Q2 2018 Commentary – Mackenzie North American Equities Team* | Mackenzie Investments

Q2 2018 Commentary

Mackenzie North American Equities Team*

*Formerly known as Mackenzie All Cap Value Team

The portfolio management team remains optimistic on the outlook for Canadian equity markets.  Although we are likely in the later stages of the economic cycle, the Canadian economy is expected to continue benefiting from strong demand for goods and services from the United States.  This should allow for continued strength in corporate profits resulting in positive equity market returns. 

There has been greater dispersion of returns among Canadian stocks this year than in recent years past. On balance it does seem that the majority of the "winners" fall in the growth stock camp. This has made it difficult to outperform. However, we are finding value in several pockets of the market for the first time in a while.

We expect interest rates to continue rising in the period ahead as inflation and real rates move higher.  This should be positive for earnings of banks and life insurance companies.  Insurance stocks have lagged the overall market recently however fundamentals remain sound and the stocks are relatively inexpensive.  Bank earnings growth is likely to decelerate as residential housing activity declines, resulting in slower mortgage loan growth.  However, higher interest rates should allow banks to drive profitability higher.  Over the medium term we are constructive on the outlook for the energy sector as the lack of investment in the sector results in global oil supply constraints while demand continues to surprise to the upside.  Commodity prices in the energy sector are expected to remain volatile as higher prices spur a supply response particularly from US shale producers.   

We continue to monitor key risks in the market.  The tariffs put in place by the US government together with the retaliatory actions of other trading nations has created some uncertainty in the market.  The negative rhetoric from the United States regarding trade with Canada has increased recently and could adversely affect ongoing NAFTA negotiations.  We continue to closely watch these proceedings and assess potential outcomes.  Additionally, we also continue to monitor the effects of higher interest rates on global economic growth.  We are likely entering a period of global central bank tightening which has the potential to slow economic growth going forward.  This is likely to result in higher equity market volatility as uncertainty increases.   

Concerns around trade tariffs potentially imposed by the U.S. and retaliating measures from the impacted countries, such as China, have lead to market volatility.  While global GDP was up in the second quarter, the continued uncertainty surrounding global trade has negatively impacted many markets outside the U.S., as well as business sentiment.  However, even with heightened concerns over trade, capital spending increased in parts of Europe, the U.S. and Japan. China, on the other hand, has seen lower fixed investment growth which impacts GDP growth and increased concerns over its slowing economy would be negative as China is the second largest economy in the world.   

Despite these headwinds, global equity market valuations are above the historical long-term median as the expectation of a global recovery continue.  However, valuations are not near the high end of the historical range either.  Regions that still appear reasonable in terms of market valuation include Japan and Emerging Markets.

With all of this in mind, the managers remain focused on the long term, under the assumption that modest positive economic growth should drive continued growth in earnings. 

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 June 30, 2018 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.

This document includes forward-looking information that is based on forecasts of future events as of June 30, 2018. 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.