The FDP Balanced Income Portfolio, Series A posted a net return of 2.0% for the first six months of 2024, versus 8.0% for 2023.
The bond market, as measured by the FTSE Canada Universe Bond Index, posted a -0.4% return for the first six months of 2024. The index’s negative return is mainly attributable to the steepening of the yield curve and lowered expectations of a key interest rate cut in the near term. These negative impacts on the Portfolio’s returns were mitigated by the continued narrowing of credit spreads and the rise in yields to maturity.
The modest key interest rate reduction in early June 2024 (the first since the start of the COVID-19 pandemic in March 2020) was well received in the country and bolstered Canadian stock markets. The economy remains resilient and investors are optimistic. The Canadian stock market, as measured by the S&P/TSX Composite Index, posted a 6.1% return over the first six months of 2024, driven by the Energy and Materials sectors.
In the United States, the U.S. Federal Reserve paused its interest rate hikes until the end of June 2024, keeping its key interest rate within the 5.25%–5.50% range. Its highly anticipated first rate cut was repeatedly delayed due to persistent inflation, which remains above target, and concerns about implementing a cut before the November election. The U.S. stock market, as measured by the S&P 500 Index, posted a 19.6% return in Canadian dollars for the first half of 2024. As was the case for the MSCI World Index, growth-style stocks (especially those of the Magnificent Seven, the seven largest U.S. technology companies) contributed the most to gains during the first six months of 2024, continuing a trend from 2023. These seven stocks now account for 30% of the S&P 500 Index.
The global stock market, as measured by the MSCI World Index, posted a 16.0% return in Canadian dollars for the first half of 2024. The pause in key interest rate hikes in major global markets (and even slight cuts in some countries) coupled with the growing possibility of inflation stabilizing at reasonable levels (within central banks’ target ranges) helped growth stocks outperform value stocks over the first half of 2024, which continues to greatly benefit technology companies.
The Canadian dollar depreciated about 1.6% against the U.S. dollar, which had a positive impact on returns for Canadian investors holding U.S. dollar- denominated assets.
On a relative basis and gross of management fees, the FDP Balanced Income Portfolio outperformed its blended index over the first six months of 2024. The FDP Balance Income Portfolio’s positive performance is essentially due to its Canadian equity and fixed-income holdings.
In terms of positioning, the Portfolio remained overweight to equities relative to its peers and maintained an overweight to Canadian securities.
The challenges of 2023 carried over into the first six months of 2024. Inflation is generally under control in major global markets and some central banks have implemented modest rate cuts. However, geopolitical tensions in Europe and the Middle East continue to dampen investor enthusiasm for international markets, leading them to favour the U.S. market instead. In Canada, inflation has subsided and fallen within the Bank of Canada’s target range, enabling the first key rate cut in more than four years. Long-awaited, it was welcomed by investors and Canadian consumers.
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