Manager commentary - Q4 2019

While the geopolitical context has rarely been as eventful as in 2019, the stock markets have held up remarkably well. The U.S. economy remained the strongest throughout the year, with the final effects of President Trump's budget reform supporting consumer spending.

Beyond trade tensions, U.S. data continued to demonstrate the strength of the world's largest economy in the fourth quarter. In fact, almost all of the data released at the beginning of the quarter exceeded forecasters' expectations, pushing the Citigroup economic surprise index to nearly an 18-month peak. The U.S. economy stood out once again by recording, for the third consecutive quarter, GDP growth of 2% or above, annualized.

Unsurprisingly, consumption, once again, explained nearly all of the GDP growth. Several tailwinds have supported household wealth in the last quarter of the year, including a vigorous job market (job creation seemed to have accelerate at year-end), anticipated wage growth, strong stock market returns and healthy real estate price appreciation.

Further, the chairman of the Federal Reserve, Jerome Powell, made it clear that his mid-cycle adjustment is complete, after a third consecutive rate cut at the end of October. Similar adjustment occurred in 1987, 1995 and 1998, each time resulting in a re-acceleration of the U.S. economy and the stock market. The bar is now set very high for an increase in U.S. interest rates. Powell also said that he needed to see a significant and sustained increase in inflation before even considering raising interest rates. Such a clear statement deserves careful consideration. For the time being, leading economic indicators suggest that the chances of such an inflationary surge over the next 12 to 18 months are very slim.

The S&P 500 performed well over the quarter, returning 6.83%. Of the eleven index sectors, nine posted positive returns, with only real estate and utilities posting negative returns. The three top performing sectors were information technology, healthcare, and financials. Information technology and healthcare both posted double-digit returns, while the performance of the financials sector was in the mid single digits.

The fund underperformed its benchmark over the period. Sector allocation and security selection both detracted from performance. In terms of sector allocation, the overweight positions in real estate and utilities were the main detractors from relative performance. The underweight in Information technology and healthcare also detracted.

In terms of security selection, the absence of semiconductors subdued the Fund’s relative performance, as semiconductors performed very well during the quarter. The overweight position in Stryker Corporation also detracted from performance, as the company underperformed its peers and the overall healthcare sector.

The market climbed to new highs in in the forth quarter of 2019, as hopes for a trade deal increased, and as third quarter earnings came in better than expected. Moreover, as more moderate democratic presidential candidates advanced in the polls, healthcare stocks were perceived as less risky by the market and appreciated in value.

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 year3 yearSince inception (Dec. 2015)
IA Clarington U.S. Dividend Growth Registered Fund - Series A20.7%6.9%5.7%
S&P 500 Index24.8%13.9%12.6%


Learn more about IA Clarington U.S. Dividend Growth Registered 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 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. The Fund’s invests in dividend paying stocks while the benchmark is comprised of companies which may not necessarily pay a dividend. 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.