Manager commentary - December 31, 2018

Effective June 1, 2018, the investment strategies of the Fund were changed and the sub-advisor of the Fund changed from Radin Capital Partners Inc. to PineBridge Investments LLC. Also effective June 1, 2018, the Fund name changed from IA Clarington Global Growth & Income Fund to IA Clarington Global Multi-Asset Fund.

Developed market equities (MSCI World Net Total Return Index1) declined 13.1% during the fourth quarter, while emerging market equities (MSCI Emerging Market Net Total Return Local Index), declined 7.4%. Within developed markets, U.S. equities (S&P 500 Index) remained in positive territory for most of the year until the sell-off that started in October; U.S. equities (S&P 500 Index) lost 14.0% during the fourth quarter. Japanese equities (Nikkei 225 Index) declined 17.0% and European equities (Euro Stoxx 50 Index) declined 11.7%.

Both 2-year and 10-year U.S. Treasury yields fell more than 30 basis points, ending at 2.49% and 2.68%, respectively. The 10-year German bund declined by more than 20 basis points to 0.24%, and Japanese 10-year government bond yields also fell to the 0.00% level. Following a sharp rise in credit spreads, U.S. high yield (Bloomberg Barclays US Corporate High Yield Total Return Index) declined 4.5%. On the other hand, U.S. investment grade bonds (Bloomberg Barclays USD Liquid Investment Grade Corp TR Index) marginally declined by 0.7%. Emerging markets (JP Morgan GBI-EM Global Diversified Composite USD Unhedged) gained 2.1% during the fourth quarter; however, the asset class was down by 6.2% in 2018. While the U.S. dollar (DXY Index) lost momentum towards the end of the year, it rallied 1.1%. The euro recouped some strength, ending at 1.15 against the U.S. dollar; the Japanese yen strengthened to the 109 level. Emerging market currencies (MSCI Emerging Markets Currency Index) gained 0.7%.

On a total return basis, the top contributors to the Fund’s performance were the U.S. dollar +2.26%, Indian rupee +0.45%, Japanese Yen +0.43%; detractors from performance included the productivity basket -1.87%, U.S. small-cap value equities -1.53% and U.S. small-cap equities -0.97%.

Over the quarter, the Fund increased its allocation to U.S. government bonds by 13%, while concurrently decreasing its selective equity allocations across Japan, U.S. and European equities. The Fund also established a 4.0% position in China A-Shares as well as selective emerging market equities, including Brazilian and Indian equities at 2.6% and 2.5% respectively.

We reduced the Fund’s risk back in early October, driven by a concern over three potential risks, namely an interest rate spike, an oil spike and a geopolitical risk spike between the U.S. and China. All of these risks have receded over the last few weeks. However, in December, markets began to price in a severe recessionary scenario, and U.S. equities – which had been the most resilient equity market up to that point – succumbed to these fears.

While acknowledging that growth will be slower in 2019 versus 2018, we find the extent of negative price movement to be excessive. The Fund accordingly maintains its modestly above-neutral risk positioning. With the aforementioned risks abating, the intermediate-term period ahead is set for selective risk-orientation. Within emerging markets, for instance, Chinese growth has not, in our view, bottomed yet. However, Chinese equities have discounted considerable deterioration in fundamentals and are now attractively valued.

Over a nine to 18 month time horizon, we expect fundamentals to reaccelerate; therefore, the Fund has added exposure to Chinese A-Shares, which now provide positive asymmetry of returns. Additionally, within emerging markets, we continue to find India and Brazil to be attractive. The former has secular growth potential, while the latter is at a cyclically conducive phase of growth with potential for structural improvement.

Fund and benchmark performance as at December 31, 20181 year3 yearSince inception
(Sep. 2014)
IA Clarington Global Multi-Asset Fund – Series A7.4%-0.3%1.4%
60% MSCI AC World Index, 40% Bloomberg Barclays Global Aggregate Bond Index (CAD Hedged)-0.1%4.5%6.5%


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11MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

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 MSCI AC World Index (60%) and the Bloomberg Barclays Global Aggregate Bond Index (CAD Hedged) (40%). The blended benchmark presented is intended to provide a more realistic representation of the general asset classes in which the Fund invests. The MSCI AC World Index is a free float-adjusted market capitalization weighted index designed to provide a broad measure of the equity market performance throughout the world. The MSCI AC World Index captures large and mid cap representation across 23 developed markets and 24 emerging markets countries. The Bloomberg Barclays Global Aggregate Bond Index (CAD Hedged) is a measure of global investment grade debt from 24 local currency markets that includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The Fund’s market capitalization, geographic, sector and credit quality exposure may differ from that of the benchmark. The Fund’s currency risk exposure may be different than that of the benchmark. 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 June 1, 2018, the investment strategies of the Fund were changed and the sub-advisor of the Fund changed from Radin Capital Partners Inc. to PineBridge Investments LLC. Effective June 1, 2018, the Fund name changed from IA Clarington Global Growth & Income Fund to IA Clarington Global Multi-Asset Fund..