It was a positive month for the portfolios, with all finishing in positive territory, except for the Tactical Balanced Portfolio, which was down by 0.1%.
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The Strategic Models handily outperformed the Tactical Models, which have been more conservatively positioned. This positioning comes from the expectation that there will be an increase in volatility over the coming weeks, and the goal of the portfolios is to minimize the severity of any drawdown.
Despite the positive performance, the portfolios failed to keep pace with their respective benchmarks. There are a few reasons for this. First, the portfolios are benchmarked against four basic benchmarks; the DEX Universe Bond Index, the S&P/TSX Composite Index, the S&P 500 C$, and the MSCI World Index C$.
If we look specifically at the fixed income portion of the portfolios, there can be significant exposure to funds that are dramatically different than the benchmark used. For example, the portfolios allocate to short-term, global, and high yield bonds, which can behave dramatically different than the broader Canadian bond market. In May, the Conservative portfolio underperformed by 45 basis points. Of that total, nearly 40 basis points can be attributed to the PH&N Short Term Bond and Mortgage Fund.
Within the portfolios, other notable laggards included the Fidelity Canadian Large Cap Fund and the Fidelity Small Cap American Fund. Both of these funds look dramatically different than their respective benchmarks, so periods where performance diverges is not unexpected.
It wasn’t all bad, as the Sentry Small Mid Cap Income and TD U.S. Blue Chip Equity Funds handily outpaced their respective benchmarks, helping to mute the level of underperformance.
During the month, I reviewed the Tactical Models and have implemented some changes in the Balanced Growth and Growth Portfolios. I am increasing the allocation to fixed income funds, specifically the Manulife Strategic Income Fund, and global equities, while reducing the exposure to U.S. equities. The rationale for this move was one of valuation, as the U.S. markets appear to be the most richly valued when compared to the more value focused global funds in the portfolio. I will review the portfolios at the end of June.
For the period ending May 31, 2014, the performance of the portfolio was:
| Strategic Portfolios | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 1 Mth | 3 Mth | YTD | 1 Yr | 2 Yr | 3 Yr | 5 Yr | 10 Yr | ||
| Conservative | 0.5% | 1.5% | 2.7% | 8.2% | 8.3% | 5.9% | 7.7% | 5.6% | |
| Moderate Balanced | 0.3% | 1.8% | 3.5% | 11.2% | 11.2% | 6.7% | 8.7% | 5.8% | |
| Balanced | 0.6% | 1.3% | 3.4% | 12.1% | 12.5% | 6.7% | 8.9% | 6.1% | |
| Balanced Growth | 0.3% | 0.4% | 2.9% | 13.6% | 15.0% | 7.3% | 9.5% | 6.1% | |
| Growth Portfolio | 0.5% | -0.4% | 2.8% | 16.2% | 17.9% | 9.0% | 11.4% | 6.5% | |
| Tactical Models | |||||||||
| 1 Mth | 3 Mth | YTD | 1 Yr | 2 Yr | 3 Yr | 5 Yr | 10 Yr | ||
| Conservative | 0.2% | 1.2% | 2.0% | 7.4% | 7.9% | 5.7% | 7.6% | 5.6% | |
| Moderate Balanced | 0.2% | 1.6% | 3.3% | 10.9% | 11.1% | 6.6% | 8.6% | 5.8% | |
| Balanced | -0.1% | 1.0% | 2.9% | 11.6% | 12.2% | 6.6% | 8.8% | 6.1% | |
| Balanced Growth | 0.2% | 0.4% | 2.9% | 13.6% | 15.0% | 7.3% | 9.5% | 6.1% | |
| Growth Portfolio | 0.3% | -0.7% | 2.5% | 15.8% | 17.8% | 8.9% | 11.4% | 6.5% | |