Capturing Long-Term Opportunities in the Global Equity Markets

Oftentimes the way we think about it is if we have long-term holdings and a long-term conviction in the short-term market, volatility can create opportunities for us, and we like to be ready and take advantage of those opportunities to adjust position size appropriately to reflect the opportunity at new prices that that volatility creates.

What have you learned about AI and its potential?

The biggest thing I've learned about AI is that it's happening now and it's not slow, and I think that's incredibly important because it brings with it a second learning, which I think is really important for me and for anybody who's trying to understand what's going on, to have an innate sense of curiosity because it's moving so fast and it's in this pace of acceleration. If we think about and look around and talk to companies, I think a lot of different potential users of AI are trying to understand right now what are the use cases and what will the use cases look like? And so to date, what we've mostly seen, and there have been companies in the portfolio that have benefited from this, is the build out of infrastructure and in particular the build out data centres that started, its ongoing and that’s incredibly important as we think about the ability to actually support all of the different end applications of AI.

And I think that end use case is the next phase that is in process. But one of the biggest things and my biggest takeaways as I’ve been studying this and learning about it is just this idea that it is moving incredibly and fast, and it is incredibly important that we continue to understand not only how does that impact us as individuals, us as employees, and the firms that we’re all working at, but also how does it impact the investments that we’re considering and what are actually, equally important, what are the new areas, the new industries, the new businesses that are going to come out of all of these changes.

Why are semiconductors so important in today’s global economy?

We have several different investments in the portfolio that have direct and indirect exposure to the semiconductor space as a whole. And then when you break that down further, there’s of course all different ways and types of semiconductors, types of end markets, manufacturing capabilities, and design capabilities. But one of the most important things behind that is our belief that the rising content of semis in every aspect of your lives, whether it’s in your home, whether it’s in your pocket, on your desktop, in your car, and that’s just on a personal level and then you think about it broader, powering all of the applications that you’re using, powering manufacturing in different parts of the industrial economy. The rising content of semis in all our lives directly and indirectly we think is a multi-year, very long-term trend; it’s already underway but we think that when we look forward, it has a long runway ahead of it.

What’s a holding you’re excited about?

I think an interesting name to discuss would be Trane Technologies. They are a manufacturer of HVAC, heating and air conditioning equipment. They have residential exposure, they have refrigerated transport exposure, and then the most significant part of their business is actually their commercial HVAC business. They are benefiting from increased focus on indoor air quality, the increased focus on the emissions profile of their customer base, and the total cost of ownership in terms of the HVAC unit in the commercial space. And they’ve also done an excellent job in developing, and we expect them to continue to develop their services business, which we think is a nice counter to the straight product sales. This is a well-run business with a very strong return profile and excellent free cash flow generation.

How would you describe portfolio activity this year for the equity component of the Global Allocation Fund?

Within the equity portion of the portfolio, our activity year to date has largely been focused in a lot of our existing holdings. When we think about our turnover, there's two kinds of turnover. If we were to break it down, it's turnover within our existing holdings, and then new name turnover. Both are important and we don't prioritize one or the other, but the first part of that, which is turnover within our existing holdings.

Oftentimes the way we think about it is if we have long-term holdings and a long-term conviction, in the short term, market volatility can create opportunities for us and we like to be ready and take advantage of those opportunities to adjust position size appropriately to reflect the opportunity at new prices that that volatility creates. And so that's an important part of our strategy and the execution of our strategy.

Can you speak to fund performance?

I think the most important aspect when looking back at the performance of the strategy has been our focus on security selection. And that applies regardless of where in the capital structure we're looking to deploy that capital, whether it's in fixed income or within equities. This is a strategy that has a laser-like focus on security selection. And that's also been the driver of our allocation decisions. We use our view of security selection and the relative opportunity set to help drive our decisions around asset allocation as well.

Recorded May 21, 2024. For definitions of technical terms, please visit iaclarington.com/glossary and speak with your investment advisor.

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Effective February 23, 2015, the sub-advisor of IA Clarington Loomis Global Allocation Fund changed from Aston Hill Asset Management Inc. to Loomis, Sayles & Company, L.P. and iA Clarington. Effective February 23, 2015, the investment strategies of the Fund were changed. Effective April 29, 2022, iA Clarington was removed as sub-advisor. IA Clarington Loomis Global Allocation Fund was formerly IA Clarington Global Allocation Fund.

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The performance data comparison presented is intended to illustrate the Fund’s historical performance as compared with historical performance of widely quoted market indices. There are various important differences that may exist between the Fund and the stated indices that may affect the performance of each.

The benchmark is a blend of Bloomberg Global Aggregate Bond Index (CAD Hedged) (40%) and MSCI AC World Index (CAD) (60%). The blended benchmark presented is intended to provide a more realistic representation of the general asset classes in which the Fund invests. The Bloomberg Global Aggregate Bond Index is a flagship measure of global investment grade debt from twenty-eight local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging Pan-European Aggregate, the Asian-Pacific Aggregate, and the Canadian Aggregate Indices. The MSCI AC World Index captures large- and mid-cap representation across 23 Developed Markets and 24 Emerging Markets countries The Fund’s market capitalization, geographic, sector, credit quality, and currency risk exposure can differ because the Fund does not use a fixed ratio similar to the benchmark. It is not possible to invest directly in market indices. The performance comparison is for illustrative purposes only and does not imply future performance.

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