Portfolio returns: Q1 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (October 30, 2023) |
Canadian Fixed Income Balanced Series I |
1.34 |
2.05 |
2.05 |
10.18 |
||||
Quartile rankings |
2 |
2 |
2 |
iProfile™ Enhanced Monthly Income Portfolio – Canadian Fixed Income Balanced Series I
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, followed by Canadian equities.
③ Bonds generally detracted as the anticipated number of interest rate cuts by the Federal Reserve continues to be pushed out into the future.
Portfolio Overview
It was a strong 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.
iProfile™ Enhanced Monthly Income Portfolio – Canadian Neutral Balanced was up in the quarter. iProfile™ U.S. Equity Private Pool was the biggest contributor to returns. It outperformed its benchmark, with security selection in the information technology and consumer discretionary sectors being the biggest contributors to relative performance. iProfile™ Canadian Dividend and Income Equity Private Pool also contributed positively but underperformed its benchmark. The underperformance was primarily due to security selection in the energy and information technology sectors as well as an underweight position in the industrials sector.
IG Canadian Bond Pool was the biggest detractor as Canadian bonds underperformed its counterparts for the quarter. Although the pool was down in the quarter, it outperformed its benchmark. An overweight duration position in government bonds contributed the most to relative position. On the contrary, security selection and duration management in corporate bonds detracted. IG Mackenzie High Yield Fixed Income Fund contributed to returns and outperformed its benchmark. An allocation to bank loans was the biggest contributor to relative performance.
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 the 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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