IG Core Portfolio – Global Income Series F

Portfolio commentary
Q4 2024

Highlights

① The portfolio declined over the quarter as global markets weighed concerns around persistent inflation and the impact of tariffs.

② Floating rate loan exposure contributed most to portfolio performance.

③ Despite general risk off in markets after the December U.S. Federal Reserve rate cut, a healthy bid for loans persisted.

Portfolio returns: Q4 2024

Total Return 1M 3M YTD 1YR 3YR 5YR 10YR Since Inc.
July 16, 2014

IG Core Portfolio – Global Income F

-0.85

-0.71

4.19

4.19

0.42

1.25

2.69

2.72

Quartile rankings

2

2

2

2

2

1

1

 

Portfolio overview


Unsurprisingly, U.S. political events were the primary focus for fixed income markets during the fourth quarter of 2024. Despite a surge in excitement in favour of Kamala Harris after President Biden stood aside earlier in the year, polling, and particularly betting markets, moved more in favour of a Trump/Republican win as the year rolled on, correctly predicting the outcome of the early November election. Markets moved in lockstep, aiming to decipher what a Trump win and possible Republican sweep would mean. Against this backdrop, the two policies markets are most focused on and concerned about are deficit spending and tariffs.

The concerns over unfunded tax cuts drove yields higher, led by the back end of the curve – steepening the curve marginally in the process. 5-year, 10-year and 30-year U.S. Treasury yields rose 87.2 bps, 83.8 bps and 71 bps respectively, whereas 2-year U.S. Treasury yields rose 62.8 bps. Tariff concerns were most evident in currency markets with the U.S. dollar performing well, particularly against currencies most at risk of the most substantial tariffs – Mexico and Canada.

Both the FTSE Canada Universe Bond Index and the U.S. Investment Grade Bond Index posted negative returns during the quarter.

The Mackenzie Floating Rate Income ETF is the sixth-largest weighted allocation in the portfolio and the largest contributor to performance. Loans provided consistent positive monthly returns throughout all of 2024 as high coupons, strong technical and the absence of rate risk drove returns.

The Mackenzie North American Corporate Bond Fund is the fifth-largest weighted allocation in the portfolio and a positive contributor to performance. The fund posted positive returns during the periods as corporate bond spreads continued to grind narrower.  

The Mackenzie – IG Global Bond Pool is the largest weighted allocation in the portfolio and the weakest contributor to performance. Curve steepening remained a prevalent theme in the period as expectations around accommodative monetary policy in the U.S. moderated and deficit spending mounted.

Market overview: the U.S. dollar and equities dominated the quarter

Investor sentiment turned optimistic in the fourth quarter of 2024, as equities rallied to close the year on a high note. Three defining themes shaped the quarter: a historic U.S. presidential election, ongoing central bank rate cuts and a rise in political risks both domestically and abroad. Collectively, these factors drove market movements, creating an optimistic and rewarding environment for investors following the decisive U.S. election.

Global central banks continued to ease their monetary policies, shifting the focus from combating inflation to supporting economic growth and labour market stability. The Bank of Canada (BoC) cut its overnight rate twice by 50 basis points (half a percentage point) each time, for a total reduction of one percentage point during the quarter, bringing the overnight rate to its lowest level in over two years. Similarly, the U.S. Federal Reserve followed its September cut with two consecutive reductions of one-quarter percentage point each.

Market overview: the U.S. dollar and equities dominated the quarter

Market outlook: opportunities remain despite expected volatility

Politics remain front and center with the new U.S. administration. Any tariff would of course be problematic for Canada. Retaliatory action would be inflationary and any support by the Bank of Canada via increased rate cuts would weaken the currency and also be inflationary. The path of longer end rates remains especially uncertain. 30-year Canadian yields are now 150 bps lower than 30-year U.S. Treasury yields. Any increase in inflation would make the sector relatively unattractive. It is unclear how attractive investing in Canada would be if it is in the midst of a prolonged trade war with its biggest trading partner.

We expect global rates to remain volatile, driven by divergent central bank policies and evolving fiscal dynamics while creating opportunities. Risks are likely skewed toward a stronger U.S. dollar, rising global rates and persistent inflation uncertainty. These dynamics warrant a selective and tactical approach to duration and risk allocation.

To discuss your investment strategy, speak to your IG Advisor.