IG Target Education 2030 Portfolio Series F

Portfolio Commentary<br> Q4 2023

Highlights

① Improving growth sentiment and the possibility of an end to central bank hiking cycles led to a rally in equities and bonds and a positive total return for Q4 2023.

② The fourth quarter sent stocks and bonds prices higher.

③ The earnings outlook is improving, as forward-looking indicators turn positive.

Portfolio Overview

The IG Target Education 2030 Portfolio underperformed its benchmark (net of fees) over the quarter. Tactical asset allocation was slightly positive over the period, and manager selection was relatively flat in terms of contribution to active returns.

The fourth quarter of the year can be characterized by a moderation in inflationary pressures, increasingly dovish central banks and an upturn to the global manufacturing cycle. In the U.S., the Fed signaled a shift in monetary policy from a “higher-for-longer” stance to prospective rate cuts. Europe has also experienced a similar easing of inflationary pressures and central banks signaling rate cuts in 2024. Equity gains were generally positive in Asia, although China was a notable outlier to the overall strength of Asian markets as a result of a looming real estate crisis and regulatory uncertainty. 

Foreign equity (44%), fixed income (29%) and Canadian equity (21%) make up the bulk of this fund.

Portfolio: Upside surprises to growth drive strong equity and bond performance.  

Performance contributors

Overweight allocation to equities
+ The portfolio held an overweight allocation to equities throughout the quarter, which was a positive contributor to performance given a substantial rally in November and December as prospects for an economic soft landing became more priced in markets. 

Overweight exposure to Taiwan equities
+ An overweight exposure to Taiwan was positive given outperformance from the country on some easing of tensions with China and close ties to the artificial intelligence theme. 

Manager selection 
+ Underlying security selection funds were slight positive contributors in aggregate over the quarter. The Fidelity – IG Canadian Equity Pool was the largest contributor among active managers. 

Performance detractors

Underweight allocation to U.S. equities
- The portfolio held an underweight allocation to U.S. equities, which detracted from performance given U.S. outperformance on resilient growth compared to other developed markets. The prospect of rate cuts in 2024 also spurred equity performance over the quarter. 

Underweight exposure to real estate
- The portfolio held an underweight exposure to U.S. real estate equities over the quarter, which detracted from performance given a broadening of the technology-driven rally to other sectors in the fourth quarter.  

Portfolio Returns: Q4 2023

Total Return 1M 3M YTD 1YR 3YR 5YR 10YR Since Inc. (JANUARY 30, 2023)

IG Target Education 2030 Portfolio Series F

2.92

7.87

 

   

 

 

7.10

<strong>Market Overview</strong>: The last quarter of 2023 set a positive tone for the new year.

The fourth quarter saw a rally in most asset classes and sectors. Yields went down, sending both stocks and bonds higher. The markets aggressively priced in an economic “soft-landing”, which impacted valuations across the board. U.S. stocks began the quarter with a forward price-to-earnings (P/E) ratio in the mid-17s, but ended close to 20, a significant increase.

Bond yields went up a lot during the year, yet the fourth quarter's rally sent the US 10-year Treasury yield down to 3.87% (the exact same level at which it ended in 2022).

Canadian equities finished the year strongly, with the  S&P/TSX Composite Index increasing by 7.25% (and ending the year up 8.12%). Information technology led the rally, with returns of 23.9% for the quarter, while energy was the only sector to decline.  

<strong>Market Outlook</strong>: Economic indicators point towards U.S. recovery.

Central banks in Canada, Europe and the U.S. are expected to lower interest rates at some point in 2024. Signs show the manufacturing and earnings slump is fading, and the era of high inflation and interest rates is coming to an end. There are more indicators pointing to a U.S. recovery rather than a recession.

The earnings outlook is now brighter, as previous economic soft spots recede, and forward-looking indicators turn positive. Valuations shifted in the fourth quarter of 2023 to reflect this improved outlook. This means that some early-year volatility is possible, as the markets digest the latest macro-economic data and determine if their optimism was warranted or exaggerated.  

To discuss your investment strategy, speak to your IG Consultant.