Mackenzie Canadian Growth Fund: Market review, positioning and outlook
The Bluewater Team’s David Arpin shares his market review, current positioning and outlook for the Mackenzie Canadian Growth Fund.
It was a difficult end to 2018 for equity markets as we saw a sharp selloff around the world. 2019 started on the opposite side. We saw a very rapid recovery of equity markets globally. In fact, it was one of the strongest quarters that we’ve seen in the last 50 years.
If you go back to the fourth quarter of 2018, you saw the Federal Reserve talk about raising interest rates very, very sharply. That caused equity markets to begin to sell off and started to be reflected in the global economy, as well as the economy began to slow and roll over.
The Fed did a 180-degree pivot. They moved to a neutral or a loosening stance, and we saw equity markets recover extremely rapidly in the first quarter.
Extremely strong and cyclically driven markets like we saw in the first quarter do tend to lead to our investment style underperforming by a little bit. We’re conservative growth managers. We aim for consistency over time and rapid, rapid economic recoveries. Rapid, rapid market recoveries tend to lead us to lag a bit.
We didn’t actually see that in the first quarter. We had very strong stock picking on the foreign side of the fund, and as a result, the overall fund did manage to outperform.
The fund really continues to emphasize global holdings over Canadian. We have an extremely flexible mandate which allows us to really put our money where we think the best opportunities are.
Overall, we’re aiming for businesses that are quite a bit less cyclical than average. The fund has had a long track record of consistent steady performance over time, and the consistency comes from finding individual businesses that are able to grow reliably, steadily, year in year out.
I think everyone realizes that there’s been a very, very large run-up in debt globally over the past decade. We’ve certainly seen it in Canada. You see personal debt levels at among the highest in the developed world. But when you look around the world, you see the same pattern in country after country.
If you think about the effect of interest rates increasing now, it’s probably going to slow the economy a great deal more than it used to in the past. Just think about your mortgage. If you have a 3% or a 4% mortgage and that jumps up to 6% or 8%, you’re going to have to rein in your spending somewhere else. If everybody has to do that at the same time, it’s a big drag on growth.
From an investment standpoint, what we’re really focused on is finding companies that are less cyclical, that are less sensitive to the overall economy, that are able to grow through thick and thin in most economic environments. On top of that, as always, we’re extremely careful on balance sheets, so an increase in interest rates really won’t have a material effect on the companies that we own in the fund.