Mackenzie Systematic Strategies Team
Canadian Focused Equity
The last quarter of 2017 showed a nicely positive return for the CFE category for the month of October. The next two months were also positive, giving the CFE Category a nice positive return for the Quarter. The TSX returned 3.67% and the S&P 500 returned 6.12% for the quarter. The Information Technology sector was the best performer over the quarter, followed closely by the Consumer Discretionary sector.
In the Canadian-focused fund area, stocks with larger capitalization and liquidity, as well as medium term momentum showed nicely positive returns. Stocks with higher volatility or short term price momentum were punished over the quarter.
Interestingly, all sectors had positive performance over the quarter, with Utilities and Energy only being up slightly over the Quarter.
Global Small Cap Equity
The last quarter of 2017 started off where Q3 ended with a continued rally with very strong returns for global small cap stocks. The rally continued through November, before December profit-taking caused a slight drop in return. Even so, Global small cap stocks had healthy returns for the Quarter. Consumer Discretionary, Consumer Staples, and Materials led the way with strong positive returns from all 3 sectors. All sectors showed positive returns for the quarter. Global small cap stocks with high exposure to medium term momentum and larger capitalization/liquidity did well over the quarter, and stocks with high exposures to volatility and short-term momentum did poorly over the quarter.
The final quarter of 2017 started off with very strong returns for global stocks in October, and the rally continued in November. However, December saw the rally end with a slightly negative return. That being said, global stocks had healthy returns for the Quarter. The Information Technology, Materials, and Consumer Discretionary sectors led the way with strong positive returns from all 3 sectors. The only negative sector return for the quarter was Utilities. Global stocks with high exposure to medium term, size and liquidity did well over the quarter, and stocks with high exposures to volatility and short term momentum did poorly over the quarter.
Outlook & Strategy
What are the key opportunities you see?
In general, the Systematic strategies group 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 helped our performance over the quarter. Stock selection was negative for the quarter, with the Health Care and Financials sectors hurting the most. Stock selection was positive in Hong Kong and the UK, and negative in the United States and Canada. The Stock selection model in the CFE area was positive all 3 months of the quarter.
In the Global Small Cap Equity arena, our funds generally have positive exposures to growth, valuation, medium term momentum, and liquidity. The exposures to medium term momentum, growth, and liquidity added positively to performance. Conversely, our exposure to volatility and valuation hurt our performance. Stock selection was only slightly positive for the quarter, with Financials, and Materials comprising the lion’s share of positive stock selection. However, stock selection in Health Care, Industrials, and Technology all but wiped out the positive stock selection. Stock selection was good in the US and the UK, but hurt the portfolio in the Japan.
The Stock selection model for global small cap was positive 2 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. The exposures to medium term momentum, and growth stocks added to and helped performance. Conversely, our exposure to volatility and smaller cap stocks hurt our performance. Stock selection was positive for the quarter, with Consumer Discretionary and Health Care leading the way. Stock selection was very good in the US and South Korea, but hurt the portfolio in the Japan.
The Stock selection model for global concentrated was positive in all 3 months of the Quarter.
How are you positioning portfolios in response to this outlook?
At the end of Q4, our portfolios were generally positioned with positive exposures to Growth, Valuation, and Medium Term Momentum. 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 (and that are more liquid than the average global small cap stocks and global stock respectively).