Manager commentary - Q3 2019

During the period, interest rates dropped, which provided a boost for equity market returns. Overall yields in the high-yield and investment-grade bond markets declined significantly.

The Fund’s equity exposure slightly outperformed its fixed-income holdings. The equity component was increased, while fixed-income securities were decreased. Cash and other equivalents was decreased in order to fund the equity exposure increase.

The Fund’s equity component contributed to overall performance, largely as a result of allocation to the financials and information technology sectors. Top individual contributors included AT&T Inc. and PulteGroup Inc. AT&T’s growth was driven by shedding of customers in favour of higher margins, and an activist investor’s plan to improve efficiency. PulteGroup reported better-than-expected order growth and benefited from its relatively defensive market position given ongoing uncertainty.

Within fixed income, the Fund’s exposure to consumer cyclicals and the communication services sector contributed to performance. The largest individual contributors to performance were Brookfield Residential Properties Inc. (6.375%, 15/05/2025) amid declining interest rates, and Sprint Corp. (7.25%, 15/09/2021) as it approached the expected completion date of its T-Mobile US Inc. acquisition.

Within equities, allocation to the energy sector and consumer non-cyclical stocks detracted from the Fund’s performance. The largest individual equity detractors included Encana Corp. and Pfizer Inc. Encana was affected by weakness in oil and natural gas prices following its acquisition of Newfield Exploration Co. earlier in the year. Pfizer’s shares declined amid negative reaction to its plans to merge a collection of products with Mylan NV.

Within the Fund’s fixed-income component, exposure to the energy sector was the largest detractor from performance. Individual detractors from performance included Moss Creek Resources Holdings Inc. (7.5%, 15/01/2026) on weak energy pricing, and Fresenius Medical Care US Finance II Inc. (5.375%, 31/07/2019) as the holding matured.

During the period, the fund manager added new positions in CVS Health Corp., AT&T Inc. and Caterpillar Inc. Existing holdings in Alphabet Inc. and Eli Lilly and Co. were increased in the Fund. MGM Resorts International (6.75%, 01/10/2020) was eliminated from the Fund, while Fresenius Medical Care US Finance II Inc. (5.375%, 31/07/2019) was exited as the bond matured. The fund manager trimmed positions in Republic Services Inc. and Pfizer Inc.

The fund manager expects the U.S. economy to be supported by low interest rates and strong employment, limiting the potential of a market downturn related to a dramatically weakening economy. Positive returns in many financial markets may be limited given the expectation of low single-digit earnings growth over the next year. The Fund has a defensive posture in its investments, with a larger-than-normal cash position coupled with securities with defensive characteristics to mitigate near-term volatility.


Fund and benchmark performance as at September 30, 20191 year3 year5 yearSince inception
(Nov. 2013)
IA Clarington Strategic U.S. Growth & Income Fund - Series A0.9%5.7%4.0%4.2%
25% Barclays U.S. Aggregate (CAD Hedged) Index, 75% S&P 500 Index7.7%11.0%11.8%13.0%


Learn more about IA Clarington Strategic U.S. Growth and Income Fund

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 25% Barclays U.S. Aggregate Index and 75% S&P 500. The blended benchmark presented is intended to provide a more realistic representation of the general asset classes in which the Fund invests. The Barclays U.S. Aggregate Index is composed of securities from the Barclays Government/Corporate Bond Index, Mortgage-Backed Securities Index and Asset-Backed Securities Index. The S&P 500 Index includes 500 leading companies in leading industries of the U.S. economy and is widely regarded as the best single gauge of the U.S. equities market. Although the S&P 500 Index focuses on the large cap segment of the market, its coverage includes approximately 80% of the market. The Fund’s equity component invests in dividend paying stocks while the benchmark is comprised of companies which may not necessarily pay a dividend. The Fund's fixed-income component can invest in both investment grade and high yield bonds while the benchmark has exposure only to investment grade bonds. The Fund may hold cash while the benchmark does not. Overall, the Fund's bond and equity 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. Effective November 4, 2013, the investment objective and strategies of the Fund were changed, and IA Clarington Investments Inc. was appointed sub-advisor to the Fund.