Market Commentary
The financial markets continued to run rapidly in the second quarter of 2024. Since the end of 2022, the markets have been optimistically significant future rate cuts – presently, 6 US rate cuts totaling 1.50% are now fully priced into the markets, with nothing yet taken place. In Canada, the second 0.25% rate reduction by the Bank of Canada occurred in July. The US and Canadian economies have diverged substantially over the last 12 to 18 months and inflation particularly in the US remains sticky. Translation – the war on inflation is not yet won and we are still expecting volatility in the markets.
Quarter and YTD performance were as follows:
Equities
S&P 500: +4.38% for the quarter, +15.22% YTD;
TSX 60: -1.35% for the quarter, +4.79% YTD;
Global Equities: +3.78%, +15.59%
Bonds
US Bonds: flat on quarter, -1.00% YTD
Canadian Bonds: +0.91%, -0.43%
High Yield: +0.70%, +2.34%
60/40 Balanced: +1.92% on quarter, +7.46% YTD
While the headline equity gains are impressive, market indices like the S&P 500 are skewed by the performance of the largest stocks, which happen to be today’s market darlings – Nvidia, Microsoft, Alphabet, Apple, Amazon, etc. The majority of companies are not doing as well as evidenced by the divergence of the S&P 500 on an equal-weighted basis, where YTD gains through June are 4.96% versus 15.22% (an underperformance of 10.25%).
We maintain our view that a structurally higher interest rate regime will present challenges for equities and other traditional asset classes moving forward. While we are enjoying the gains to date, we will not lose our discipline nor focus, and continue to be hypervigilant on protecting your portfolios. We have been able to generate positive stable returns for you despite not having outsized allocations to equities – your allocation to differentiated investment strategies has provided a healthy combination of lower volatility, income, diversification, inflation protection, and overall risk mitigation.
Portfolio Positioning and Outlook
We are confident that the Anchor Pacific Fortress Portfolios have and will continue to work to your benefit in meeting your long-term investment goals and provide a secure base for your financial operations.
Other than a replacement of one private credit manager for another, no meaningful changes were made over the quarter and the core asset allocation closely resembles the one from last quarter. The manager change we made was the result of a prudent decision to defensively move up in quality with respect to both the asset manager and its borrower profile, while maintaining the target allocation to the sector.
Our existing asset allocation for the Anchor Pacific Fortress Balanced Model Portfolio is below.
Our existing asset allocation for the Anchor Pacific Fortress Balanced Model Portfolio is below.
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