Portfolio returns: Q2 2024
Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Oct 25, 2021) |
IG Climate Action Portfolio – Global Neutral Balanced F |
0.74 |
1.46 |
7.07 |
11.34 |
1.85 |
|||
Quartile rankings |
3 |
2 |
2 |
2 |
Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Oct 25, 2021) |
IG Climate Action Portfolio – Global Neutral Balanced F |
0.74 |
1.46 |
7.07 |
11.34 |
1.85 |
|||
Quartile rankings |
3 |
2 |
2 |
2 |
The quarter began on a challenging note for equity and fixed income markets, as hopes for interest rate cuts by the U.S. Federal Reserve (the Fed) dwindled amid persistent inflation concerns, putting pressure on both assets. However, as the quarter drew to a close, there was a notable improvement in sentiment as inflation cooled, increasing investor confidence that the central bank could potentially lower rates as early as September. Despite the Fed’s indication of expecting only one rate cut this year, risk assets stabilized and regained lost ground from earlier in the quarter, benefiting from continued economic growth and strong performance in mega-cap information technology companies.
Developed market equities returned 0.9% (MSCI EAFE Index), U.S. equities returned 5.4% (S&P 500 Index), Canadian equities returned -0.5% (S&P/TSX Composite Index), global bonds returned -0.1% (Bloomberg Barclays Global Aggregate Bond Index, CAD-Hedged), Canadian bonds returned 0.9% (FTSE Canada Universe Bond Index) and high-yield bonds returned 0.9% (ICE BofA U.S. High Yield Bond Index, CAD-Hedged).
Mackenzie Betterworld Global Equity Fund, the Putnam – IG Sustainable Leaders Pool and the Mackenzie Canadian Sustainable Bond Fund were the largest contributors. Mackenzie Betterworld Global Equity Fund outperformed its benchmark, benefiting from stock selection in the health care and industrials sectors. Putnam – IG Sustainable Leaders Pool outperformed its benchmark, benefiting from stock selection in the health care and consumer staples sectors. Mackenzie Canadian Sustainable Bond Fund outperformed its benchmark, benefiting from an overweight allocation to corporate bonds and manager selection in federal bonds.
Rockefeller – IG Climate Solutions Pool was the sole detractor in the portfolio. Rockefeller – IG Climate Solutions Pool underperformed its benchmark, detracting from stock selection in the information technology sector and an overweight allocation to the industrials sector.
The second quarter continued to be dominated by the growing influence of artificial intelligence, with investors focused on opportunities in AI-enabled businesses and hardware. Additionally, there was a notable shift in monetary policy as some central banks adjusted their interest-rate policies as inflation risks receded.
In Canada, year-over-year inflation dropped to 2.9%, while in the U.S. it fell to 3.3%. Both indicators are trending downward and remain range bound. The Bank of Canada was the first among central banks in the G7 to cut its overnight lending rate, which we view not as a divergence in monetary policy, but rather as a precursor to the U.S. Federal Reserve eventually following suit. The European Union also cut rates modestly, while the Bank of England held rates as-is, for now. In our view, Canada and Europe have an increased risk of an economic slowdown, while U.S. and emerging market (EM) economic conditions appear to be improving. Canadian and international equities may be weighed down by slower economic growth and potentially weaker earnings growth, with limited valuation upside.
Though global equity markets appear expensive, the team believes that positive macroeconomic and technical factors outweigh stretched valuations. Solid corporate earnings growth, the likely end of rate hikes by the Fed, low U.S. recession risk, economic rebound in Europe and China, and optimism from artificial intelligence (AI) themes contribute to this view.
Rather than derisk from “expensive” equities, the team advocates diversifying towards cheaper markets with positive economic catalysts, like Italy and Japan. Japanese companies are investing after years of hoarding cash and benefiting from AI and advanced manufacturing trends. Italian companies are seeing windfalls from the European Central Bank’s implicit backing of national debt and Italy’s recent continent-leading economic growth.
The team remains cautious on bonds in the near term, particularly U.S. government bonds. U.S. interest rates likely remain elevated as the Fed continues to monitor inflation and economic data before committing to any rate-reduction policy.
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