Portfolio returns: Q1 2025
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Oct 25, 2021) |
IG Climate Action Portfolio – Global Neutral Balanced F |
-3.03
|
-0.77 |
-0.77
|
7.27
|
6.03 |
3.10
|
||
Quartile rankings |
4 |
4 |
4 |
4 |
2 |
IG Climate Action Portfolio - Global Neutral Balanced Series F
Portfolio commentary
Q1 2025
Highlights
① The portfolio declined during the quarter due to the hostile global trade environment affecting financial markets.
② EAFE equities were the leading contributors to returns.
③ U.S. equity markets remain more expensive compared to international equities, which currently offer a more attractive risk-return trade-off.
Portfolio overview
In the first quarter of 2025, global financial markets experienced notable shifts in regional equity performance. Contrary to investors’ original expectations of continued U.S. market dominance, EAFE equities were among the best performers while U.S. equities were among the weakest as investors rotated away from the U.S. U.S. trade policy was a key cause of concern for investors, resulting in the outflow of capital from U.S. equities, a flight towards safer assets and a hostile global trade environment that threatens global economic growth. Value stocks led over growth stocks and gold prices skyrocketed over the period, benefiting Canadian equity markets. Global bond prices appreciated as yields declined, particularly in the U.S. Canadian bonds performed well, supported by the Bank of Canada’s rate cuts over the quarter.
Developed market equities returned 6.7% (MSCI EAFE Index CAD), U.S. equities returned -4.4% (S&P 500 Index CAD), Canadian equities returned 1.5% (S&P/TSX Composite Index), global bonds returned 0.8% (Bloomberg Barclays Global Aggregate Bond Index CAD-Hedged), Canadian bonds returned 2.0% (FTSE Canada Universe Bond Index), and high-yield bonds returned 0.6% (ICE BofA U.S. High Yield Bond Index CAD-Hedged).
IG Climate Action Portfolio – Global Neutral Balanced generated a negative return for the quarter. The Mackenzie Canadian Sustainable Bond Fund, the Mackenzie Sovereign Bond Fund and the Mackenzie Greenchip Global Environmental Equity Fund were the largest contributors to performance.
Although its performance was positive, the Mackenzie Canadian Sustainable Bond Fund underperformed its benchmark due to its lower effective duration. Yields in Canada decreased (prices higher), as inflation rates declined over the period. The Mackenzie Sovereign Bond Fund posted a positive return over the quarter but underperformed its benchmark, as a decrease in Canadian yields generally benefited the benchmark more. Strong selection and an overweight position in the utilities sector contributed most to the fund’s relative outperformance during the quarter for the Mackenzie Greenchip Global Environmental Equity Fund.
The Mackenzie Betterworld Global Equity Fund, the Putnam – IG Sustainable Leaders Pool and the Rockefeller – IG Climate Solutions Pool were the largest detractors from performance. The Mackenzie Betterworld Global Equity Fund underperformed its benchmark with stock selection in the industrials and information technology sectors detracting most from performance. The Putnam – IG Sustainable Leaders Pool underperformed its benchmark, primarily due to muted stock selection in the financials and information technology sectors. The Rockefeller – IG Climate Solutions Pool declined over the quarter, led by weakness in stock selection in the industrials, health care and consumer staples sectors.
Market overview: increased uncertainty in U.S. markets favoured international equities
Investor sentiment turned cautious in the first quarter of 2025, driven by heightened market uncertainty following significant shifts in U.S. trade policy under President Trump. Abrupt tariff changes targeting major trade partners — notably Canada, Mexico and China — increased volatility and pressured equity market performance, particularly affecting the S&P 500 Index. In contrast, European markets outperformed significantly, reflecting investors' preference for Europe's attractive valuations and perceived stronger growth potential.
Despite trade-related headwinds, global manufacturing activity showed resilience, signalling potential earnings growth ahead, provided trade tensions stabilize. Central banks diverged in response: the Bank of Canada proactively lowered its overnight rate to 2.75% to bolster growth amid trade uncertainties, while the U.S. Federal Reserve maintained its rate at 4.5%, viewing tariff-related inflation impacts as temporary.
Market outlook: managing market risks through diversification and complementary exposures
The portfolio management team is bearish on global equities, which appear expensive relative to fundamentals. The U.S. equity market is pricier than most global markets and appears to be running out of steam. Investor sentiment has shifted against it in favour of other more attractively priced markets like international equities, which offer a more attractive risk-return trade-off. The team believes that the U.S. will maintain tariff pressure on Canada throughout the next few quarters and the Canadian dollar will likely weaken further to help the economy absorb the heavy blow of tariffs.
The portfolio management team has a neutral view on duration (sensitivity to interest rates). Trump’s economic policies – government job cuts, trade wars and general uncertainty – will weigh on economic growth. Markets are now expecting three U.S. Federal Reserve cuts this year.
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