Portfolio returns: Q2 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jul 13, 2015) |
IG Managed Risk Portfolio – Income Balanced F |
0.77 |
1.40 |
6.74 |
10.83 |
3.96 |
5.46 |
5.33 |
|
Quartile rankings |
3 |
2 |
2 |
2 |
1 |
2 |
IG Managed Risk Portfolio – Income Balanced Series F
Portfolio commentary
Q2 2024
Highlights
① The portfolio gained over the quarter, as the global economy continued to grow at a moderate pace, benefiting global equities and riskier segments of global fixed income markets.
② U.S. information technology equities were the primary contributors to returns, followed by gold.
③ We continue to favour equities over fixed income.
Portfolio overview
The quarter began on a challenging note for equity and fixed income markets, as hopes for interest rate cuts by the U.S. Federal Reserve dwindled amid persistent inflation concerns, putting pressure on both assets. However, as the quarter drew to a close, there was a notable improvement in sentiment as inflation cooled, increasing investor confidence that the central bank could potentially lower rates as early as September. Despite the U.S. Federal Reserve’s indication of expecting only one rate cut this year, risk assets stabilized and regained lost ground from earlier in the quarter, benefiting from continued economic growth and strong performance in mega-cap information technology companies.
Developed market equities returned 0.9% (MSCI EAFE Index), U.S. equities returned 5.4% (S&P 500 Index), Canadian equities returned -0.5% (S&P/TSX Composite Index), global bonds returned -0.1% (Bloomberg Barclays Global Aggregate Bond Index, CAD-Hedged), Canadian bonds returned 0.9% (FTSE Canada Universe Bond Index) and high-yield bonds returned 0.9% (ICE BofA U.S. High Yield Bond Index, CAD-Hedged).
IG Managed Risk Portfolio – Income Balanced generated a positive return this quarter. The portfolio’s equity allocation was the leading contributor to portfolio returns, followed by fixed income and gold.
Mackenzie U.S. Core Equity Fund, the SPDR Gold Shares ETF, and the IG Mackenzie Global Fund were the largest contributors. The Mackenzie U.S. Core Equity Fund position (+5.8%) outperformed its benchmark with security selection in the information technology and consumer staples sectors as the largest contributors. The SPDR Gold Shares ETF position (+5.6%) appreciated as the price of the precious metal increased over the period. IG – Mackenzie Global Fund (+4.7%) outperformed its benchmark with security selection in the information technology, health care and consumer staples sectors as the largest contributors.
Mackenzie Canadian Dividend Fund and the iShares 20+ Year Treasury Bond ETF were the largest detractors. Mackenzie Canadian Dividend Fund (-1.4%) underperformed its benchmark with security selection in the financials, industrials and materials sectors as the largest detractors. The iShares 20+ Year Treasury Bond ETF position (-1.2%) declined as yields slightly appreciated and bond prices fell.
Market overview: AI pushed equity growth while central banks started to pivot
The second quarter continued to be dominated by the growing influence of artificial intelligence, with investors focused on opportunities in AI-enabled businesses and hardware. Additionally, there was a notable shift in monetary policy as some central banks adjusted their interest-rate policies as inflation risks receded.
In Canada, year-over-year inflation dropped to 2.9%, while in the U.S. it fell to 3.3%. Both indicators are trending downward and remain range bound. The Bank of Canada was the first among central banks in the G7 to cut its overnight lending rate, which we view not as a divergence in monetary policy, but rather as a precursor to the U.S. Federal Reserve eventually following suit. The European Union also cut rates modestly, while the Bank of England held rates as-is, for now. In our view, Canada and Europe have an increased risk of an economic slowdown, while U.S. and emerging market (EM) economic conditions appear to be improving. Canadian and international equities may be weighed down by slower economic growth and potentially weaker earnings growth, with limited valuation upside.
Market outlook: strong economic fundamentals and sentiment for equities
In Q2 2024, global equities, led by the U.S., saw robust gains with the S&P 500 hitting record highs, buoyed by strong earnings from mega-cap technology companies amid relatively stable inflation. While U.S. consumer spending moderated, aligning with labour market trends, consumer health remained strong. In Canada, despite a resilient job market, high interest rates weighed on overall economic performance, prompting a 0.25% rate cut by the Bank of Canada.
We continue to favour equities over fixed income. We expect bond yields to fall over time and offer support for fixed income. However, given the strength of the U.S. consumer and an attractive earnings yield in Canada, we see a compelling case to maintain our allocation to equities. Additionally, we have trimmed our gold position, and took profits on most of our allocation. We believe that with the progress made in containing consumer prices, fixed income will become more attractive.
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