Portfolio returns: Q3 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 12, 2013 |
IG Core Portfolio – Balanced Growth Series F |
1.77 |
5.03 |
13.49 |
21.40 |
6.32 |
8.24 |
7.51 |
8.32 |
Quartile rankings |
3 |
3 |
3 |
3 |
2 |
1 |
2 |
IG Core Portfolio – Balanced Growth Series F
Portfolio commentary
Q3 2024
Highlights
① The portfolio advanced as interest-rate cuts and diminishing fears of an economic slowdown lifted stocks and bonds.
② Canadian equities delivered the strongest returns and contributed the most to total returns.
③ Real property and alternative investments exposure weighed on results.
Portfolio overview
The IG Core Portfolio – Balanced Growth rose (+5.0%) over the period as global inflation cooled, economic data reinforced expectations for a U.S. soft-landing and the U.S. Federal Reserve (the Fed) surprised investors with a 50-basis-point interest-rate cut. All component funds and pools in the portfolio were higher. However, the portfolio slightly underperformed its Global Equity Balanced peer group average (+5.1%), mainly due to its exposure to IG Mackenzie Real Property Fund, alternative investments and underperforming U.S. equities.
The portfolio benefited from the strong performance of its three Canadian equity components, the Mackenzie – IG Canadian Equity Pool, the Mackenzie – IG Canadian Equity Income Pool and the Fidelity – IG Canadian Equity Pool, which together comprise over 18% of the portfolio. The two Mackenzie-managed segments were the best-performing segments of the portfolio. However, all three underperformed the S&P/TSX Composite Index Total Return. The IG Mackenzie International Small Cap Fund was the third-best-performing segment but had limited impact due to its small allocation in the portfolio.
The underperformance of U.S. equity components weighed on relative performance, especially the T. Rowe Price – IG U.S. Equity Pool. It and most of the other U.S. equity segments, which together comprise more than 25% of the portfolio, underperformed the S&P 500 Index, which in turn underperformed other major developed equity markets. Of the U.S. equity segments, only the Aristotle – IG U.S. Small Cap Equity Pool (about 1% of the portfolio) outperformed the S&P 500. However, it lagged the small-cap Russell 2000 Index.
The Mackenzie – IG Canadian Bond Pool was the top fixed-income contributor, and it slightly outperformed the FTSE Canada Universe Bond Index. In anticipation of interest-rate cuts, duration of holdings was increased earlier this year, which benefited performance as yields fell. The Mackenzie Sovereign Bond Pool was the best-performing fixed income segment. The other fixed-income components delivered mixed results.
The poorest-performing portfolio components were the Mackenzie Global Macro Fund and the IG Mackenzie Real Property Fund. The Mackenzie Global Macro Fund is an alternative investment intended to provide a steadying influence when used as a diversifying component of broader portfolios and is expected to underperform global benchmarks in periods of strong capital markets. It had little impact on overall results due to its small weight allocation in the portfolio. IG Mackenzie Real Property Fund gained only slightly as Canada’s slower economic growth continued to weigh on real estate valuations. However, the fund has seen a stabilization this year of the property value write-downs which challenged performance through 2023.
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 inflation battle is over, soft-landing ahead
Looking ahead through the remainder of 2024 and into 2025, we can confidently say the inflation battle has been won. The focus has now shifted to supporting a weakening labour market in Canada and the U.S. Despite some of the geopolitical risk emanating from the ongoing conflict in the Middle East and the upcoming U.S. election, we see the market environment as generally improving, with neither event likely to have a meaningful impact on investment portfolios over the long term. 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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