IG Core Portfolio – Income Focus rose (+2.1%) over the period, as stocks gained ground in most regions and offset losses in government bonds. However, it slightly underperformed its global fixed income balanced peer group average (+2.4%), 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, 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 contributed the most 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 (almost one third of the portfolio).