Manager commentary - December 31, 2018

The MSCI World Index1, in Canadian dollar terms, endured a broad-based correction in the fourth quarter with a return of -8.5%. IA Clarington Inhance Global Equity SRI Class Series A lagged the MSCI World Index with a return of -9.8%, with the real estate, communications services and health care sectors being the primary detractors from performance. The Fund’s positive industrials sector stock selection and fossil fuel-free investment strategy, which avoided energy stocks, helped offset some of the downside. Notable positive contributions came from Starbucks Corp., Danish wind turbine manufacturer Vestas Wind Systems A/S, U.S. consumer staples company Church & Dwight Co., Inc. and holding cash in a declining market. Japanese telecom and technology firm SoftBank Group Corp., Amazon.com Inc. and Apple Inc. were the leading detractors from performance during the period.

On a regional basis, the Fund’s exposure to Japan and Europe underperformed, while performance in North America was flat over the quarter.

Over the reporting period, Vancity Investment Management Ltd. (VCIM) actively repositioned the portfolio following solid year-to-date performance. Positions were established in Accenture Plc, Thermo Fisher Scientific Inc. and Worldpay Inc. The following positions were eliminated: Toray Industries Inc., Shire Plc, Standard Life Plc and Texas Instruments Inc. Excess cash was used to top up a number of existing positions.

In terms of environmental, social and governance, and engagement activity in the fourth quarter, VCIM formally supported shareholder resolutions filed with Starbucks Corp. and Costco Wholesale Corp. requesting that each company report on efforts to reduce consumer packaging. VCIM engaged with Royal DSM N.V. and Starbucks on the need to address anti-microbial resistance in the supply chain. Lastly, VCIM continues to support increased safety measures for garment factories in Bangladesh.

Global economic fundamentals were solid in 2018, with robust GDP growth and expanding earnings-per-share results for companies beating revenue and margin expectations. However, trade concerns and interest rate normalization, particularly by the U.S. Federal Reserve, weighed heavily on markets heading into the fourth quarter and resulted in December 2018 being the worst December since 1946.

Most investors are relieved to see this volatile year come to a close. There were very few places to hide in 2018. In fact, with cash being the best performer, there wasn’t a major asset class that beat U.S. inflation in 2018. Although we do not see a multitude of flashing red indicators of a recession in the U.S., concerns are permeating and earnings growth is expected to decelerate in 2019. Valuation multiples have been compressing to compensate for this and we believe that they are squarely in the fair value range for many companies. Compared to fair value in the U.S., valuations in Europe and Japan remain compelling on a relative basis. We expect that our view of maintaining increased exposure to these regions should be a positive contributor to global equity returns in 2019.

 

Fund and benchmark performance as at December 31, 20181 year3 year 5 yearSince inception
(Dec. 2009)
IA Clarington Inhance Global Equity SRI Class – Series A-1.4%2.7%6.4%7.4%
MSCI World Index1-0.5%5.8%9.9%10.7%

 

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1Source: MSCI Inc. MSCI 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 Fund’s benchmark, the MSCI World Index, is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of 23 developed market country indices. The Fund holds securities of companies which meet the fund manager's socially responsible investment principles, while the holdings in the benchmark may not align with these principles. The Fund’s market capitalization, geographic and sector 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. It is not possible to invest directly in market indices. The performance comparison is for illustrative purposes only and does not imply future performance. Around December 7, 2009, a material fund merger occurred. Around December 14, 2009, the sub-advisor changed. These changes may have affected the Fund's performance.