Mackenzie Systematic Strategies Team
The first quarter of 2019 showed a 10.16 % return for global equity stocks, one of the best quarters in several years. The returns were fairly consistent each month, with returns of 3.6%, 3.1% and 2.9% in Jan, Feb, and Mar. All sectors had a positive return, led by the Information Technology sector with an 17.11% return. Global stocks with high exposure Liquidity, Size, and Volatility did well over the quarter. Stocks with high exposures to Value and Medium-Term Momentum did very poorly over the quarter.
Global Small Cap Equity
The first quarter of 2019 was the best quarters in a few years for global small cap stocks, returning a heady 10.77%. January and February retuned 5.71% and 4.55%, while March still had a nicely positive return of 1.10%. All Sectors except Consumer Discretionary had positive returns for the quarter, with Information Technology leading the way with a 19.16% return. Global small cap stocks with high exposure to Larger Size, Liquidity, and Volatility did well over the quarter. Stocks with high exposures to Value, Medium-Term Momentum and Leverage did poorly over the quarter.
Outlook & Strategy
What are the key opportunities you see?
In general, the Systematic strategies team 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.
In the Global Equity arena, our funds generally have positive exposures to Growth, Valuation, Medium-Term Momentum, and Liquidity. The exposures to all of these factors helped performance over the quarter. Stock selection was negative for the quarter, with Industrials, Consumer Staples, and Communication Services leading the way in negative stock selection. Consumer Discretionary and Financials had positive stock selection. Poor Stock selection was concentrated in the United States, while South Korea showed positive stock selection.
In the Global Small Cap arena, our funds generally have positive exposures to Growth, Valuation, Medium-Term Momentum, and Liquidity. All of these exposures helped performance over the quarter. Stock selection was very poor for the quarter and detracted from performance, with Consumer Discretionary, and Information Technology comprising the major share of negative stock selection. Stock selection was poor in the United States and France.
How are you positioning portfolios in response to this outlook?
At the end of Q1, our portfolios were generally positioned with positive exposures to growth, liquidity, and medium-term momentum factors in the global equity strategy, and positive exposures to growth, liquidity, valuation and medium-term momentum factors in the global small cap.
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 global stocks and small cap in the global equity and global small cap strategies, respectively.
Our regime model is currently showing a neutral regime, and we expect Growth, Valuation, and Momentum to be rewarded equally.