Portfolio returns: Q2 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Oct 25, 2021) |
IG Climate Action Portfolio –Global Fixed Income Balanced F |
0.83 |
1.18 |
4.45 |
8.60 |
0.68 |
|||
Quartile rankings |
2 |
1 |
1 |
2 |
IG Climate Action Portfolio - Global Fixed 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 the global fixed income market.
② Strong performance from U.S. equities was the primary contributor to returns.
③ Slowing inflation data has resumed market expectations for the U.S. Federal Reserve to cut interest rates at least once this year.
Portfolio overview
The quarter began on a challenging note for equity and fixed income markets, as hopes for interest rate cuts by the Fed 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 Fed’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).
Mackenzie Betterworld Global Equity Fund, the Mackenzie Canadian Sustainable Bond Fund and the Putnam – IG Sustainable Leaders Pool were the largest contributors. Mackenzie Betterworld Global Equity Fund outperformed its benchmark, benefiting from stock selection in the health care and industrials sectors. Mackenzie Canadian Sustainable Bond Fund outperformed its benchmark, benefiting from an overweight allocation to corporate bonds and manager selection in federal bonds. IG Sustainable Leaders Pool outperformed its benchmark, benefiting from stock selection in the health care and consumer staples sectors.
Rockefeller – IG Climate Solutions Pool was the sole detractor in the portfolio. Rockefeller – IG Climate Solutions Pool underperformed its benchmark, detracting from stock selection in the information technology sector and an overweight allocation to the industrials sector.
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: diversify rather than de-risk equity exposures
Though global equity markets appear expensive, the team believes that positive macroeconomic and technical factors outweigh stretched valuations. Solid corporate earnings growth, the likely end of rate hikes by the Fed, low U.S. recession risk, economic rebound in Europe and China, and optimism from artificial intelligence (AI) themes contribute to this view.
Rather than derisk from “expensive” equities, the team advocates diversifying towards cheaper markets with positive economic catalysts, like Italy and Japan. Japanese companies are investing after years of hoarding cash and benefiting from AI and advanced manufacturing trends. Italian companies are seeing windfalls from the European Central Bank’s implicit backing of national debt and Italy’s recent continent-leading economic growth.
The team remains cautious on bonds in the near term, particularly U.S. government bonds. U.S. interest rates likely remain elevated as the Fed continues to monitor inflation and economic data before committing to any rate-reduction policy.
To discuss your investment strategy, speak to your IG Advisor.
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