Maestro Portfolios Exclusive: Quarterly Market Commentary

If you’re searching for more insight into what’s driving the market today, then read our quarterly commentary from Les Grober, Senior Vice-President of portfolio solutions with Mackenzie Investments. In this commentary, which is exclusive to Investors Group’s Maestro Portfolio clients, Les outlines some of the factors that impacted investors most in the fourth quarter of 2017.

Key takeaways

  • It was a strong quarter for stocks, with markets seeing good gains.
  • Global economies experienced strong synchronized growth.
  • Maestro Portfolios continued to perform well as equity markets closed out the year at close to all-time highs.
  • The three Maestro Portfolios continue to be overweight equities, and underweight fixed income.

Soaring Stocks

Just when you thought things couldn’t get any better for equities, stocks post their best quarterly performance of the year. In the last three months of 2017, the MSCI World Index rose by 5.6%, the S&P 500 climbed by 6.6%, while Japan’s market jumped by 8.7%. Even Canada’s S&P/TSX Composite Index, which had the weakest performance among developed nations last year, rose by 4.4%. The U.S. did exceptionally well in 2017, rising by nearly 22%. Why? It was partly due to the anticipation of tax reform, which passed in December, but earnings growth was also strong among U.S. companies, says Grober.

A Clicking Global Economy

One of the reasons why global stocks did so well is that for the first time since the recession, most of the world’s economies are growing strongly at the same time, says Grober. That helped buoy markets and increase consumer confidence. Other factors supporting higher stocks and better growth include still benign inflation, record low volatility and accommodative central bank policy. We’re also in the latter stages of an economic cycle, which is usually marked by more synchronized global growth. “Up until now countries have been in different phases of an economic rebound, so it’s not surprising to see everyone moving forward at the same time now,” he says.

Canada Lags

This year wasn’t as good for the Canadian market. While it was up by 9.1%, it was still the worst performing developed market – a far cry from 2016, when it was the best. It did play some catch up in the last quarter, says Grober, but it wasn’t enough. A weak energy sector contributed to the poor performance, despite oil climbing about 17% in the final quarter of 2017. Part of the reason for the comparatively weaker returns was related to natural gas prices, which fell by more than 20% at one point during the quarter, before rebounding in the final days of the year. That weighed on the Canadian energy sector. “The divergence between the price of oil and energy shares was notable in the fourth quarter,” says Grober.

More Speculation

Much of the investment-related chatter in the fourth quarter was not about equities at all. Rather, almost everyone was talking about bitcoin. The cryptocurrency’s rise has no impact on the vast majority of Canadian investors, but it is a sign that people are feeling more speculative than they have in previous quarters, says Grober. Many cryptocurrency and blockchain companies have seen their stocks soar, similar to how some Internet and networking stocks climbed in the late 1990s. While it’s not something people need to be overly worried about, it’s another indication that we’re in a more mature phase of a cycle. “This type of speculation is not advisable,” says Grober.

Strong Maestro Portfolio Performance

This quarter was a strong one for the Maestro Portfolios, with all three portfolios rising during the period. The gains were driven by strong performance in Asia Pacific – “that’s been a standout performer all year,” says Grober – and Europe. The portfolios’ Canadian low volatility equity fund also did well during the quarter as it has less exposure to resource and energy stocks, sectors that held the Canadian market back. “Avoiding those sectors helped us outperform in Canada,” he says.

New ETFs Added

While the Maestro Portfolios’ asset allocation didn’t move much in the quarter, Grober did add two new ETFs to the portfolio: the Mackenzie Maximum Diversification All World Developed ETF and the Mackenzie Maximum Diversification Canadian Index ETF. These two funds add more diversification to the low volatility equity portion of the portfolios, which make up close to 30% of the fund. “It’s a similar experience over time to low-vol, but it doesn’t necessarily correlate highly to that part of the portfolio,” says Grober. “These ETFs allow us to get the maximum amount of diversification from a specific geography.”

A More Challenging Year Ahead

In many ways, 2017 wasn’t a typical year. Volatility was at record lows and for the first time in history, the U.S. stock market didn’t have one down month. While 2018 should continue to be positive for stock markets, says Grober, there will be more ups and downs. Central banks will continue normalizing monetary policy and inflation will start rising. “Stocks should continue to outperform bonds, but increased volatility will be more evident than in 2017,” he says.

Top 10 Investments & Portfolio Allocation

Maestro Income Balanced Portfolio

Top 10 investments as of
December 31, 2017
  Portfolio Allocation as of
December 31, 2017
 
Investors Low Volatility Canadian Equity Fund
12.4%
Foreign Equity Funds
35.8%
Investors Low Volatility Global Equity Fund
11.9%
Canadian Equity Funds
23.1%
Investors Mortgage and Short Term Income Fund
8.6%
Income Funds
37%
Investors Canadian Bond Fund
8.1%
Investors Real Property Fund
5.0%
Investors Canadian Corporate Bond Fund
7.6%
Cash and cash equivalents
-0.9%
Investors Canadian Large Cap Value Fund
5.0%
 
100.0%
Investors Real Property Fund
5.0%
       
IG Mackenzie Income Fund
4.6%
       
Investors Pan Asian Equity Fund
4.6%
       
Investors European Equity Fund
4.6%
       
Total percentage of Top 10 investments
72.4%
       
Total number of investments
23
       
                 

Maestro Balanced Portfolio

Top 10 investments as of
December 31, 2017
  Portfolio Allocation as of
December 31, 2017
 
Investors Low Volatility Canadian Equity Fund
13.7%
Foreign Equity Funds
43.2%
Investors Low Volatility Global Equity Fund
13.6%
Canadian Equity Funds
27.7%
Investors Mortgage and Short Term Income Fund
7.1%
Income Funds
24.9%
Investors Canadian Large Cap Value Fund
6.1%
Investors Real Property Fund
5.0%
Investors Pan Asian Equity Fund
5.6%
Cash and cash equivalents
-0.8%
Investors European Equity Fund
5.6%
 
100.0%
Investors Canadian Bond Fund
5.1%
       
Investors Real Property Fund
5.0%
       
IG Mackenzie Canadian Equity Growth Fund
4.5%
       
Investors Canadian Corporate Bond Fund
4.1%
       
Total percentage of Top 10 investments
70.4%
       
Total number of investments
23
       
                   

Maestro Growth Focused Portfolio

Top 10 investments as of
December 31, 2017
  Portfolio Allocation as of
December 31, 2017
 
Investors Low Volatility Canadian Equity Fund
15.7%
Foreign Equity Funds
48.9%
Investors Low Volatility Global Equity Fund
15.2%
Canadian Equity Funds
32.3%
Investors Canadian Large Cap Value Fund
7.1%
Income Funds
14.7%
Investors European Equity Fund
6.6%
Investors Real Property Fund
5.0%
Investors Pan Asian Equity Fund
6.6%
Cash and cash equivalents
-0.9%
IG Mackenzie Canadian Equity Growth Fund
5.6%
 
100.0%
Investors Real Property Fund
5.0%
       
IG Putnam U.S. Growth Fund
4.5%
       
Investors Global Fund
4.5%
       
IG Putnam Low Volatility U.S. Equity Fund
4.5%
       
Total percentage of Top 10 investments
75.3%
       
Total number of investments
23
       
                 

This commentary is published by Investors Group. It represents the views of our Portfolio Managers, and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by Investors Group or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, Investors Group cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.

Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated.

© Copyright 2018 Investors Group Inc. Reproduction or distribution of this commentary in any manner without the express written consent of Investors Group is strictly prohibited. Please read Conditions of Use for more information concerning authorized uses of this document.