MBA, CIMTM, Fin. Pl.
Product Manager, Professional Practice
Let’s talk about performance!
In our last edition, we mainly discussed subjects related to our private investment management. Today we’ll look at our range of mutual funds, some of which are in the investment portfolios of many of our clients, as well as their performance in the current tumultuous environment.
The foundations of a good portfolio
Although mutual fund returns these days are fluctuating with market volatility levels, the question of their performance is still relevant, since stock market fluctuations are temporary, while fund performance must be considered over the long term.
Let’s review the most important principle of constructing a good portfolio: diversification.
Studies show that diversification is the overriding factor in the performance and stability of a portfolio. Some bolder investors will opt for a portfolio composed entirely of stocks, but most will also have a portion of their portfolio invested in bonds.
The role of bonds in your portfolio
It’s easy to get caught up in the whirlwind of stock market news, which can make us lose sight of the performance of the fixed-income portion of our portfolio. Our FDP Canadian Bond Portfolio has been producing positive returns since the beginning of 2020. Holding this fund in your portfolio has proven its value, especially since it is holding up very well.
As of March 23, 2020, the Financial’s internal management team has generated a year-to-date return in the FDP Canadian Bond Portfolio which is 1.12% above the median of competing funds in the market.
Bonds therefore play a crucial role in times of market instability. As a client of the Financial, you can count on an investment product that stands out from the competition.
The role of stocks in your portfolio
With regard to equities, three main groups are represented in our range of funds: Canadian equities, U.S. equities and global equities.
To date, the Canadian market has suffered the biggest drop in 2020. A closer look at the indexes shows that some sectors of the economy are weathering the storm a bit better. This allows an active manager to make moves to mitigate declines in difficult times, and also to capture more of the upside in bull markets.
Here is a graph detailing the performance of the different sectors of the MSCI World Index in U.S. dollars since January 1, 2020:
You will notice that the energy sector has been the hardest hit. Obviously, the COVID-19 pandemic monopolizes all the media attention, but other major events are taking place at the same time, notably the oil price war between Russia, Saudi Arabia and the United States. The price of a barrel of oil fell from US$61 at the start of the year to just under US$24 as of March 23, 2020.
- Globally, the sectors that have been the least hard hit are, in order: consumer staples (defensive sector), industrials, technology and health care.
You’ll notice that our fund is overweight these four sectors, while being underweight energy. It’s not surprising that its year-to-date return has beaten the median fund in its category by 2.13%
- Our FDP Canadian Equity Portfolio is also very well positioned compared to other funds in its category. Its year-to-date return beats the Canadian equity fund median by 2.54%.
- As for our FDP US Equity Portfolio, since January 1, 2020 it has outperformed the median fund in its category by 0.97%.
Since these four funds are also major components of our three balanced funds (FDP Balanced, FDP Balanced Income and FDP Balanced Growth Portfolios), two of our balanced funds are in the first or second quartile of their category in the Morningstar ratings (year-to-date return, three- and five-year returns)
Year in, year out
As you can see, Professionals’ Financial and its managers provide value to investors during times of turmoil, but also in good times.
Over the five-year period ended March 23, 2020, nine of our eleven funds beat the median in their category and ranked in the first or second quartile of the Morningstar ratings. This means that over the past five years, each of these investment products has generated added value for our clients.
Because they’re built with a view to both performance and capital protection, our mutual funds remain an asset in your portfolio. Even in down markets, they stabilize your portfolio and partially offset temporary losses in equities. They’re a solid foundation underpinning your savings.
Want to discuss this subject with your advisor? Do not hesitate to contact him.
Stéphane Girard, MBA, CIMTM,Fin.Pl.
Product Manager, Professional Practice
The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. For any questions, don’t hesitate to contact your wealth management advisor or your tax specialist, accountant or legal advisor.