Portfolio returns: Q2 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 12, 2013 |
IG Core Portfolio – Income F |
0.76 |
1.16 |
1.77 |
4.76 |
1.35 |
1.90 |
2.31 |
2.46 |
Quartile rankings |
2 |
3 |
3 |
4 |
1 |
2 |
1 |
IG Core Portfolio – Income Series F
Portfolio commentary
Q2 2024
Highlights
① The portfolio gained over the quarter as fixed income markets posted positive returns, generally reversing any weakness witnessed earlier in the year.
② Exposures to short-term bonds contributed most to portfolio performance.
③ Risk assets remained in demand and volatility continued to fall as credit spreads were depressed.
Portfolio overview
The big story in North American rate markets during the second quarter of 2024 was the Bank of Canada cutting the overnight interest rate by 25bps at the beginning of June. Two-year yields had been largely unchanged for the first two months of the quarter but ended up trading in a 50bps range and closer to the lows at 3.99%, a drop of 18.5bps on the quarter. Five-year, ten-year and thirty-year yields were largely unchanged on the quarter, implying a steeper curve as expected during a central bank cutting cycle. Despite this, the Canadian yield curve remained historically inverted with 2s30s at -60bps. The cut from the Bank of Canada was largely expected with weak economic data and several consecutive months of lower-than-expected inflation readings.
Both the FTSE Canada Universe Bond Index and the U.S. Investment Grade Bond Index had marginally positive returns during the quarter.
Within fixed income, the IG Mackenzie Mortgage and Short Term Income Fund was the largest contributor to performance. The performance of the Investors Real Property Fund showed no significant changes during the period and therefore there were no notable detractors during the period.
IG Mackenzie Mortgage and Short Term Income Fund is the largest weighted allocation in the portfolio and largest contributor to performance. The fund’s overweight allocation to mortgages and corporate bonds contributed during the period.
Mackenzie – IG Canadian Bond Pool is the second-largest weighted allocation in the portfolio and second-largest contributor to performance. The fund’s overweight allocation to corporate bonds contributed to performance.
IG Mackenzie Real Property Fund is the fourth-largest weighted allocation in the portfolio and weakest contributor to performance. The fund’s muted total return performance was attributable to valuing its properties and stabilizing performance over the past two quarters.
During the period, the fund’s exposure to the IG Mackenzie Mortgage and Short Term Income Fund remained stable at 50.2%. The fund’s allocation to the Mackenzie – IG Canadian Bond Pool and the Mackenzie – IG Canadian Corporate Bond Pool remained consistent at 20.0% and 15.0% respectively. The fund’s allocation to the IG Mackenzie Real Property Fund remained stable at 9.7%.
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: attractive opportunities in Canadian fixed income
Higher interest rates are starting to have different effects on the Canadian and U.S. economies. The Canadian economy is more sensitive to interest rates due to its short-duration, floating mortgage market, unlike the longer-duration, fixed-rate market in the U.S. The Bank of Canada has signaled more rate cuts if inflation continues to fall, while the U.S. Federal Reserve remains cautious, awaiting clearer signs that inflation is under control. With slight weakening in U.S. employment, further rate hikes seem unlikely unless inflation unexpectedly surges.
We favour high-grade (low-beta) corporate bonds at the short end of the curve (2-5 years) and prefer the Canadian curve over the U.S. With the rate-cut cycle beginning and likely to continue, these securities have significant price appreciation potential. However, we are negative on the long end of the Canadian market, as 30-year Canadian bonds yield over 100 basis points less than U.S. counterparts.
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Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus and speak to an IG Advisor before investing. The rate of return is the historical annual compounded total return as of June 30, 2024, including changes in value and reinvestment of all dividends or distributions. It does not take into account sales, redemption, distribution, optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, values change frequently, and past performance may not be repeated. Mutual funds and investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm). Any additional investment products and brokerage services are offered through Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.
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