iProfile™ Portfolio – Global Equity Series F

Portfolio Commentary<br> Q4 2023

Highlights

① Stocks surge as bond yields plunge.

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 iProfile™ Portfolio – Global Equity, Series F, rose as stocks gained ground in all regions. Most major central banks paused their rate hike campaigns in the face of softer economic activity and slowing inflation, fueling speculation that their next move will be rate cuts in 2024. U.S. equities led gains as interest rates plunged, outperforming the MSCI World Index, while equities in Canada and Europe were strong but trailed the global benchmark.

All portfolio segments gained ground, especially those with substantial North American and European equity exposure, including the iProfile ETF Private Pool, iProfile U.S. Equity Private Pool and iProfile International Equity Private Pool. The iProfile Alternatives Private Pool, which contains some fixed income, currency and hedging positions, was the weakest component. The iProfile Emerging Markets Private Pool also lagged due to falling stocks in China.

Foreign equity (68%), Canadian equity (20%) and active allocation funds (10%) make up the bulk of this fund.

Portfolio: North American and European equities lead gains.

Performance contributors

ETF pool
+ The iProfile ETF Private Pool rose as all three component ETFs made strong gains, especially the Mackenzie US Large Cap Equity Index ETF. Comprising nearly 60% of the pool, the U.S. ETF not only outperformed the world equity benchmark, but also slightly outpaced the outperforming S&P 500 Index. 

U.S. equity pool
+ The iProfile U.S. Equity Private Pool posted a robust positive performance but slightly underperformed the S&P 500 Index Total Return $ CAD. The two contributing sub-advisors to the large-capitalization growth portion of the pool delivered the strongest performance (Putnam Investments and American Century Investments).

International equity pool
+ The iProfile International Equity Private Pool outperformed the MSCI EAFE Index Total Return (Net) $ CAD as six of the pool’s eight segments (core, large-cap growth, small-cap) topped the benchmark. Only the value-oriented segments trailed as value stocks broadly underperformed growth stocks. 

Performance detractors

Alternatives pool
- The iProfile Alternatives Private Pool and both its constituents lagged major equity benchmarks. The Mackenzie Global Macro Fund, which represents about 50% of the pool’s assets, was weakest due to losses on short exposures to long-duration government bonds and put options on U.S. equities. 

Emerging markets pool
- The iProfile Emerging Markets Private Pool slightly underperformed the MSCI Emerging Markets Index Total Return (Net) $ CAD mainly due to the decline of its China A-Shares segment (ChinaAMC) as well as stock selection in China in the pool’s other segments. 

Low volatility pool
- The iProfile Low Volatility Private Pool underperformed the broad-based MSCI World Index Total Return (Net) $ CAD as expected, as low-volatility indices underperformed non-low-volatility benchmarks in the major market regions of the U.S., EAFE and emerging markets.

Portfolio Returns: Q4 2023

Total Return 1M 3M YTD 1YR 3YR 5YR 10YR Since Inc. (Aug 9, 2021)

iProfile Portfolio – Global Equity F

2.37

7.31

14.64

14.64

     

3.14

<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.