It was another month where each of the portfolios posted positive returns, but lagged their respective benchmarks. The current market environment continues to reward more richly valued, expensive, higher beta names at the expense of more fairly valued, quality securities, which continues to create a headwind for the portfolios.
For a detailed review of the portfolios’ performance and risk reward metrics, you can download our standard monthly portfolio report here. For those looking for 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.
While I am content with the absolute, and risk adjusted returns posted by the portfolios, I continue to be frustrated by their underperformance relative to their benchmarks. Over the past year, there have been two funds that have been the biggest detractors. They are:
Fidelity Canadian Large Cap Fund – Managed by Daniel Dupont, this is a concentrated, value focused Canadian focused equity fund. The manager is committed to investing in high quality companies trading at attractive valuations, and has excellent long-term numbers, and has offered investors stellar capital protection in down markets. The portfolio is more attractively valued than the broader market, and offers a more compelling growth outlook. Unfortunately, the market has not rewarded the fund, which has gained 6.7% in the past year, but lagged the S&P/TSX Composite by nearly 1200 basis points. Part of this underperformance can be attributed to the high cash balance, which at the end of December sat at 19%. I continue to believe in the manager, the process, and the portfolio positioning, and will stick with this Fund in the near term.
Mackenzie Ivy Foreign Equity Fund – This is another concentrated, quality focused fund, which invests in companies around the world. Unlike the Fidelity offering, the managers of this fund aren’t afraid to “pay up” for quality, and as a result, the valuation metrics aren’t quite as appealing, but are still reasonable in the context of the broader market. Over the long-term the risk adjusted returns have been excellent, and the volatility is well below the index and peer groups, and it has historically been one of the best performers in down markets. Unfortunately, shorter term performance has disappointed, gaining 5.1%, but lagging the MSCI World by nearly 1400 basis points. A high cash weighting, roughly 30% at the end of February is a headwind, but does not explain all the underperformance. Again, it is a case of the market not fully rewarding quality companies, and again, I continue to believe in the managers, and the process, and will continue to hold the fund in the portfolios.
As frustrating as the past few months have been, I must remain committed to managing the risks in the portfolio. That said, I have begun to explore other options in the fixed income space, and will expand on that next month. Until then, I am monitoring the portfolios and the underlying investments, and will make changes as needed.