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Fourth Quarter 2024 Newsletter

Market Commentary

The financial markets concluded 2024 on a positive note, marking a second consecutive year of strong double-digit growth for equities. However, rising long-term bond yields pressured fixed income performance. Balanced portfolios performed well as a result with most of the gains attributed to the performance of equities.

 

Here are the key quarter and YTD highlights:

  • Equities

    • S&P 500: +2.49% for the quarter, +24.89% YTD;

    • TSX 60 +3.75% for the quarter, +20.77% YTD;

    • Global Equities: +5.80%, +28.74% YTD

  • Bonds

    • US Bonds: -3.10% for the quarter, +1.33% YTD

    • Canadian Bonds: +0.77%, +4.12% YTD

    • High Yield: +0.22%, +7.71% YTD

  • Balanced Portfolios

    • Global 60/40: +3.27% on quarter, +17.59% YTD

 

During the most recent quarter, U.S. 10-year Treasury bond yields rose from 3.62% to 4.60%, steepening the yield curve and reflecting tempered rate-cut expectations and ongoing inflation concerns. Rising bond yields could portend potential challenges ahead, particularly for growth-oriented equities. While economic policies under newly elected President Donald Trump continue to evolve, potential inflationary implications remain a key focus for markets.

 

Fortress Portfolio Positioning and Outlook

We are pleased to say that the Anchor Pacific Fortress Portfolio continued to work to your benefit over the past year. As a fortress is a highly fortified and strategically designed stronghold that is constructed to provide a secure base for military operations, your portfolio in the same manner is strategically engineered to provide a secure base for your financial operations.


The Fortress Portfolio is designed to deliver a reliable highly confident outcome over a long-term investment horizon and provide resilience in the face of evolving market challenges across multiple market cycles. Consistency and adaptability remain at the heart of our investment process.

 

Given that very little has changed in our long-term views, we have made only very slight portfolio adjustments during the fourth quarter:

  • modestly reduced exposure to fixed income credit strategies

  • modestly increased allocations to real assets, particularly in energy and infrastructure

  • modestly added to our non-directional, hedged and equity market neutral strategies


Consistently executed small, deliberate adjustments such as these are instrumental in achieving long-term, risk-adjusted outperformance due to their compounding effects over time. While never headline-grabbing, they are extremely impactful in protecting and growing your wealth.

 

Our present asset allocation for the Fortress Balanced Model Portfolio is below.

Capital Growth Portfolio
Fortress Portfolio Asset Allocation

Moving forward, the key themes likely to drive portfolio risk and performance remain largely unchanged:

  • Higher global cost of capital

  • Elevated stock and bond correlations

  • Stretched equity valuations

  • Above-trend inflation

 

Additionally, we will continue to monitor the risk of rising bond yields and their potential impact on equity valuations, particularly in sectors overly reliant on hyper growth.

 

The Canadian economy is experiencing more challenges than the US.  Rate cuts in Canada will likely continue at a faster pace than in the US as economic growth stagnates and unemployment continues to rise. Setting these very real challenges aside for the Canadian economy, as investors we are not very concerned as Canada plays a relatively small role in a properly diversified global portfolio. The Fortress Portfolio is well diversified globally with small and carefully selected exposures to the Canadian economy, allowing us to focus on sectors with the most attractive risk-return potential, such as energy, while avoiding more vulnerable areas like real estate, housing and other consumer-exposed sectors.

 

Please see below the composition of the equity exposure of the Fortress Portfolio by geography and sector versus that of the reference portfolio we benchmark to.  As you can see from the charts, we are underweight Canada and overweight the US and Asia geographically.   As for industry sectors, we are underweight all cyclical sectors (Materials, Consumer Cyclical and Financial Services), and overweight defensive and economically sensitive sectors, with our highest convictions in energy and infrastructure related companies.

Stable Portfolio
Geographic Exposure
Defensive Portfolio
Sector Exposure

 While we are pleased to have been able to generate positive stable returns for our clients despite having relatively conservative allocations to equities, the potential risks going forward are not lost on us; and we will continue to be laser focused on our first principles of risk management and capital protection. 

 

While diversification remains the only free lunch in investing, successful implementation is easier said than done. We take pride in the differentiated strategies we have identified and utilized for many years and will continue to adapt our processes and critical thinking to ensure that your portfolios remain intelligently diversified and resilient to market extremes and uncertainty. 

 

Firm Developments

2024 marked another transformative year for Anchor Pacific. Here are some of the milestones we are proud to share:

 

1.       Welcoming New Partner Talent

Jay Rittinger joined us an advisor partner.  Jay’s decision to seek dedicated and specialized portfolio management at the highest level will be a game changer in expanding his wealth management practice and serving the best interests of his clients.  We are honored and delighted to have been selected as his Portfolio Management-as-a-Service (PMaaS) provider/partner and believe that this feature of our business will benefit many aspirational wealth advisors in the years to come.

 

2.       New Platform Availability

The Anchor Pacific Fortress Portfolio is now available as a Separately Managed Account (SMA) on the Aligned One platform. Advisors may now also access our Omega Liquid Alts Strategies SMA, which offers dedicated exposure to discrete and highly differentiated alternative investment strategies.

 

3.       Innovation Through Technology

Powered by our sister company, Anchor Pacific Financial Risk Labs (AP Fin Labs), our proprietary FLARE™ risk engine has been integral to our investment process. We are committed to further investing in these systems and architecture to provide enhanced tools, resources, education and support for financial professionals and their clients alike.

 

These developments reflect our unwavering focus on delivering value, innovation and excellence to dynamic financial professionals looking to grow and optimize their practices going forward.  There will certainly be more to come!


 

Download the complete Fourth Quarter 2024 Newsletter:


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Aligned Capital Partners Inc. (“ACPI”) is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and Canadian Investment Regulatory Organization ("CIRO"). Investment services are provided through Anchor Pacific Investments, an approved trade name of ACPI. Only investment-related products and services are offered through ACPI/Anchor Pacific Investments and covered by the CIPF. Financial planning and insurance services are provided through Anchor Pacific Wealth Management. Anchor Pacific Wealth Management is an independent company separate and distinct from ACPI/ Anchor Pacific Investments.

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