Q3 2016 Commentary – Mackenzie Growth Team | Mackenzie Investments

Q3 2016 Commentary

Mackenzie Growth Team

Market Review

US equities performed well. The Russell Mid Cap TR index returned 6.1% (CAD). The information technology and energy sectors were the biggest drivers of returns, with health care and industrials also contributing positively. Conversely, utilities, telecommunications and consumer staples sectors detracted from performance. Expectations rose that the Federal Reserve (Fed) would increase rates again before the end of 2016, but not likely before the US election in November.

Outlook & Strategy

What are the key opportunities you see?

  • In the U.S., wages have started rising after several years of remaining flat. We believe this rise may prompt companies to begin taking action to improve productivity with the intention of maintaining profit margins. In seeking to improve productivity, companies may invest in new technology and services that can help them get work done more efficiently. We think several of our companies can assist in this effort.

What are key risks that need to be managed?

  • We believe that the US economy has weakened recently, and, like many other economies, faces structural challenges in the form of high debt levels, overcapacity, and declining profit margins. Across the globe, governments have too much debt to be able to boost growth in a major way. With that macro-economic backdrop, we believe the world will continue to proceed in a low growth environment.
  • Ever since the financial crisis of the last decade, we believe that there have been two key risks for equity investors: investors are being either too pessimistic or too optimistic. We expect market volatility will continue as we approach the U.S. presidential election in November and the building rate hike speculation surrounding the Federal Reserve meeting in December.

How are you positioning portfolios in response to this outlook?

  • What we aim to do is to know as many great businesses as we can, and learn what they might be worth. When markets offer us attractive share prices for these businesses, we become buyers.
  • Given our more pessimistic outlook for the U.S. economy, we have focused our attention on owning highly innovative, secular growth businesses. These types of companies offer products and services that make the world better, cheaper, and faster – enabling them to grow at a much faster pace than the overall economy. We believe that growth investing prospers in a world where growth is scarce.
  • We focus mainly on free cash flow as a metric for company valuations. This measure has become even more important in recent years, as companies have moved increasingly to present earnings in an “adjusted” fashion which may obscure reality. In our view, accounting risk has risen and we believe securities regulators are becoming increasingly concerned with these “adjusted” disclosures based on recent guidance.

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 September 30, 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.

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 September 30, 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.