The year started off rather mixed, with Canadian equities higher, while bonds, and foreign equities finished in the red, in Canadian dollar terms.
The FTSE /TMX Canada Universe Bond Index, a broad measure of the Canadian bond market was slightly negative, losing 0.1% on the month. It was largely government issues that pulled the index lower in a month marked by some volatility in bond yields. Corporate issues, because of their higher coupon rates and lower interest rate sensitivity held up better, posting modest gains in the month.
Canadian equities ended the month modest higher, gaining 0.9% thanks largely to gains in financial and materials stocks. Energy lost ground on a modestly lower oil price. Global equities were higher in local currency terms, but lost ground on the month, thanks to a rise in the value of the loonie. In Canadian dollar terms, the S&P 500 lost 1.3% and the MSCI EAFE Index was down 0.1%.
In this environment, it was another tough month for the portfolios with each finishing in negative territory and each lagging their respective benchmarks. For a review of the portfolios’ performance, you can download our standard monthly portfolio report here. For those looking for even more detail, I am also providing additional reports generated from Morningstar which show more detail regarding the portfolios. A summary report can be downloaded here, while the more detailed report can be downloaded here.
There were two key detractors from the performance; Fidelity Canadian Large Cap Fund, and Mackenzie Ivy Foreign Equity. In each case, the more conservative positioning of the funds proved to be a headwind. With the Fidelity Fund, the high cash balance, combined with an underweight in materials and financial stocks appears to have hurt the performance. For Ivy, it was a couple names, UPS, and Hyundai that appear to have dragged, combined with the unhedged currency pulled the fund lower.
Despite the recent underperformance from both of these funds, I believe they are excellent contributors to the overall risk adjusted returns of the portfolios for the long term. Both funds are managed using a very disciplined, quality focused, investment process that has a value tilt. The result is more defensively positioned portfolios that will often perform much differently than the broader markets.
While I remain confident in these two funds, I am continuing to watch them closely to look for any sustained erosion in the overall risk reward profile of each. If I notice any material deterioration, I will make any changes to the make-up of the portfolios as necessary.