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 (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).
The portfolio’s equity allocation was the leading contributor to portfolio returns, followed by fixed income.
Mackenzie – IG U.S. Equity Pool, the Mackenzie Broad Risk Premia Collection Fund and the Mackenzie – IG Canadian Bond Pool were the largest contributors. Mackenzie – IG U.S. Equity Pool underperformed its benchmark, with security selection in the information technology sector as the largest detractor. Mackenzie Broad Risk Premia Collection Fund is a levered equity and fixed income fund. The investment team uses leverage to manage total portfolio equity and fixed income exposure in a capital efficient way. Mackenzie – IG Canadian Bond Pool outperformed its benchmark, benefiting from duration positioning and an overweight allocation to corporate bonds.
Mackenzie Canadian Equity Pool and the Mackenzie Enhanced Fixed Income Risk Premia Fund were the largest detractors. Mackenzie Canadian Equity Pool underperformed its benchmark, with security selection in the materials sector and an overweight allocation to the health care sector as the largest detractors. Mackenzie Enhanced Fixed Income Risk Premia Fund is a levered fixed income fund. The investment team uses leverage to manage total portfolio fixed income exposure in a capital efficient way.