Q4 2018 Commentary – Mackenzie Canadian Balanced Fund | Mackenzie Investments

Fund Commentary

Q4 2018 Commentary

Mackenzie Canadian Balanced Fund


Performance Summary

  • For Q4, Mackenzie Canadian Balanced Fund returned -9.1% vs. the blended index (57.5% S&P/TSX Composite TR and 42.5% FTSE TMX Canada Universe Bond Index) return of -5.1%.

Contributors to Performance

  • At a sector level, stock selection in Health Care contributed positively to returns relative to the benchmark, as did the underweight exposure to Financials.
  • At a regional level, exposure to the Australia and France contributed positively to relative performance.
  • At a security level, OceanaGold Corporation, Thomson Reuters Corporation, and SYNNEX Corporation, were the largest contributors during the quarter.
  • In the Fixed Income portion of the portfolio, security selection in government and corporate bonds contributed positively to relative performance.

Detractors to Performance

  • At a sector level, stock selection in Materials detracted from relative performance the most, as well as stock selection in Energy, Financials, Consumer Discretionary and Information Technology.
  • At a regional level, exposure to the United States was the largest detractor from relative performance.
  • At a security level, the top detractors from performance were Source Energy Services, SM Energy Company, and Mallinckrodt Plc.

Portfolio Activity

Equity:

  • From a sector perspective, exposure to the Utilities, Energy, and Consumer Staples sectors increased, while exposure to Consumer Discretionary, Health Care, Industrials and Information Technology decreased.
  • At a regional level, the Fund increased its positions in Japan, while decreasing in the United States and Canada.

Fixed Income:

  • 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.

Outlook

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 Q4, our portfolios were generally positioned with positive exposures to Growth, Liquidity and Medium-Term Momentum. 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 values stocks with positive growth characteristics, with positive medium-term momentum, and that are more liquid than the average global stock.  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:

  • The portfolio management team believes company profitability remains strong and cash flow is adequately covering interest payments. Volatility in the fourth quarter, resulting in more attractive valuations for corporate credit, has presented investors with some short to medium term opportunities in both investment grade and high yield credit; however, the key for investors over the next several quarters will be balancing such potential opportunities with managing credit risks that usually appear late in a market cycle such as we are currently experiencing. Although the team does not expect an economic recession in 2019, quantitative tightening by central banks globally will likely continue to add to asset price volatility and combined with geopolitical risks such as global trade tensions, Brexit and a lack of bipartisan spirit in US politics could pose negative surprises to the global economy. The global debt overhang, coupled with the aforementioned geopolitical issues make it likely that the US Fed Fund Rate is nearing its nadir for this cycle, which could be beneficial to higher quality longer duration bonds.

 

PORTFOLIO MANAGEMENT TEAM:

Equity Team:  

  • Richard Weed, Senior Vice President, Investment Management, Mackenzie Investments
  • Matthew Cardillo, Vice President, Investment Management, Mackenzie Investments

Fixed Income Team:   

  • Steve Locke, Senior Vice President, Investment Management, Mackenzie Investments
  • Felix Wong, Vice President, Investment Management, Mackenzie Investments

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 December 31, 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 investment products that seek to track an index.

This document includes forward-looking information that is based on forecasts of future events as of December 31, 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.