Q2 2018 Commentary – Mackenzie Canadian Small Cap Fund | Mackenzie Investments

Fund Commentary

Q2 2018 Commentary

Mackenzie Canadian Small Cap Fund

Performance Summary

  • For Q2 2018, the Mackenzie Canadian Small Cap Fund returned 4.0%. This compares with the S&P/TSX Small Cap Total Return Index return of 6.6%.

Contributors to Performance

  • The portfolio’s technology holdings have performed well during the quarter, driven by consistent earnings beat and stable outlooks.
  • The energy sector revived in Spring and the trend continue to hold for the second quarter as crude hitting $75/bbl. Overall, tighter crude oil market in North America, provides a supportive macro backdrop for the oil-weighted companies under the fund.
  • On an absolute basis, the portfolio benefited from some strong performance of Real Estate and Financial names in the quarter.

Detractors from Performance

  • The portfolio underperformed the index largely due to its position in energy stocks. Energy performed strongly for the quarter, but the portfolio has a lower weight relative to the index.
  • Some of our packaging company holdings continued to face resin-related margin pressure, and our Gold ETFs were lagging the performance of the index group in the quarter.
  • The fund is underweight metals and mining names, especially gold stocks that recovered strongly in the period, our two Gold ETF holdings were not enough to offset the under-performance.
  • Trade tensions between the US and Canada and the possibility of higher tariffs on the steel and auto sectors have put a negative impact on our bus related stocks including, NFI Group and Grand West Transportation.

Portfolio Activity

  • There were no buys that we can disclose for the quarter.
  • We sold our positions in Laurentian Bank, PHX energy and Uni-Select from the fund.  


  • Small Cap equities posted strong results led by the spring recovery of commodities in a challenging quarter. Volatility remained elevated in Q2 as intensifying trade war talks rattled investors' optimism. TSX small cap index was up 6.6% with the energy sector posting 17% return. Materials and Financials also displayed strong gains.
  • Global oil benchmark prices for oil are now in the US$70-80 range as a result of tight supply/demand balances. The energy sector financially caught up with the fundamentals. Small to Mid-Cap E&Ps demonstrated the most torque to the improved commodity price. The Energy rankings increased at the expense of other cyclical (Industrials and consumer products), while other defensive sectors remain on a downward path. Among the industrial sector, the auto sub-sector was among the hardest hit, likely due to NAFTA/Trade war fears.
  • We have expected volatility to resume in 2018 vs a benign market last year, the recent intensifying trade war talks only exacerbate the situation. On the positive side, a strong stand of oil fundamentals and relatively healthy employment condition will likely drive the equity market. As we enter the Q2 earning season, analysts are going to review their commodity price assumptions for 2H/18 and 2019. We expect that the energy sector will offer the highest potential for positive earnings revisions. Valuation remains cheap for the Canadian Small Cap equity. We have adjusted our mix of energy names to favor producers in order to gain further torque on the upside.

Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns as of June 30, 2018 including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in the investment products that seek to track an index.

This document includes forward-looking information that is based on forecasts of future events as of June 30, 2018. Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information. In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security.

The content of this commentary (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.