Q4 2018 Commentary – Mackenzie Canadian Small Cap Fund | Mackenzie Investments

Fund Commentary

Q4 2018 Commentary

Mackenzie Canadian Small Cap Fund

Performance Summary

  • For Q4 2018, the Mackenzie Canadian Small Cap Fund posted a loss of -16.0% This compares with the S&P/TSX Small Cap Total Return Index return of -14.4%.

Contributors to Performance

  • The fund carries lower weights on energy stocks than those in the index, energy stocks lost over 30% value in the quarter due to a rapid decline in oil price and a historical high Canadian differential.
  • The Portfolio benefited from the stability among its Real Estate holdings during a broad market selloff.
  • Gold holdings provided some lift as other equities were deeply oversold.

Detractors from Performance

  • The equity markets have experienced a broad-based correction, all sectors were down which was triggered by an expected loss of economic and earnings momentum.
  • The fund's many holdings in industrial and consumer discretionary sectors had a rough go during market sell-off, earning season was uninspiring for the quarter as a result. The most significant detractor was our underweight position in the Materials sector.
  • The Energy sector was heavily discounted in the quarter as oil price dropped below $50 amid unprecedented Canadian differentials.

Portfolio Activity

  • There are no buys or sells that we can disclose at the moment.


  • 2018 turned out to be a very tough year for equity investors. Unless a portfolio held a significant amount of cash, there was nowhere to hide amid a broad market selloff that intensified in December. The correction started with a disappointing earnings season that failed to ignite any strong growth prospects, and followed by fears centered around a protracted trade war and a less dovish Fed view on rate hikes.
  • We have seen some recovery from destructive December in the new year, but sentiment is still fragile, that could lead to increased volatility into the new year. A debate on how soon a recession is upon us has swung the market dramatically. Small Cap equities were not immunized to the change, contrast performances between gold stocks and all the other sectors is witnessed daily. It is evident to us that growth prospects have slowed down but so do expectations. Valuations have come down a lot, S&P 500's P/E ratio has declined nearly 30% peak-to-trough in 2018, Canadian equity valuations have declined in a similar fashion. Many of our top holdings with strong defensive business operations, have given up most of the gains of the year. In our view strong balance sheet companies with solid business fundamentals will outperform. We will opportunistically top up positions in such holdings.
  • Key indicators are not yet signaling the end of the business cycle. We have reason to believe that much of the bad news has been priced in. We look forward to greater transparency on a lot of outstanding issues over the next few months, such as, Brexit, resolution from trade talks and further economic data out of the US and China, and finally the Fed policy.



Scott Carscallen, Vice-President, Investments, Mackenzie Financial Corporation

Dongwei Ye, Associate Portfolio Manager

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 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 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.

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