Portfolio returns: Q1 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jul 11, 2022) |
IG Managed Growth Portfolio – Global Neutral Balanced F |
2.28 |
5.41 |
5.41 |
12.74 |
12.65 |
|||
Quartile rankings |
1 |
2 |
2 |
1 |
IG Managed Growth Portfolio – Global Neutral Balanced Series F
Portfolio commentary
Q1 2024
Highlights
① The portfolio gained over the quarter, buoyed by a strong economic backdrop that supported global equities but led to some weakness in global fixed income markets.
② Strong performance from U.S. equities was the primary contributor to returns, while bonds generally detracted from performance.
③ The anticipated number of interest rate cuts by the Federal Reserve continues to be pushed out into the future.
Portfolio Overview
It was a positive quarter for equity investors, helped by resilient economic data in the U.S. coming in stronger than initially expected, benefiting global equities overall. However, it was a more challenging period for fixed income investors, with sticky inflation and strong economic growth shifting expectations for interest rate cuts by the Federal Reserve down to three instead of the six forecasted at the start of the year, putting pressure on bond prices as yields climbed.
In Canada, the S&P/TSX Composite Index was up 6.6% during the quarter, led by health care (18.4%) and energy (13.1%), while communication services (-8.5%) and utilities (-1.1%) detracted. In the U.S., the S&P 500 Index returned 10.6% in local currency terms (13.5% in Canadian dollars), led by information technology (14.4%) and consumer discretionary (11.1%), while utilities (-5.0%) and consumer staples (-3.2%) detracted. In developed markets, the MSCI EAFE Index returned 10.1% in local currency terms (8.7% in Canadian dollar terms) with Japan (19.3%) and Italy (16.5%) leading performance, while Hong Kong (-11.5%) was among the weakest performers. Global fixed income markets were down as bond yields climbed across the board. The ICE BofA Global Broad Market Bond Index (hedged to Canadian dollar) was down 0.4%. Canadian bonds were also down, as the FTSE Canada Universe Bond Index returned -0.9%. High yield bonds were up, with the ICE BofA U.S. High Yield Bond Index (hedged to Canadian dollar) returning 1.4%.
Mackenzie – IG U.S. Equity Pool, the Putnam – IG U.S. Growth Pool, and the Mackenzie – IG Canadian Equity Pool were the largest contributors. Mackenzie – IG U.S. Equity Pool posted a positive return, but underperformed its benchmark, with security selection in the financials sector as the leading detractor. Putnam – IG U.S. Growth Pool posted a positive return and outperformed its benchmark, with security selection in the information technology sector as the largest contributor. Mackenzie – IG Canadian Equity Pool posted a positive return but slightly underperformed its benchmark, with security selection in the materials sector as the leading detractor.
Mackenzie – IG Canadian Bond Pool and the Mackenzie Enhanced Fixed Income Risk Premia Fund were the largest detractors. Mackenzie – IG Canadian Bond Pool posted a negative return but outperformed its benchmark, benefiting from its overweight allocation to corporate bonds and lower duration positioning. 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 over the period resulted in a decline in the fund’s returns.
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: Continued U.S. economic resilience reduces urgency for rate cuts
The team believes that Q1 GDP growth in the U.S. will continue the up trend from 2023 and reduce the Federal Reserve’s urgency in initiating rate cuts. The team does not see inflation stabilizing at 2% over the next few months given the uptick in various inflation measures and continued strength of the U.S. economy. The team thinks the Federal Reserve will err towards keeping rates tighter than what classic monetary policy would suggest.
The situation in Canada appears more dire than in the U.S. With both headline and core inflation rates in Canada collapsing below 2% on a three-month annualized basis, the team believes that the Bank of Canada will be ready for cuts soon and will do so at a steady pace and get back to neutral in 2025. The team believes that population growth and government deficits will keep pressure on long-term yields, but the yield curve will steepen.
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