Portfolio returns: Q2 2024
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (June 22, 2020) |
iProfile Portfolio – Global Neutral Balanced I |
1.05 |
1.57 |
6.55 |
11.48 |
4.08 |
6.88 |
||
Quartile rankings |
2 |
1 |
2 |
2 |
1 |
iProfile™ Portfolio – Global Neutral Balanced Series I
Portfolio commentary
Q2 2024
Highlights
① U.S. equities driven by the information technology and telecommunications sectors.
② The portfolio rose over the period as all component iProfile Private pools were higher except for the iProfile Canadian Equity Private Pool.
③ Consumer spending has plateaued and economic growth has normalized.
Portfolio overview
The iProfile™ Portfolio – Global Neutral Balanced, Series I, rose over the period (+1.6%) and outperformed its Global Neutral Balanced peer group median. It outperformed global bond indices due to its significant exposure to equities, especially in the U.S. However, it lagged U.S. and global equity benchmarks due to its overweight exposure to underperforming Canadian equities.
Equity returns were especially strong from the iProfile U.S. Equity Private Pool (+5.4%) and the iProfile Emerging Markets Private Pool (+4.6%). The iProfile ETF Private Pool (+3.3%) and the iProfile Alternatives Private Pool (+2.7%) also contributed, mainly due to their significant exposure to U.S. equities. The top-performing U.S. pool contributed the most to portfolio returns and was in line with the S&P 500 Index Total Return $ CAD, with relative performance benefiting most from stock selection in the health care (especially pharmaceuticals), consumer staples (retailing), and information technology (lack of exposure to Intel and Cisco Systems) sectors.
The iProfile Canadian Equity Private Pool (-0.4%) was the only component iProfile pool to lose ground over the period. The pool’s top detractor from relative performance was an underweight exposure to the materials sector, which was the top-performing sector in the benchmark S&P/TSX Composite Index. Of the five segments of the pool, three outpaced the index, which declined, and two of those posted fractionally positive returns. The Fidelity Investments-managed core segment was the top performer but even so was up less than one half of one percent.
The iProfile Fixed Income Private Pool is the largest component iProfile pool in the portfolio (about 40% of the portfolio) and was the second-largest contributor to portfolio returns. The pool return (+0.9%) was in line with FTSE Canada Universe Bond Index Total Return but outperformed most global bond indices mainly due to an overweight exposure to Canadian bonds and strong contributions from the high-yield and short-term segments. Mackenzie – IG Canadian Bond Pool, which comprises the Canadian segment and is the iProfile pool’s largest fixed income segment, outperformed the FTSE Canada Universe Bond Index. In anticipation of interest rate cuts in Canada and the U.S., duration of the North American holdings was increased in recent months, which benefited performance as yields edged lower in May and June. This segment of the pool also benefited from a continuing negative (short) position in Japanese government bonds (JGBs), which fell over the period. IG Mackenzie Real Property Fund was slightly lower over the period and detracted from the pool’s results as Canada’s slower economic growth weighed on real estate valuations.
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: global economic conditions remain favourable
We believe interest rates at central banks have peaked, with Canada and the European Union lowering rates ahead of the U.S. Federal Reserve. The economic outlook shows signs of levelling out compared to three months ago, as unemployment ticked higher and consumer spending plateaued. The summer months may bring heightened headline risk surrounding the U.S. presidential election, but seasonality and historical data suggest equity markets are typically positive heading into the fall.
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