Manager commentary - Q4 2019

Over the period, global equities continued to rally and ended 2019 up 23.7% (MSCI ACWI Net Total Return Local Index). U.S. equities were up 28.9% (S&P 500 Index) in 2019, European equities rose 24.8% (Euro Stoxx 50 Index), while Japanese equities gained 18.2% (Nikkei 225 Index). Comparatively, emerging markets lagged behind with a return of 15.1% (MSCI Emerging Market Local Index) for the year. In particular, Chinese equities, supported by a reduction in trade tensions and a more stable growth trajectory, ended the year up more than 20% (MSCI China Index).

With more evidence of growth improving, yields on 10-year U.S. Treasuries continued to increase and ended the year at 1.92%. Conversely, yields on two-year U.S. Treasuries fell more than 4 basis points in December and ended 2019 at 1.57%, causing the spread between longer- and shorter-dated U.S. Treasuries to widen. Outside of the U.S., yields on 10-year German and Japanese government bonds rose, ending 2019 at -0.2% and 0%, respectively, as central banks question the efficacy of negative interest rate policy.

Within credit markets, U.S. corporate bonds continued to rally in December. Investment-grade assets were up 13.8% (Bloomberg Barclays U.S. Corporate Bond Index) on an annual basis and high yield was up 14.3% (Bloomberg Barclays U.S. Corporate High Yield Bond Index). In 2019, the U.S. dollar rose 0.2% against its major trading partners. The euro lost more than 2%, ending the year at 1.12 against the U.S. dollar. Conversely, the Japanese yen strengthened 1% in 2019 to 108.6. The British pound, on the back of a more certain Brexit trajectory, rose nearly 4% in 2019 against the greenback. Currencies in emerging markets also broadly gained against the U.S. dollar in 2019. Notably, the Russian ruble strengthened 12%, and the Indonesian rupiah and Mexican peso appreciated nearly 4%.

During the fourth quarter, on a total return basis, the top contributors to Fund performance were U.S. cyclicals, U.S. financials, and the Productivity Basket,2 while the key detractors were the U.S. dollar and Japanese yen. Global equities rallied throughout the quarter, driven by reduced concerns around the U.S.-China trade war. U.S. equities (financials, cyclicals) as well as companies within the Productivity Basket were a beneficiary of the rally and contributed to the Fund’s performance. On the other hand, the Japanese yen and U.S. dollar weakened and detracted from the Fund’s performance.

In our view, markets sense that the worst is over, with economic fundamentals improving in 2020, monetary policy revving up, and trade hostilities receding. This is only partially offset by renewed risks in the Middle East. We maintain our constructive Risk Dial Score (RDS)3 of 2.0.

Within equities, cyclical equity markets have begun to outperform as of September. As the fundamental data builds up, we expect for this to continue. In China, back in December 2018, we positioned ourselves in A-shares on the premise that they would benefit most from a policy-driven, macro improvement. Going forward, we still see China as an attractive market. However, we are evaluating the way to express this view, with a potential to shift to more ‘new economy’ exposure focused on the consumer and technology.

Within fixed income in 2019, most markets resisted across-asset-class rotation, having been burnt from the first two mini-slowdowns. Most stayed closer to home and rotated to safety “within asset class.” Having said that, only the U.S. yield curve made an outright recession call. As the “converge up” scenario gels, we expect bond yields to grind higher and the U.S. 10 year note to settle in at a 2.0%–2.25%, given the negligible tariff rollback that occurred in the phase one trade deal. If the unlikely phase two trade deal actually gains traction, with greater tariff rollback becoming a possibility, then look for 2.25%–2.50%. Either way, we maintain a short duration posture and are equally unexcited about credit given tight spreads.

Within liquid alternatives, energy markets have been buoyant recently. Supply dynamics have been incrementally positive due to weak shale production. Geopolitical risk remained elevated even before the spike in U.S.-Iran tensions. But perhaps most importantly, the demand outlook is being revised higher as the worst of the growth slowdown is behind us. Meanwhile, oil futures are providing an additional contribution to total return.

Fund and benchmark performance as at December 31, 20191 year3 year5 yearSince inception
(Sep. 2014)
IA Clarington Global Multi-Asset Fund – Series A10.8%3.1%2.8%3.1%
60% MSCI AC World Index,1 40% Bloomberg Barclays Global Aggregate Bond Index (CAD Hedged)15.1%8.2%7.8%8.1%


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1MSCI 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. 2Productivity Basket is constituted from a blended allocation to stocks of companies that provide productivity-enhancing technologies towards growing capital expenditure intentions globally. 3Risk Dial Score (RDS) is a numeric score determined by PineBridge’s Global Multi-asset team and is indicative of their relative preference towards risk; 1 – most risk-seeking; 3 – neutral; 5 – most risk-averse.

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 sub-advisors of the Fund changed from Radin Capital Partners Inc. and IA Clarington Investments Inc. to PineBridge Investments LLC.