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 second quarter of 2018.

Key Takeaways

  • Strong showing for Canada, which saw its market rise by about 6%.
  • Trade talks spook investors near the end of the quarter; could continue into Q3.
  • Maestro Portfolios outperformed global markets; low-vol funds and global ETFs did especially well.

Canada Shines in Q2

Up until the last two weeks of the second quarter, stocks – and especially Canadian ones – performed relatively well. The S&P/TSX Composite Index climbed by 6%, while the S&P 500 rose by about 3%. That might be surprising to some, considering all the chatter around tariffs and trade, but earnings did remarkably well over the last three months, up about 20% in the U.S. “Despite some of the rhetoric along the way, markets generally moved higher,” says Grober. “In the U.S., we started to see tax cuts hit the bottom line, which has been nice.” A weakening loonie also helped give global equity holders in Canada a boost.

Trade Talk Continues

The elephant in the room, of course, is trade. In mid-June, U.S.–Chinese tensions escalated after President Trump imposed tariffs on $50 billion worth of Chinese goods and said that the U.S. could slap tariffs on $200 billion more if China retaliates, which it’s vowed to do. As well, on July 1, Canada placed tariffs on $16.6 billion of American goods in response to the U.S. government’s steel and aluminum duties. All this hurt stocks during the last two weeks of June, with the S&P/TSX Composite and the S&P 500 both falling by about 2%. With trade tensions not going away anytime soon – especially between China and the U.S. – investors should expect a rockier Q3. “The rhetoric between those two countries has much more severe implications for the global economy than does NAFTA,” says Grober.

Oil Rises Again

One reason why the Canadian market did so well in Q2 was because of oil. Crude climbed about 12% over the last three months, and that pushed the price of domestic energy stocks higher. The oil increase had to do with supply (which had been abundant) and demand coming back in balance, says Grober. With the Organization of the Petroleum Exporting Countries (OPEC) saying in June that they’re increasing supply by a million barrels a day, some experts think that crude could fall. Grober, though, thinks prices will settle, which means we won’t see an increase in Q3 like we did in Q2, but the deal won’t negatively impact the market either. “The global economy can’t handle oil prices significantly above $75 dollars a barrel for any length of time,” he says. “So, prices will stabilize.”

Slowing Global Growth

With the U.S. Federal Reserve hiking rates for the seventh time in three years in June, investors should start bracing themselves for slower economic growth, says Grober. Earnings momentum will soon start waning, the benefits of low rates and stimulative policies are coming to an end, and other economic indicators around the globe aren’t nearly as hot as they have been. “Everything is slowing down,” he says. We’re not entering recession territory, he says, but investors should expect more modest equity gains in Q3 and beyond.

Time for Value

With that in mind, Grober did reduce the Maestro Portfolios’ equity weightings “a little bit” in Q2, he says, and increased his fixed-income weight slightly. “We’re pulling in the reins a little bit and we’re holding a little extra cash,” he explains. Grober is also focusing more on value funds rather than growth funds, which have had a strong run over the last few years. Growth funds, he says, tend to include the brand-name tech stocks that have done well but are now starting to experience declines. “The tech sector is significantly overvalued and is in a corrective phase,” he says. “We’re taking profits on growth and putting more money into value.”

Maestro Performs Well

Overall, the three Maestro Portfolios had a good quarter, outperforming their peers and global indices. Part of the performance was related to the Canadian energy sector’s strong showing, but the funds’ low-volatility holdings, which are supposed to protect against rising volatility, were up significantly. The Maestro Portfolios’ two TOBAM Maximum Diversification ETFs, which Grober uses to increase the funds’ global diversification, saw close to double-digit returns. Several other funds in the portfolios also did well during the quarter, says Grober.

More Volatility Ahead

It’s unlikely earnings will be as good as they were in Q2, says Grober, which means market volatility will likely increase. But he isn’t worried. “We’re starting to see slowdown concerns heating up, and that should keep volatility buoyant,” he says. “That’s okay – we’re well-positioned to take advantage of any volatility.”

Top 10 Investments & Portfolio Allocation

Maestro Income Balanced Portfolio

Top 10 investments as of
June 30, 2018
  Portfolio Allocation as of June 30, 2018  
Investors Low Volatility Canadian Equity Fund
11.6%
Foreign Equity Funds
39.5%
Investors Low Volatility Global Equity Fund
11.0%
Canadian Equity Funds
22.6%
Investors Canadian Bond Fund
8.0%
Income Funds
32.9%
Investors Canadian Corporate Bond Fund
7.4%
Investors Real Property Fund
5.0%
Investors Mortgage and Short Term Income Fund
6.5%
Cash and cash equivalents
0.0%
Investors Canadian Large Cap Value Fund
5.0%
 
100.0%
Investors Real Property Fund
5.0%
       
IG Mackenzie Income Fund
4.5%
       
Investors Pan Asian Equity Fund
4.5%
       
Investors European Equity Fund
4.5%
       
Total percentage of Top 10 investments
68.0%
       
Total number of investments
24
       
                 

Maestro Balanced Portfolio

Top 10 investments as of
June 30, 2018
  Portfolio Allocation as ofJune 30, 2018  
Investors Low Volatility Canadian Equity Fund
12.6%
Foreign Equity Funds
46.5%
Investors Low Volatility Global Equity Fund
12.5%
Canadian Equity Funds
27.0%
Investors Canadian Large Cap Value Fund
6.0%
Income Funds
21.5%
Investors European Equity Fund
5.6%
Investors Real Property Fund
5.0%
Investors Pan Asian Equity Fund
5.5%
Cash and cash equivalents
0.0%
Investors Mortgage and Short Term Income Fund
5.0%
 
100.0%
Investors Canadian Bond Fund
5.0%
       
Investors Real Property Fund
5.0%
       
IG Mackenzie Canadian Equity Growth Fund
4.5%
       
Investors Group Equity Pool
4.5%
       
Total percentage of Top 10 investments
66.2%
       
Total number of investments
24
       
                   

Maestro Growth Focused Portfolio

Top 10 investments as of
June 30, 2018
  Portfolio Allocation as of June 30, 2018  
Investors Low Volatility Canadian Equity Fund
14.6%
Foreign Equity Funds
50.9%
Investors Low Volatility Global Equity Fund
13.9%
Canadian Equity Funds
31.6%
Investors Canadian Large Cap Value Fund
7.0%
Income Funds
12.5%
Investors European Equity Fund
6.5%
Investors Real Property Fund
5.0%
Investors Pan Asian Equity Fund
6.5%
Cash and cash equivalents
0.0%
IG Mackenzie Canadian Equity Growth Fund
5.5%
 
100.0%
Investors Real Property Fund
5.0%
       
Investors Global Fund
4.5%
       
IG Putnam Low Volatility U.S. Equity Fund
4.5%
       
Investors Group Equity Pool
4.5%
       
Total percentage of Top 10 investments
72.6%
       
Total number of investments
24
       
                 

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