Franklin Bissett Canadian Equity
Mandate commentary
Q1 2024
Highlights
① The mandate generated solid returns in the first quarter, supported by the breadth in the strength of the Canadian equity market.
② Central banks face divergent monetary policies.
③ Market momentum and encouraging economic data point to more upside potential in 2024.
Mandate overview
The mandate underperformed the S&P/TSX Composite Index Total Return by 46 basis points in the first quarter of 2024, with solid absolute returns of 6.2% falling short of the 6.6% advance for the benchmark.
Negative sector allocation more than offset positive security selection for the mandate. Overweight exposures to the poorly performing utilities and communication services sectors, as well as an underweight exposure to the outperforming energy sector, weighed on performance. Positive stock selection (and sector allocation) in materials and industrials provided a meaningful offset.
From an absolute return standpoint, the most material positive contributors to the mandate’s performance were holdings within the industrials, energy and financials sectors, which were partially offset by weak performance within the communication services sector.
Mandate: Defensive positions detracted.
Performance contributors
AtkinsRéalis: (formerly SNC-Lavalin) The overweight position in this industrials company (+29.9%) was the top single stock contributor.
ARC Resources: The overweight position in this long-standing energy company (+23.7%) was the second top contributor to relative performance.
Performance detractors
Open Text: The overweight position in the information technology company (-5.0%) detracted the most from relative returns by a single holding.
TELUS: The overweight position in the leading communication services company (-6.6%) was the second largest detractor by a single holding.
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
since INC. (NOV. 14, 2016) |
FRANKLIN BISSETT CANADIAN EQUITY |
5.86% |
5.86% |
12.03% |
12.35% |
10.76% |
9.34% |
Mandate repositioning
Trading activity in the first quarter of 2024 was broad-based as market strength presented opportunities to trim dearly priced holdings, while weakness in interest-rate sensitive companies, as well as more surgical situations, provided opportunities to add. Transactions included trimming some value/cyclical and more growth-oriented companies in the industrials, consumer staples, consumer discretionary and information technology sectors. The portfolio management team added to the materials sector and interest-rate sensitive holdings in communication services and utilities that have been steadily growing in prominence in the portfolio.
On March 31, 2024, the mandate’s largest sector allocations were the financials, industrials, energy and consumer staples sectors. Relative to the S&P/TSX Composite Index Total Return, the mandate has most notably overweight exposures to the traditionally more defensive/non-cyclical utilities and consumer staples sectors, as well as industrials. It has notably underweight exposures to the typically value/cyclical financials, energy and materials sectors. The mandate continues to have no exposure to the health care sector.
Market overview: Leap year liftoff – Q1's market highs.
In the first quarter, equity markets delivered a solid performance, reinforcing the sentiment that inflation is nearly under control and recession fears for the U.S. economy are subsiding.
The U.S. maintained a positive economic outlook, whereas Canada has experienced several months of subdued GDP growth, highlighting divergent economic narratives between the two closely linked markets. This contrast may lead the Bank of Canada to enact policy changes before the U.S. Federal Reserve, to address Canada's specific economic hurdles.
Market outlook: Exceptionally strong quarter leads to investor confidence.
As we look ahead, the market's optimism has notably improved from six months ago. U.S. equity markets appear to be priced to perfection, and continued positive economic news is essential to support valuations in the near term. Canadian markets, meanwhile, have been riding the surging wave of global crude prices. This boon from the energy sector is bolstering the country's economic and stock market performance, providing a buffer that could mitigate the impact of a sluggish consumer sector, should higher oil prices persist.
Internationally, markets are on the upswing, rallying from a period of low stock valuations and slow manufacturing. Historically, these signs have often led to a phase of strong economic growth.
We’re encouraged by the momentum in the markets and inflection points in the economic data to the upside, and that leaves us with an optimistic view for investors through the remainder of 2024.
To discuss your investment strategy, speak to your IG Consultant.
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