Granite Managed Portfolios Tactical Update

4Download PDF

January 2024

Opinions as of February 14, 2024

The views expressed in this tactical update apply broadly to all Sun Life Granite Managed Portfolios, whereas the tactical highlights and allocation data in the chart below are specific to Sun Life Granite Balanced Portfolio. For the latest information about other Sun Life Granite Managed Portfolios, including Sun Life Granite Managed Income Portfolios, please refer to our quarterly fund reviews.

Healthy economic data helps U.S. markets build on 2023’s robust rally

Despite a stubborn January inflation report, we see inflation trending down gradually. We also think the U.S. Federal Reserve will not cut interest rates as quickly as markets expect. 


U.S. equity markets rallied in the first six weeks of 2024. After rising over 24% in all of 2023, the widely followed S&P 500 index, rose another 5% to an all-time high in early February. The tech-heavy Nasdaq Composite index jumped over 7% in the first six weeks of 2024. Markets were initially buoyed by expectations that the U.S. Federal Reserve (“the Fed”) will start cutting interest rates as early as March 2024 as inflation slowed. Markets were also boosted by strong jobs growth; the unemployment rate was just 3.7% in January, near all-time lows. 

However, January’s inflation figures surprised markets: the U.S. Consumer Price Index (CPI) rose 3.1%. While this was the slowest pace of inflation since June 2023, it exceeded forecasts of 2.9%. That threw doubts on expectations that the Fed will cut interest rates in March 2023. 

We were not surprised by the stubbornness in inflation. We predicted that the last stage to lower inflation back to the Fed’s target of 2% was going to be tough. January’s price gains played to our views. However, despite the inflation surprise, we still believe price growth will continue to slow in the coming months barring geopolitical risks. We also believe that central banks will be wary to rapidly cut interest rates. After January’s surprise inflation, markets now expect the Fed to cut interest rates in June, more or less in line with our views. 

On the other hand, despite inflation-induced volatility, markets resumed their rise. That’s because the U.S. economy is signaling that it is neither too hot nor too cold. Retail sales and industrial production data in early February cooled, reassuring markets that interest rate cuts may not be too delayed.

While the U.S. economy has held up remarkably well under the weight of high interest rates, other economies around the world are struggling. Growth rates were muted in the Euro zone and Canada. Japan unexpectedly slipped into a recession in Q4 2023. China is trying to break free from the grip of deflation. 

As for positioning, we are neutral towards equities across all geographies. While U.S. equities are seeing upward earnings revision on the back of resilient consumer spending, we feel they have run up too far too quickly. Given current elevated valuations and the dominance of a handful of stocks driving U.S. gains, we think equity markets will struggle to increase a lot from here. On the other hand, any U.S. interest rate cut may boost equities everywhere else. 

Within fixed income, we are overweight Canadian investment grade bonds that are dominated by high-quality issuers. Further, as the Canadian economy slows in the wake of higher interest rates, we expect interest rate cuts to come sooner to Canada. This should broadly help performance of Canadian bonds compared to other regions. We are underweight both high-yield bonds and emerging market bonds as the effect of high interest rates continue to play out with a lag. 

Tactical Highlights

Change Rationale
Maintain a neutral position to equities across the globe

We are neutral towards U.S. equities despite the strong economy because of elevated valuations. Valuations remain attractive outside the U.S. despite economic concerns

Overweight Canadian investment grade bonds We expect monetary relief to come to Canada sooner than to the U.S. This coupled with higher quality issuers could mean less credit risk for the Canadian investment grade bond sector
Underweight high-yield bonds

Higher cost of credit could induce a stress in the riskier parts of the corporate high-yield debt market

Tactical Allocations | Sun Life Granite Balanced Portfolios

The graph shows the tactical allocations for the Sun Life Granite Balanced Portfolio. It is a stacked bar graph with each bar being the same height, representing 100% of the total asset allocation for the fund. There are no numbers on the graph. It is intended to provide an approximate representation of the Funds’ asset allocation.  The X-axis represents the months from FEBRUARY 2023 to JANUARY 2023.  The Y-axis represents the percentage allocated to 12 asset classes as follows: For JANUARY 2023, Canadian equity, U.S. equity, and International equity are large segments at the top of the bar, representing approximately 42% of the bar. Next, Emerging market equity, Global equity and Real assets segments make up about 15% of the bar. Next, Canadian Bonds makes up approximately 20%. U.S. Bonds is approximately 12%, and the remaining 10% is comprised of Global Bonds, Emerging Markets Bonds, High yield bonds and Cash. The months prior to JANUARY 2023 show variations of these values, illustrating shifts of asset allocation over time as some asset classes shifting the others higher or lower as a percentage of the total.

Allocations are as of month-end unless otherwise noted and subject to change without notice.

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are subject to change and are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. This commentary is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. Information contained in this commentary has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.

The indicated rates of return is are the historical annual compounded total returns including changes in security value and reinvestment of all distributions and do not take into account sales, redemption, distribution or other optional charges or income taxes payable by any securityholder that would have reduced returns.

This commentary may contain forward-looking statements about the economy and markets, their future performance, strategies or prospects or events and are subject to uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Forward-looking statements are not guarantees of future performance and are speculative in nature and cannot be relied upon.