Quarterly Performance Report (Q2 of 2024)
The Canadian Central Bank has cut interest rates and we expect further cuts this year and next. This gives us some appealing options moving forward.
Cameron Scrivens
Portfolio Manager and President
Kai Lam
Chief Investment Officer
The second quarter of 2024 continued to build on solid first-quarter performance. Our JCIC Balanced Fund was up 3.7% in Q2 and 10.1% year-to-date (YTD). Our JCIC Equity Fund returned 3.1% during Q2 and 13.3% YTD. The more specialized segregated equity models have also performed well in which our US Equity model increased 30.6% (vs. S&P 500 total return of 19.4%) YTD, the International Equity model returned 15.4% (vs. MSCI EAFE total return of 9.1%) this year, and our Canadian Equity model returned 11.2% (vs. 6.1% for TSX total return) for the first half of 2024. Despite a negative return for the TSX in Q2, our Canadian equity positions performed very well, with Dollarama Inc. (up 21.2%), Cameco Corporation (up 14.8%) and Agnico Eagle Mines Ltd. (up 11.4%) leading the pack. Top performing stocks in the US included NVIDIA Corp (+38.2%), Apple Inc. (+24.3%) and Alphabet Inc (+21.9%). Within international markets, Taiwan Semiconductor (+29.5%) and Novo Nordisk A/S (+12.3) were strong performers for Q2 (all figures are in Canadian Dollar terms).
Bank Rate Cuts
During the quarter, we finally started to see rate cuts. Canada was first out of the gate, with a 25 basis point cut. This was followed by the European Central Bank, which also cut 25 basis points. We can see this in Figure 1. However, central banks have set a cautious tone on any aggressive rate cuts going forward.
In addition, the US Federal Reserve indicated that they only expect one rate cut this year.
Figure 1.
Source: Bloomberg
Inflation Remains Sticky
We expect further cuts this year and next year, but rate cuts continue to be "data dependent" as inflation has remained sticky above the 2% target. Figure 2 shows inflation in different regions, represented by the Consumer Price Index. Inflation has come a long way down but has been stabilizing above 2% in most markets. To see a significant reduction in inflation, the economy has to be slower.
Figure 2.
Source: Bloomberg
Unemployment Rates Stay Low
In Figure 3, you can see that the unemployment rate in this cycle has only increased modestly (on the right side of the chart), thanks to tight labour markets that have persisted since COVID-19. As long as people are employed, they continue to spend money and support the economy. In addition, the labour participation rate (Figure 4) has declined, further contributing to the tightness of the labour market.
Figure 3.
Source: Bloomberg
Figure 4.
Source: Bloomberg
Where Do We Go From Here?
Factoring in strong equity market performance, higher for longer rates with relatively modest rate cuts expected this year, a resilient economy, and sticky inflation above the central bank's target of 2%, we still have some appealing options.
On the fixed income side, we have been happy to collect high yields on shorter-term bonds and have taken a tactical approach to long-term bonds, as bond yields have remained in a relatively volatile range for the past two years.
Within equities, we continue to position ourselves to benefit from long-term secular trends. This has been particularly strong in US and International equities with exposure to growth in artificial intelligence and GLP-1 obesity drug treatments. These two mega-themes are not very prominent within the Canadian equity market. However, we have performed well within Canada by focusing on high-quality companies with a positive fundamental outlook and reasonable upside to our internal analysis. Success in the Canadian market has been just as much about owning the right stocks as it has been about avoiding potential torpedoes or companies with material headwinds.
Moving Forward
While the economy has been resilient, we do not expect strong growth. The economic surprise index has been showing negative trends recently in the US, Europe, and China. We do expect inflation to moderate further, reaching central bank targets. This will allow for further rate cuts in 2025. Incrementally, we have been taking profits in some of our strongest-performing stocks. We have also seen opportunities to initiate positions in high-quality companies at attractive valuation levels that have been underperforming due to macro factors such as "higher for longer" rates and higher bond yields, which we believe will eventually moderate.
If you have questions about any of this information, please don’t hesitate to reach out to us:
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