Q4 2018 Commentary
- During Q4 2018, the Fund returned -13.8% against the MSCI All Country World Small Cap Index TR (net) CAD, which returned -8.7%.
Contributors to Performance
- At the sector level, the Fund’s overweight exposure to Information Technology and stock selection within the sector contributed positively to relative performance, as did stock selection in Energy.
- From a regional perspective, stock selection in the United Kingdom, Norway, and France contributed positively to relative performance.
- From a style factor perspective, our funds generally have positive exposures to growth, valuation, medium term momentum, and liquidity factors. For this quarter, the Fund’s exposure to earnings yield and exchange rate sensitivity factors contributed to relative performance.
- At the security level, strong results were seen from Ciena Corporation, Dialog Semiconductor plc, and Daiwa Office Investment Corporation.
Detractors from Performance
- At the sector level, stock selection in Health Care, Consumer Discretionary, and Materials detracted from relative performance.
- From a regional perspective, stock selection in the United States, Australia, and Japan detracted from relative performance.
- From a style factor perspective, our exposure to volatility factors and small cap stocks hurt our relative performance.
- At the security level, key detractors included Ligand Pharmaceuticals Incorporated, Signet Jewelers Limited, and Express Inc.
- Portfolio activity and market effects over the quarter resulted in increased exposure to Information Technology and Communication Services, and reduced exposure to Energy, Health Care and Consumer Discretionary. The Fund initiated exposure to the Utilities sector over the quarter.
- Regionally, the portfolio increased exposure to the Japan, Korea, the United Kingdom, and France, while decreasing exposure to the United States, Canada, and Australia. Cash allocation also decreased over the quarter.
- 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 Valuation, and Medium-Term Momentum factors. 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 small cap stock. Our Regime model is currently showing a neutral regime, and we expect growth, valuation, and momentum to be rewarded equally.
PORTFOLIO MANAGEMENT TEAM:
Rick Weed, Senior Vice President, Investment Management, Mackenzie Investments