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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, Investors Group’s Senior Vice-President and Head of Asset Allocation. In this commentary, which is exclusive to Maestro Portfolio clients, Les outlines some of the factors that impacted investors most in the third quarter of 2017.

Key takeaways

  • It was an uneventful quarter marketwise, with most global indexes seeing modest gains.
  • Strong GDP growth and two interest rate hikes caused the Canadian dollar to rise by 4%. That negatively impacted Canadian dollar returns from international equities.
  • Maestro Portfolios continued to outperform their benchmarks.
  • The three Maestro Portfolios continue to be overweight equities, and underweight fixed income.

Quiet quarter, but good economic growth

If there’s one word to sum up the markets in the third quarter, it’s uneventful, says Grober. For the most part, all was quiet and volatility was subdued. Oil was relatively stable, too, though it did climb by about 12% in September on improving inventory figures. It was a different story, however, for the economy. In July, Canada’s GDP grew by 3.8% year-over-year, which was the best growth among G7 nations. While August and September numbers weren’t ready by our publication date, Grober expects we’ll see slower GDP growth in the months ahead.

Rates rise again

The Bank of Canada (BoC) did its part to keep things interesting, raising rates twice during the quarter. The first of two 0.25% hikes occurred in July, and the second in September. Canada’s overnight rate now stands at 1%, which is where it was in 2015, before the BoC slashed rates twice to help spur economic growth. Now that our economy has strengthened, most people assumed the BoC would hike rates in July, but “the second hike was a surprise,” says Grober.

Currency continues to climb

The biggest influence on Canadian portfolios was a rising currency. The Canadian dollar climbed by about 4% against the U.S. dollar over the quarter, in large part due to the two interest rate hikes. While that didn’t impact the S&P/TSX Composite Index, which was up about 3%, it did result in lower gains for people who hold international stocks, according to Grober. In local currency terms, for instance, both the MSCI All-Country World Index and the S&P 500 were up 4%, but in Canadian dollars they were flat. As per Grober, “If you look at all the asset classes in Canadian dollars, the TSX was the best-performing equity market, and that was entirely due to currency.”

Tax reform plan arrives

At the end of the quarter, the Trump administration finally revealed its tax plan, which, among other things, calls for a 20% corporate tax rate. Going forward, we could see stocks move higher on the anticipation of tax reform, which Grober says isn’t fully priced into the market yet. However, if the plan doesn’t pass, stocks could fall. “It’s too early to understand the scope of it,” he says. “But it’s worth keeping on your radar.”

Little movement in Maestro

Thanks to Canada’s rising currency and a quieter quarter, performance in the three Maestro Portfolios was up modestly. Because the portfolios hold a fair number of non-Canadian equities, the Canadian dollar’s appreciation did affect performance, especially in July. August and September, though, were better months, which, in the end, helped the Maestro Portfolios eke out modest gains. The Income Balanced Portfolio rose about 0.5%, the Balanced Portfolio about 0.8%, while the Growth Focused Portfolio was up about 1%. All three beat their benchmarks.

Value’s time to shine?

While Grober didn’t make any major changes to the portfolios’ asset allocation, he did sell some growth-focused equities in favour of more value-oriented ones. Growth stocks have been doing well for so long that he thinks value stocks will start moving higher. That means moving out of some technology stocks and into more cyclical energy and financial companies. “There’s an opportunity,” he says. “This is the longest stretch of time that growth has outperformed. Now we’re starting to see the rotation into value.”

Top 10 Investments & Portfolio Allocation

Maestro Income Balanced Portfolio

Top 10 investments as of
September 30, 2017
  Portfolio Allocation as of
September 30, 2017
 
Investors Low Volatility Canadian Equity Fund
13.0%
Foreign Equity Funds
35.5%
Investors Low Volatility Global Equity Fund
12.5%
Canadian Equity Funds
23.0%
Investors Mortgage and Short Term Income Fund
8.5%
Income Funds
36.5%
Investors Canadian Bond Fund
8.0%
Investors Real Property Fund
4.9%
Investors Canadian Corporate Bond Fund
7.5%
Cash and cash equivalents
0.1%
Investors Canadian Large Cap Value Fund
5.0%
 
100.0%
Investors Real Property Fund
4.9%
       
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
72.9%
       
Total number of investments
21
       
                 

Maestro Balanced Portfolio

Top 10 investments as of
September 30, 2017
  Portfolio Allocation as of
September 30, 2017
 
Investors Low Volatility Canadian Equity Fund
14.5%
Foreign Equity Funds
43.0%
Investors Low Volatility Global Equity Fund
14.5%
Canadian Equity Funds
27.5%
Investors Mortgage and Short Term Income Fund
7.0%
Income Funds
24.5%
Investors Canadian Large Cap Value Fund
6.0%
Investors Real Property Fund
4.9%
Investors Pan Asian Equity Fund
5.5%
Cash and cash equivalents
0.1%
Investors European Equity Fund
5.5%
 
100.0%
Investors Canadian Bond Fund
5.0%
       
Investors Real Property Fund
4.9%
       
IG Mackenzie Canadian Equity Growth Fund
4.5%
       
Investors Canadian Corporate Bond Fund
4.0%
       
Total percentage of Top 10 investments
71.4%
       
Total number of investments
21
       
                   

Maestro Growth Focused Portfolio

Top 10 investments as of
September 30, 2017
  Portfolio Allocation as of
September 30, 2017
 
Investors Low Volatility Canadian Equity Fund
16.5%
Foreign Equity Funds
48.5%
Investors Low Volatility Global Equity Fund
16.0%
Canadian Equity Funds
32.0%
Investors Canadian Large Cap Value Fund
7.0%
Income Funds
14.5%
Investors European Equity Fund
6.5%
Investors Real Property Fund
4.9%
Investors Pan Asian Equity Fund
6.5%
Cash and cash equivalents
0.1%
IG Mackenzie Canadian Equity Growth Fund
5.5%
 
100.0%
Investors Real Property Fund
4.9%
       
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
76.4%
       
Total number of investments
21
       
                 

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.

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