Portfolio returns: Q3 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 16, 2014 |
IG Core Portfolio – Global Income F |
1.24 |
3.85 |
4.93 |
9.94 |
0.83 |
1.62 |
2.90 |
2.86 |
Quartile rankings |
3 |
3 |
2 |
3 |
1 |
1 |
1 |
IG Core Portfolio – Global Income Series F
Portfolio commentary
Q3 2024
Highlights
① Global bond exposure contributed most to portfolio performance.
② The portfolio gained over the quarter as bonds rallied and yields moved lower across the curve.
③ Risk assets continued to be in demand as credit spreads remained depressed and volatility fell.
Portfolio overview
The third quarter of 2024 was marked by slowing inflation and decreased economic growth in both Canada and the U.S. Interest rates fell substantially in both countries as the Bank of Canada continued to reduce its policy rate and the U.S. Federal Reserve (the Fed) finally began to do the same.
In terms of rate moves, U.S. 2-year rates fell a whopping 111 bps during the quarter from 4.75% to 3.64%. Yields on 5s, 10s and 30s fell 82 bps, 62 bps and 44 bps respectively, implying an aggressive re-steepening of the curve as is typical at the beginning of rate-cutting cycles. This price action was largely mirrored in Canada with 2-year yields falling 108 bps, 5-year yields falling 78 bps, 10-year yields falling 55 bps and 30-year yields falling 25 bps.
Both the FTSE Canada Universe Bond Index and the U.S. Investment Grade Bond Index posted positive returns during the quarter.
The Mackenzie – IG Global Bond Pool is the largest weighted allocation in the portfolio and the largest contributor to performance. Favourable macroeconomic conditions, including inflation pressures generally easing and central bank rate cuts, created an encouraging environment for bonds.
The Mackenzie Core Plus Global Fixed Income ETF is the second-largest weighted allocation in the portfolio and the second-highest contributor to performance. Improved economic sentiment and easing in borrowing costs provided a positive backdrop for credit markets.
The Mackenzie Floating Rate Income ETF is the fifth-largest weighted allocation in the portfolio and the weakest contributor to performance. The fund lagged high-yield and investment-grade credit, which benefited more substantially from the move in yields given their longer duration.
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: attractive opportunities in Canadian fixed income
Credit spreads remain tight, and we prefer to be invested in high-grade (low beta) corporate bonds at the short end of the curve. We prefer the Canadian curve over the U.S. curve in this sector. Continued rate cuts are the base case for Canada and so there is still further potential for significant price appreciation of these securities. We remain negative on the long end of the Canadian market with 30-year Canadian bonds offering almost no additional yield to 2-year bonds, but substantially more price risk.
We remain cautiously optimistic on credit but prefer low-beta, high-quality corporate bonds and are cognizant that the upcoming U.S. election and the uncertainties it might bring – from fiscal concerns to tariffs to the potential for a re-emergence of inflation – can quickly alter base-case outlook.
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