Manager commentary - Q4 2019

The Canadian economy once again demonstrated its resilience in the last quarter of the year. For example, the Canadian labour market performed tremendously during the period, despite its poor performance in November. Wage growth also remained strong, generating a strong tailwind for consumption and household wealth.

The Canadian real estate sector was, in the fund manger’s opinion, one of the best stories of 2019, as the Toronto and Vancouver housing markets recovered. Immigration, the increase in household wealth, as well as the decline in interest rates, served as stabilizing factors for the Canadian economy during the quarter.

The message sent by the Bank of Canada was optimistic overall, despite the trade war between China and the U.S. The governor of the Bank of Canada made an interesting analogy during the quarter, comparing the Canadian economy to a healthy adult who is not immune to a cold, but who with his good physical condition, could recover more easily.

The S&P/TSX 60 Index returned 2.45% during the quarter, with eight of the eleven sectors posting positive returns. Healthcare and information technology posted double-digit returns, while financials posted single-digit returns. Energy, industrials and materials posted mid single-digit returns during the period.

In terms of relative performance, the Fund slightly underperformed its benchmark. Sector allocation detracted from performance, mainly driven by overweight positions in utilities and real estate.

Security selection in the energy sector contributed to performance, but did not completely offset the impact of sector allocation. Furthermore, within financials, the underweight positions in the Royal Bank of Canada and the Toronto Dominion Bank also contributed to performance, as they both underperformed during the quarter. Canadian bank earnings were lacklustre in Q4 of 2019, and notwithstanding their low valuations, the fund manager has avoided adding to the Fund’s existing positions and instead is favouring insurance stocks. Within the utilities sector, Brookfield Renewable Partners delivered double-digit returns, adding to the Funds performance.

In 2020, the fund manager expects good earnings growth in the U.S. to continue to propel the market higher, but at a more modest pace than 2019. Although recent events in the Middle East have increased equity risk, the fund manager’s strategy has not changed and he continues to operate with a conservative bias, trimming names that have outperformed and using the proceeds to purchase securities with less volatility.

Fund and benchmark performance as at December 31, 20191 year5 year3 year 10 year
IA Clarington Canadian Dividend Fund - Series A18.6%5.0%%5.5%6.5%
S&P/TSX 60 Index21.9%7.4%6.7%7.0%

 

Learn more about IA Clarington Canadian Dividend 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 Fund’s benchmark is the S&P/TSX 60 Index, which represents the large cap universe for Canada. Offering exposure to 60 large, liquid Canadian companies, this index is a methodology based index designed to represent leading companies in leading industries. Its 60 stocks cover approximately 73% of Canada's equity market capitalization. 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.