Portfolio returns: Q1 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 12, 2013 |
IG Core Portfolio – Income Balanced F |
1.92 |
4.22 |
4.22 |
9.83 |
3.80 |
5.29 |
5.52 |
6.11 |
Quartile rankings |
3 |
3 |
3 |
3 |
2 |
2 |
2 |
IG Core Portfolio – Income Balanced Series F
Portfolio commentary
Q1 2024
Highlights
① The portfolio had a solid start to 2024 due to strong global equity markets.
② U.S. equities led portfolio gains.
③ Canadian government bond exposure detracted the most.
Portfolio Overview
IG Core Portfolio – Income Balanced rose (+4.2%) over the period, as stocks gained ground in most regions and offset losses in government bonds. However, it slightly underperformed its global neutral balanced peer group average (+4.6%), mainly due to its exposure to Canadian bonds.
Most long-term bond indices lost ground as yields rose in most regions (bond prices fall as yields rise). Stocks pushed higher as solid economic growth in the U.S. shifted the consensus view of the U.S. economy from gliding down for a “soft landing” to a growing belief that the U.S. won’t experience any meaningful slowdown at all. Meanwhile, the U.S. Federal Reserve reaffirmed that interest rate tapering would happen “fairly soon”. Most other central banks, including the Bank of Canada and the European Central Bank, also remained on the sidelines. In contrast, the Bank of Japan raised its rates for the first time since 2007 during the period, ending the world’s last remaining negative interest rate policy.
Equity returns were especially strong in the U.S. (+13.3%), led by stocks in the communication services (18.7%), energy (16.5%) and information technology (+15.5%) sectors. EAFE (+8.5%), Canada (+6.6%) and emerging markets (+4.7%) all underperformed the U.S.
In this environment, gains in the portfolio came mostly from the strong performance of some of its U.S. equity segments. T. Rowe Price -- IG U.S. Equity Pool was the best-performing constituent and top contributor to overall portfolio results, outperforming the S&P 500 Index mostly due to its stock selection in the information technology sector. Mackenzie -- IG U.S. Equity Pool had double-digit percentage returns but slightly lagged the S&P 500. BlackRock -- IG Active Allocation Pool I was also among the top contributors to absolute returns, mainly because of its relatively high allocation in the portfolio. However, its performance lagged most major equity market indices due to its fixed income content.
Fixed income components focused on government bonds were the portfolio’s greatest detractors. Mackenzie Sovereign Bond Fund was the poorest-performing component, but its impact was somewhat limited by a lower weighting compared to several of the other fixed income components. As Canadian bonds underperformed global bonds, the Mackenzie -- IG Canadian Bond Pool detracted most from the portfolio, due in part to its weight allocation (more than 20% of the portfolio).
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: Stronger growth and lower interest rates expected to boost equities.
We have seen a transition from an environment dominated by slower growth and slower inflation to higher growth and slower inflation. This has led to improved equity return expectations. The macro data suggests that economic growth could continue through the first half of 2024, while inflation is expected to remain in the 2-3% range through most of 2024. As inflation has peaked, so too have central bank policy rates (except in Japan). The next move for most central banks will be a cut in policy rates. This will likely occur starting in Q2.
In the U.S., valuation and earnings potential has led to a favourable outlook for U.S. equities in 2024. Conditions in international and emerging market economic conditions also appear to be improving. However, Canadian equities may be weighed down by relatively weaker earnings growth with limited valuation upside.
Due to stronger economic growth, sticky inflation and, in the United States, greater deficits, long-term bond yields are likely to remain near their current levels. This suggests the upside potential for fixed income may be muted in 2024.
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