defensive/more interest-rate sensitive holdings. With superior predictability and downside protection available at a reasonable price, the portfolio management team continues to appreciate and emphasize the more defensive posturing of the mandate.
The mandate’s positioning can provide ballast in more challenging equity market environments, allows the mandate to power ahead with predictable growth, and serves as dry powder when better risk/reward opportunities arise. The portfolio management team will continue to target a conservative trailing beta, limiting the systematic risk and volatility relative to the benchmark.
On Sept. 30, 2024, the mandate’s largest sector positions were in financials, industrials, energy and utilities. Relative to the S&P/TSX Composite Index, the mandate has most notably overweight positions in the traditionally more defensive/non-cyclical utilities and consumer staples sectors. The mandate has its most notably underweight positions in the financials, energy and materials sectors.
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.
To discuss your investment strategy, speak to your IG Advisor.
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