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December 2023 Portfolio Management Team Update

Home News & Commentary December 2023 Portfolio Management Team Update
Elvis Picardo

Elvis Picardo

December 2023 Portfolio Management Team Update
By Elvis Picardo, CFA®, CIM, Senior Portfolio Manager, iA Private Wealth
December 15, 2023

Market Review
Global equities broke their three-month losing streak by staging an unexpectedly strong rebound in November to post their best monthly gain in three years. The rally was sparked by the Federal Reserve’s November 1 announcement that it was holding off on raising interest rates for the second successive meeting. On December 13, the central bank announced a surprise policy pivot to potential rate cuts in 2024, triggering one of the biggest post-Fed meeting rallies since 2009 and sending the Dow Jones Industrial Average to a record high for the first time in almost two years.

The TSX Composite rose 7.2% last month, its biggest monthly advance since November 2020, as all 11 sectors gained. The technology group surged 27.3%, as Shopify soared 51% after reporting solid quarterly earnings, while the financials sector advanced 9.8%.

The S&P 500 surged 8.9% in November, one of its best-ever gains for the month, fuelled by double-digit gains in the technology, real estate, consumer discretionary, and financials groups. The Dow Jones Industrial Average advanced 8.8% while the Nasdaq Composite gained 10.7%. With major European and Asian equity indices also posting substantial gains last month, the MSCI World Index advanced 7.9%, its best monthly performance in three years. (Source: FactSet)

Bonds also rallied strongly in November, as optimism that interest rates may have peaked triggered the best gains for U.S. bonds since the 1980s. Bond yields have plunged in recent weeks, with the yield on 10-year U.S. Treasuries down 60 basis points over the past month to 3.93%, while the yield on 10-year Government of Canada bonds has also tumbled 60 basis points to 3.15%.

Portfolio Strategy
Our model portfolios have actively participated in the market rally of the past seven weeks. Since equity indices touched an interim bottom on October 27, 2023, our Pension balanced growth model has gained 8.9% (as of December 13), while the Pursuit growth portfolio has gained 9.7%.

As we had noted in last month’s update, several of the stocks held in our models registered double-digit gains and outperformed their underlying indices in November. In addition, the Platinum Growth Fund, which is held in all models at Luft Financial, gained 11.4% for the month (Figure 1).

The Federal Reserve’s updated forecasts show that Fed officials expect to lower interest rates by 75 basis points in 2024; however, investors are pricing in as many as six quarter-point reductions next year, twice as many as that forecast by the Fed.

Although anticipated rate cuts and lower bond yields have set off a massive rally in multiple sectors and asset classes, the Portfolio Management Team (PMT) continues to maintain a defensive tilt in client portfolios, based on the view that a recession in Canada is quite likely in 2024. As mentioned in last month’s update, the market surge presented an opportunity to rebalance portfolios by taking profits in some stocks and eliminating non-core holdings, and allocating the proceeds to U.S.-focused ETFs. On the fixed income side, the PMT increased duration in its bond holdings to capitalize on expected rate cuts next year.

The S&P 500 is currently only about 100 points or 2% away from its record high reached in January 2022. The Fed’s unexpected pivot has fueled risk appetite to such an extent that the cross-asset rally is turning somewhat indiscriminate; with investors going all-in on the U.S. “soft landing” scenario, there is a growing risk of disappointment if inflation persists or if the economy slows down significantly.

The PMT believes that client portfolios are well-positioned going into 2024 and will continue to monitor market developments closely to identify opportunities as they arise.

Figure 1: Platinum Growth Fund

Source: Luft Financial, Majestic Asset Management

 

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.
This information has been prepared by Elvis Picardo, who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.


This information has been prepared by Luft Financial. Opinions expressed in this article are those of Luft Financial only and do not necessarily reflect those of iA Private Wealth. Furthermore, this does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.

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