Portfolio returns: Q4 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jul 11, 2022) |
IG Growth Portfolio – Global Balanced F |
-0.67
|
2.14
|
15.88
|
15.88
|
12.83
|
|||
Quartile rankings |
1 |
2 |
1 |
1 |
IG Growth Portfolio – Global Balanced Series F
Portfolio commentary
Q4 2024
Highlights
① The portfolio appreciated during the quarter, led by strong equity performance.
② U.S. equities were the leading contributors to returns.
③ Select equity markets and bond duration are attractive in this macro environment.
Portfolio overview
Global equities marked a strong finish in Q4 2024, led by strong U.S. equity performance. 50 basis points of interest rate cuts by the U.S. Federal Reserve (the Fed) over the quarter, resilient U.S. economic growth, continued momentum in the artificial intelligence (AI) thematic trade and expectations of pro-business policy changes from the incoming U.S. government powered U.S. equities higher. Canadian equities also appreciated, as the Bank of Canada cut rates by 100 basis points over the quarter to stimulate a sluggish economy, but threats of U.S. tariffs on Canadian imports by President-elect Donald Trump were a headwind to performance. Global bonds sold off and long-term yields rose as markets dealt with a volatile quarter and priced in fewer interest rate cuts amid rising expectations of stickier inflation and the global economic impacts of a potential trade war.
The IG Growth Portfolio – Global Balanced generated a positive return this quarter. The portfolio’s equity allocation was the leading contributor to portfolio returns while fixed income detracted from performance.
The Mackenzie U.S. Equity Pool, the Putnam – IG U.S. Growth Pool and the Mackenzie Canadian Equity Pool were the largest contributors. The Mackenzie U.S. Equity Pool posted a positive return, but slightly underperformed its benchmark, with security selection in the consumer discretionary sector being the largest detractor. Security selection in the industrials and information technology sectors added value. The Putnam – IG U.S. Growth Pool posted a positive return, in line with its benchmark. Security selection in the information technology sector and an underweight allocation to the consumer staples sector contributed to the portfolio's return. Security selection and an overweight allocation to the industrials sector detracted from performance. The Mackenzie Canadian Equity Pool generated a positive return and outperformed its benchmark driven by security selection in the energy, communications and financials sectors. Security selection in the industrials and materials sectors detracted from performance.
The Mackenzie Enhanced Fixed Income Risk Premia Fund, the PIMCO – IG Global Bond Pool and the Mackenzie EAFE Equity Pool were the largest detractors. The Mackenzie Enhanced Fixed Income Risk Premia Fund is a levered fixed income fund. The investment team uses leverage to manage total portfolio fixed income exposure in a capital efficient way. Rising bond yields were detrimental to fixed income returns. Likewise, the PIMCO – IG Global Bond Pool generated a negative return as yields climbed. The Mackenzie EAFE Equity Pool declined over the quarter, led by weakness in Denmark, France and Switzerland. The fund slightly underperformed its benchmark, with an underweight allocation to Japan as the leading detractor.
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 outlook: positioning to benefit from expected rate cuts and diversify equity risk
The team believes that although global stock markets are expensive, valuations are not extreme. Continued U.S. government deficit spending and the Fed’s eagerness to cut rates on economic weakness supports the team’s view that the largest global economy is unlikely to enter a recession this year. They have favourable views on U.S. small cap stocks and Japanese equities due to their cheaper valuations and exposures to positive economic catalysts.
Duration exposure remains beneficial. While markets expect the Fed to only cut rates once or twice in 2025, the team believes they will need to cut at least three times to support the job market. Potential U.S. trade tariffs could cause a one-time effect on prices, but future inflation could be lower given that trade wars can depress economic growth. The economic situation in Canada remains more dire, and the team prefers Canadian government bonds over Canadian equities.
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