December capped off a strong year for the portfolios, as each finished the year well into positive territory. Each finished the year ahead of its respective benchmark, except for the Growth Portfolio, which was 0.2% behind its benchmark.
For the year, most of the excess performance was generated by two funds. The first was the Manulife Strategic Income Fund which handily outpaced the DEX Bond Universe Index for a couple of reasons. First, with its emphasis on bonds that are trading outside of Canada, it was largely immune to the rise in yields at home. Second, it invests heavily in global corporate and high yield bonds, both of which will hold up better than Canadian government bonds when rates move higher. Looking ahead to 2014, I expect that this fund will again outpace the more traditional fixed income funds.
The Renaissance Global Healthcare Fund was another major contributor to performance. Healthcare has been on a tear around the world, which has pushed stock prices up sharply. While there is little doubt in my mind that the longer term story for healthcare is positive, I don’t think that we will see a repeat this year. In fact, I would not be surprised to see a sharp pullback. If you have held the fund for any period of time, you may want to consider rebalancing it back to its target weight.
By far, the TD Real Return Bond Fund was the biggest detractor to performance. Because it invests predominantly in long dated, inflation protected fixed income investments, 2014 was its perfect storm. Long bonds are usually punished more severely than shorter term bonds when rates move higher. This year was no exception to that trend. Further, with the outlook for inflation virtually nonexistent over the course of the year, there was no protection benefit, doubly punishing the fund. I don’t think that 2014 will be much different, except for the possibility of rising inflation in the second half, and expect another tough year ahead for the fund.
I monitor the performance on an ongoing basis to ensure that they continue to perform within expectations. As of December 31, they continue to deliver risk adjusted returns that are significantly stronger than their respective benchmarks. Their absolute return levels are well within our expected ranges based on the risk reward profile of each portfolio.
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Portfolio Performance (December 31, 2013)
| 1 Mth | 3 Mth | YTD | 1 Yr | 2 Yr | 3 Yr | 5 Yr | 10 Yr | ||
|---|---|---|---|---|---|---|---|---|---|
| Conservative | 0.3% | 3.4% | 8.2% | 8.2% | 6.7% | 5.3% | 7.2% | 5.4% | |
| Moderate Balanced | 0.2% | 3.6% | 4.5% | 4.5% | 6.8% | 5.2% | 6.5% | ||
| Balanced | -1.8% | -2.2% | -13.1% | -13.1% | -6.2% | 0.5% | 4.6% | 4.3% | |
| Balanced Growth | 0.2% | 3.6% | 4.5% | 4.5% | 6.8% | 5.2% | 6.5% | ||
| Growth Portfolio | 1.7% | 12.0% | 37.3% | 37.3% | 28.5% | 16.9% | 18.7% | 10.7% |