Portfolio returns: Q1 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 12, 2013 |
IG Core Portfolio – Income F |
0.50 |
0.60 |
0.60 |
3.62 |
1.11 |
1.93 |
2.31 |
2.41 |
Quartile rankings |
2 |
3 |
3 |
3 |
1 |
1 |
1 |
IG Core Portfolio – Income Series F
Portfolio commentary
Q1 2024
Highlights
① The portfolio gained over the quarter as the rally in risk assets supported the positive returns posted in credit markets.
② Exposure to short-term bonds contributed most to portfolio performance.
③ Hedged foreign currency exposure detracted from performance.
Portfolio Overview
The first quarter of 2024 was marked by a reversal of the strong fixed income rally we saw across North American markets in the fourth quarter of 2023. Both the U.S. and Canadian government bond curves sold off in near-perfect parallel fashion with yields across the U.S. curve rising 27-30bps and yields in Canada rising 22-28bps. As such curve shape remained largely unchanged during the quarter, the entire U.S. yield curve (2s30s) remains inverted by 20bps with the Canadian curve considerably more inverted at -80bps.
The continued outperformance of credit muted the underperformance of government bonds during the quarter. The overall total return of the FTSE Canada Universe Bond Index was -1.22% in Q1 and the U.S. Investment Grade Bond Index lost 0.78%.
Within fixed income, the IG Mackenzie Mortgage and Short Term Income Fund was the largest contributor to performance. Exposure to the Mackenzie – IG Canadian Bond Pool detracted from performance.
IG Mackenzie Mortgage and Short Term Income Fund is the largest weighted allocation in the portfolio and the largest contributor to performance. The fund’s overweight allocation to corporate bonds contributed as corporate bonds outperformed.
Mackenzie – IG Canadian Corporate Bond Pool is the third-largest weighted allocation in the portfolio and the second-largest contributor to performance. The fund’s overweight allocation to corporate bonds and shorter duration positioning contributed to performance.
Mackenzie – IG Canadian Bond Pool is the second-largest weighted allocation in the portfolio and the largest detractor from performance. The fund’s total return performance decline was attributable to rising bond yields and hedged foreign currency exposure in the period.
During the period, the fund’s exposure to the IG Mackenzie Canadian Money Market Fund decreased from 15.2% to 5.0%. The fund’s allocation to the IG Mackenzie Mortgage and Short Term Income Fund increased from 40.2% to 50.1%. Mackenzie – IG Canadian Bond Pool’s allocation increased from 19.9% to 20.1%. The fund’s allocation to the Mackenzie – IG Canadian Corporate Bond Pool remained consistent at 15.1%. The fund’s allocation to the IG Mackenzie Real Property Fund increased from 9.5% to 9.7%.
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: Attractive opportunities in Canadian Fixed Income.
The U.S. Federal Reserve and the Bank of Canada both remain reluctantly “on hold” awaiting further proof that inflation is dead. Both have retained the option to raise rates further, if necessary, but this now looks extremely unlikely and something extraordinary would have to happen on the inflation front for this to be realized.
We prefer to be invested in high-grade (low-beta) corporate bonds at the short end of the curve (2-5y but especially 2-3y). We prefer the Canadian curve over the U.S. curve in this sector. With fragilities seemingly on the horizon in the Canadian market, led by the growing strain on consumers caused by mortgage resets, there is, in addition to the elevated yield, the potential for significant price appreciation of these securities. Should the two central banks indeed pivot away somewhat from their laser focus on inflation, this could have a positive effect on inflation-linked bonds relative to nominal bonds.
To discuss your investment strategy, speak to your IG Consultant.
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