Q4 2016 Commentary – Mackenzie Canadian Growth Team | Mackenzie Investments

Q4 2016 Commentary

Mackenzie Canadian Growth Team

Market Review

Most major global equity markets delivered positive returns over the quarter, in a post US election rally. Fixed income markets, conversely, saw a sharp sell-off. In our view, although market valuations appear to be higher than long term historical averages, they remain within reasonable ranges, given the low level of inflation and interest rates globally. This, in combination with continued earnings growth for companies in general, suggests to us that equity markets remain reasonably attractive. As always, if inflation and interest rates increase materially, we will factor them into our valuation models and adjust our portfolios accordingly.

Outlook & Strategy

What are the key opportunities you see?

  • Over the past decade, we believe that global growth has been fairly anemic. However, after the election of Donald Trump on a potentially populist, fiscal spending oriented platform, equity markets began to price in a return to more normal levels of growth and inflation.
  • We believe our investment style, based around owning 30-35 high-growth businesses at attractive valuations, remains well suited to this environment. During the quarter, we added positions in CAE, Parson Systems, Marsh & McLennan, and First Republic.

What are key risks that need to be managed?

  • We believe that the most uncertain factor as we head into 2017 is the shape of US fiscal policy going forward. In our view, the populist components of President-Elect Trump’s platform, including middle-class tax cuts and significant infrastructure spending, should be supportive of a rising rate of growth. Given that these policies are not consistent with recent Republican tradition, it remains to be seen if they will be enacted. If there is a significant drift towards tax reduction for ultra-wealthy Americans, offset by material cuts to entitlement programs, we believe US growth will likely surprise to the downside.
  • Policies on global trade will also be a key focus, with certain policy proposals potentially highly disruptive to trade and globalization. At this point, we believe that possible changes to US trade policies are, at best, zero sum. In other words, if the US gains from policy changes, it will do so at the expense of other economic regions.

What are key risks that need to be managed?

  • We continue to actively seek out growth companies at attractive valuations to include in our portfolios. From a regional perspective, we continue to believe that North America remains the most attractive area for investment. In our view, unlike other major regions, the economic stagnation experienced in North America has had a significant cyclical component, namely the after effects of the US housing collapse. This cyclical headwind may potentially be shifting to a tailwind as the US economy continues to normalize.
  • The policy driven change in the macro environment should create new winners and losers in the market over time, as certain industries have large positive leverage to a higher inflation/higher interest rate environment. From an investment standpoint, this opens up areas of the market that we had been avoiding for much of the past decade, and we are actively reallocating capital towards what we believe will be tomorrow’s winners. At this point, we are operating under a heightened level of caution and conservatism in our modelling assumptions, as we do not have a clear sense of the policies that will ultimately be enacted.

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, 2016 including changes in unit value reinvestment of all distributions and do and 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.

On August 9, 2016, David Arpin and Dina DeGeer assumed portfolio management responsibilities for Mackenzie Global Growth Class and Mackenzie US Growth Class.

To the extent the Fund uses any currency hedges, share performance is referenced to the applicable foreign country terms and such hedges will provide the Fund with returns approximating the returns an investor in a foreign country would earn in their local currency.

This document includes forward-looking information that is based on forecasts of future events as of December 31, 2016. We will not necessarily update the information to reflect changes after that date. 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.

On November 10, 2006, the Mackenzie US Growth Class acquired the assets of another Mackenzie-sponsored fund in a merger that was considered a material change for the Fund. Therefore, the Fund’s performance is provided from the date of the merger rather than its inception, as required under applicable securities laws.