Each of the portfolios was firmly in positive territory in August. The Growth Portfolios were the strongest performers, and the Strategic Models outpaced the Tactical Models.
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While performance was decent, they again lagged their respective benchmarks. The main reason for this underperformance is many of our favourite funds tend to be much different than the benchmarks. For example, the Dynamic Advantage Bond Fund is a fund that is very defensively positioned, and is better suited for an environment when yields are grinding higher. Unfortunately for the fund, yields moved lower in the month, causing the fund to lag the index.
Another fund that contributed to the underperformance was the Fidelity Canadian Large Cap Fund. This is a fund that looks nothing like its benchmark, with approximately 46% invested outside of Canada. Further, the sector mix is also much different, with a dramatic underweight in energy, and no exposure to financials or gold. Given that energy and the banks had a great run in August, it is not surprising to see this fund lagged.
It was a very similar situation with the Mackenzie Ivy Foreign Equity Fund, which was another laggard. It is a fund that has historically been defensively positioned, and offers some of the best downside protection around. The tradeoff is that it tends to lag in a market rally.
In all cases, I’m willing to forego some upside participation in the portfolios in return for a stronger defensive positioning, particularly as we enter what has historically been the most volatile period for the markets.
Within the tactical models, the only change that was made was to remove some potential volatility in the Moderate Balanced Portfolio. I added 10% into the PH&N Short Term Bond & Mortgage Fund, by reducing my exposure to the Manulife Strategic Income Fund.