Portfolio returns: Q2 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (April 19, 2022) |
IG Mackenzie U.S. Dollar Fund – Global Neutral Balanced F |
1.24 |
1.42 |
5.91 |
10.79 |
5.45 |
|||
Quartile rankings |
1 |
1 |
1 |
1 |
IG Mackenzie U.S. Dollar Fund – Global Neutral Balanced Series F
Portfolio commentary
Q2 2024
Highlights
① The fund gained over the quarter, buoyed by a strong economic backdrop that supported both equities and bond returns.
② Information technology stocks drove fund performance.
③ Canadian equities underperformed broader equity markets.
Portfolio overview
IG Mackenzie U.S. Dollar Fund – Global Neutral Balanced generated a positive return, benefiting from strong global equity markets and positive returning Canadian and global bond strategies.
The S&P 500 made multiple all-time highs in June, driven by a still-surging information technology sector. Signs of a cooling U.S. economy and tamer inflation readings trimmed the already-slim odds of additional interest rate hikes by the U.S. Federal Reserve (the Fed). The resilience of the U.S. economy coupled with the prospects of a soft landing for the U.S. also helped propel foreign equity markets higher. Within this economic and market backdrop, the fund’s global equity mandate, representing 40% of the fund, produced a positive return. Selection of information and technology stocks from the U.S. and Taiwan was the largest driver of returns.
Representing the fund’s 45% fixed income allocation, the Mackenzie Core Plus Canadian Fixed Income ETF and the Mackenzie Core Plus Global Fixed Income ETF both produced positive returns. The Canadian ETF benefited from a rise in bond prices as the Bank of Canada cut 25 bps from its lending rate in June. An overweight allocation to corporate bonds, security selection within the financials and energy sectors, and short exposure to Japanese government bonds also added value. The global ETF benefited from corporate bond selection in the energy and industrials sectors along with duration management and country selection in government bonds.
Canadian equities exposure (15% of the fund) detracted from returns, with Canada moving in the opposite direction of foreign markets, delivering a small loss for the period. Stock selection in the industrials and materials sectors also detracted from performance.
Finally, the fund’s 100% currency hedging policy to U.S. dollars contributed to returns primarily as the euro and yen lost ground to the greenback.
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
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.
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