Portfolio returns: Q1 2025
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jan 30, 2023) |
IG Target Education 2040 Portfolio F | -3.01
| -0.18
| -0.18
| 11.64
| 13.62
| |||
Quartile rankings | 4 | 4 | 4 | 2 |
IG Target Education 2040 Portfolio Series F
Portfolio commentary
Q1 2025
Highlights
① The IG Target Education 2040 Portfolio performed in line with its benchmark over the quarter, net of underlying fund and ETF fees.
② Asset allocation and U.S. equity sector rotation detracted over the quarter, while country positioning was additive.
③ Manager selection was challenged over the quarter, with all equity managers underperforming their benchmarks.
Portfolio Overview
The IG Target Education 2040 Portfolio performed in line with its benchmark over the quarter. Asset allocation, sector rotation and manager selection faced headwinds, while country positioning in equities was positive.
Asset allocation positioning detracted over the quarter. The portfolio positioned overweight equities and underweight duration, which was negative as yields fell in most economies on growth fears. Sector positioning in U.S. equities was also negative, with overweight allocations to the industrials and information technology sectors as the main detractors, while an overweight allocation to the health care sector was additive. Within country positioning in equities, an overweight position in Taiwan detracted while overweight positions in Italy and Spain were additive. Active equity managers were challenged over the quarter with allocations detracting across all three U.S. and Canadian funds (T. Rowe Price – IG U.S. Equity Pool, Fidelity – IG Canadian Equity Pool, Mackenzie – IG Canadian Equity Pool).
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: tariff policy volatility and outcomes
The tariff anticipation and announcement from the White House has been the central focus for markets over the quarter, particularly in the last week. While the initial reaction to tariffs has focused on the negative implications for growth, we believe that the market is underappreciating that recent tariff announcements represent a sizeable shock to the U.S. price level and raise the risk of higher inflation, which should ultimately be negative for bonds. As such, we have recently added to fixed income underweight allocations as we believe that bonds are overpriced at current levels of yields, as well as moved underweight sectors that closely track interest rates (i.e., utilities).
The market’s attention is likely to shift towards more growth-positive fiscal policy developments abroad and in the U.S., particularly the potential for offsetting tax cuts that may amplify consumption; notably, these would further challenge long-term inflation dynamics. Structural fiscal shifts in Europe to meaningfully increase defense and infrastructure spending, as well as loosen the debt brake, are also a clear positive growth impulse for the Eurozone and globally. We have overweight positions in developed market European countries (Sweden, Switzerland and the U.K.), and have closed underweight positions in France and Germany in recent weeks.
Structurally, the shift in trade policy may pressure the U.S. assets (dollar, bonds and equities in the global cross-section) as foreign holders of U.S. assets demand higher-risk premia or begin to repatriate capital.
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