Q1 2019 Commentary – Mackenzie Systematic Strategies Team | Mackenzie Investments

Q1 2019 Commentary

Mackenzie Systematic Strategies Team

Market Review

Global Equity

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.

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 March 31, 2019 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 March 31, 2019. 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.