Q2 2018 Commentary – Mackenzie Systematic Strategies Team | Mackenzie Investments

Q2 2018 Commentary

Mackenzie Systematic Strategies Team

Market Review

Canadian Focused Equity

The second quarter of 2018 showed a robust return for the CFE Category, with positive returns in all 3 months. After a poor first quarter, Canadian stocks had slightly higher returns compared to US Stocks. Continental Europe and Asia were laggards for the quarter, dragging the return down for the Category. The Energy sector was the best performer over the quarter followed by Materials and Consumer Discretionary, which both put up close strong positive returns. All Sectors had positive returns for the quarter. In the Canadian-focused fund area, only stocks with medium term momentum showed significant positive returns. Stocks with higher volatility or leverage were especially punished over the quarter.

Global Small Cap Equity

The second quarter of 2018 showed a moderate return for the global small cap category. Each month exhibited positive returns, with May leading the way. The majority of the return was led by the Energy and Healthcare sectors. Global small cap stocks with high exposure to medium term momentum and low volatility were the only stocks that did well over the quarter. Stocks with high exposures to Foreign Exchange Rates and leverage did very poorly over the quarter.

Global Equity

The second quarter of 2018 showed a moderate return for the global stock category. Each month of the quarter had a positive return. The Energy and Technology sectors led the way. All of the other sectors were positive with the exception of Telecommunication Services and Financials. Global stocks with exposure to medium term momentum did well over the quarter, but all other exposures were flat to down, with volatility being the worst of all factor exposures.

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 Canadian-focused equity (CFE) arena, our funds generally have positive exposures to growth, valuation, and medium-term momentum. The exposure to growth and medium-term momentum factors contributed positively to performance over the quarter. Stock selection was negative for the quarter, with Information Technology and Healthcare leading the poor stock selection. Stock selection was very positive in the US and the UK but negative in the Canada.
The Stock selection model in the CFE area was positive in 2 of the 3 months of the quarter.

In the Global small cap arena, our funds generally have positive exposures to growth, valuation, medium term momentum, and liquidity. The exposures to medium term momentum and growth factors contributed positively to performance. Conversely, our exposure to volatility and valuation factors detracted from our performance. Stock selection was poor for the quarter and also detracted from performance, with Technology, Real Estate, and Financials comprising the lion’s share of negative stock selection. Stock selection was poor in the US, Taiwan, and Japan.
The Stock selection model for global small cap was negative 3 out of 3 months in the quarter.

In the Global equity arena, our funds generally have positive exposures to growth, valuation, medium term momentum, and liquidity factors. The exposures to medium term momentum, and growth stocks contributed positively to performance. Conversely, our exposure to volatility and valuation factors detracted from our performance. Stock selection was very negative for the quarter, with Technology, Industrials, and Materials leading the way. Stock selection was poor in the US and Japan, but Continental Europe had mostly positive stock selection.
The Stock selection model for global concentrated was positive in 2 of the 3 months in the quarter.

How are you positioning portfolios in response to this outlook?

At the end of Q2, our portfolios were generally positioned with positive exposures to growth, valuation, and medium-term momentum factors in the CFE strategy; positive exposures to growth, liquidity and medium-term momentum factors in the global small cap and global equity strategies. 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 value stocks with positive growth characteristics, trading at cheaper-than-peer valuations, with positive medium-term momentum in the CFE strategy; stocks with positive growth characteristics, with positive medium-term momentum, and that are more liquid than the average small cap and global stocks in the global small cap and global equity 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 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.