Historically, August has been a sleeper of a month for investors, as many take time away to enjoy the last few weeks of summer. If one only looked at the investment returns, you may believe this August was no different, as many global markets finished the month roughly where they started. However, digging deeper the month was anything but dull.
Starting with the good news, it became clear that the global economy was enjoying synchronized global growth for the first time since the onset of the global financial crisis. Unfortunately, geopolitical concerns took center stage, as the U.S. and North Korea started a war of words that had some worried Armageddon was imminent. Fortunately, calmer heads prevailed, and markets were largely flat to mixed.
The S&P/TSX Composite Index gained 0.7%, the S&P 500 was up 0.3% in U.S. dollar terms, but managed to bounce higher on a slightly stronger U.S. dollar, ending up 0.7% in Canadian dollar terms. The MSCI EAFE Index was largely flat, but enjoyed a modest gain for Canadian investors thanks to a change in the currency. Canadian bonds posted gains, as bond yields fell on flight to safety worries and a muted inflation outlook.
Turning to the portfolios, each finished in positive territory, however trailed their respective benchmarks. The best performing portfolio was the Growth Portfolio, which rose by 0.42% in August. The worst performing portfolio was the Moderate Balanced Portfolio, which rose by 0.15%. For a detailed review of the portfolios’ performance and risk reward metrics, you can download our standard monthly portfolio report here. Additional detail can be found in these reports generated by Morningstar. A summary report can be downloaded here, while the more detailed report can be downloaded here.
The biggest headwind on performance was the Mackenzie Ivy Foreign Equity Fund. In August, it lost nearly 1%, while the MSCI World Index rose by 0.6%. With its concentrated portfolio, individual names can have a meaningful impact, and that was the case this month, with fund heavyweights Nike, Henry Schein, and Omnicom among the losers hurting performance. The fixed income holdings were also laggards, as the more defensive positioning saw the funds underperform in a falling yield environment.
Looking ahead, we are entering a potentially volatile period. Historically, September and October have been the two most volatile months for investors. With equity valuations near the high end of historic ranges, and the potential for another bout of geopolitical uncertainty looming large, it is not unlikely we may experience periods of high volatility in the next couple of months. While increased volatility is a possibility, it is far from a certainty, and to make radical shifts to the portfolios may end up doing more harm over the long-term than remaining defensively positioned as we are.
In the fixed income sleeve of the portfolios, we are defensively positioned with a duration that is well below the broader market. This will help to protect against rising yields should they move higher. Within the equity sleeve, there is a nice balance, with the Fidelity Canadian Large Cap Fund and Mackenzie Ivy Foreign Equity Fund offering the potential for downside protection, with the more growth focused TD U.S. Blue Chip Fund allowing for growth opportunities. This mix should help in periods of volatility.
I remain comfortable with the positioning of the portfolios, and continue to monitor it closely.