Q3 2018 Commentary
- For Q3, Mackenzie Canadian Balanced Fund returned -1.4% vs. the blended index (57.5% S&P/TSX Composite TR and 42.5% FTSE TMX Canada Universe Bond Index) return of -0.7%.
Contributors to Performance
- At a sector level, an underweight exposure and stock selection in Energy contributed positively to returns relative to the benchmark, as did the stock selection in Materials and Consumer Staples.
- At a regional level, exposure to the United States contributed positively to relative performance.
- At a security level, Apple, SM Energy Company, and Alimentation Couche-Tard, were the largest contributors during the quarter.
- In the Fixed Income portion of the portfolio, security selection in corporation bonds contributed positively to relative performance.
Detractors to Performance
- At a sector level, an overweight exposure and stock selection in Consumer Discretionary, as well as an underweight exposure and stock selection in Financial, detracted from relative performance.
- At a regional level, stock selection in Canada and exposure to Korea detracted from relative performance.
- At a security level, the top detractors from performance were Stars Group, Canfor Corporation, and Transcontinental Inc.
- In the Fixed Income portion of the portfolio, security selection in government bonds detracted from relative performance.
- At a regional level, the Fund increased its positions in the United States, while decreasing in Japan and Korea.
- From a sector perspective, exposure to the Materials, Telecommunication Services and Industrials sectors increased, while exposure to Energy, Financials and Consumer Staples decreased.
- The team continues to maintain an overweight allocation to corporate bonds relative to the index and continues to improve to credit quality of the corporate bond exposure, which helps manage risk from potential market declines.
Equity Team’s Outlook:
- The Systematic strategies group maintains exposure to certain factors, which we believe will consistently add value over time. We will vary the weightings of these factors depending on our forecasts of the rewards to these factors. Another key component of our investment process is our stock selection model. In general, the more successful the stock selection model is, the better the portfolio will perform.
- At the end of Q3, our portfolios were generally positioned with positive exposures to growth, valuation, and medium-term momentum factors in the CFE strategy. The funds also have a high Alpha exposure, across all industries and sectors to the stock selection model. Thus, aside from our stock-specific risks, we would expect our portfolios to perform above their market benchmarks in an environment which value stocks with positive growth characteristics, trading at cheaper-than-peer valuations, with positive medium-term momentum in the CFE strategy. Our regime model is currently showing a neutral regime, and we expect growth, valuation, and momentum to be rewarded equally.
Mackenzie Fixed Income Team’s Outlook:
- Unless market volatility, and economic risks, for the domestic US markets rise notably during the fourth quarter, the Fed, and President Trump, should be expected to continue to focus policy almost solely on the US agenda. This means that the Fed will follow through with another rate hike by December, as Chairman Powell pushes the rate toward the yet to be determined neutral level for this cycle. The yield curve is likely to continue to flatten as this occurs. With the NAFTA renegotiation now out of the way, subject to ratification, the Bank of Canada will follow the Fed to higher policy rates here, with a lag due largely to their previously stated concerns with higher household debt levels.