Effective November 27, 2021, the deferred sales charge and low load sales charge purchase options will no longer be available for purchase on Sun Life Global Investments mutual funds. Switches between funds of the same sales charge purchase option will be permitted.

Granite Managed Portfolios Tactical Update

May 2022

Opinions as of June 8, 2022

 

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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.

Persistent inflation, hawkish central banks, and strained supply chains continued to sway global markets in May. While several equity markets stumbled through the month, a late rally in asset prices helped markets find their footing to end the month flat. The S&P500, MSCI EAFE and MSCI Emerging Markets indices were down less than 1%, measured in Canadian dollars. The 10-Year U.S. Treasury Note which began the month with a yield of 2.94%, posted marginally higher returns, ending the month with a yield of 2.84%.

While worries over inflation and tight labor conditions continued to grip markets, we believe we are seeing very early signs of easing from both. The U.S. Fed’s preferred inflation measure, Core PCE, cooled down for the second month in a row and the list of U.S. corporations slowing hiring plans is on the rise. Additionally, manufacturing PMI data is moderating. Nonetheless, central banks remain hawkish. While we believe central banks will be more aggressive in the near term, we expect them to be more data dependent later this year and the focus to shift from price pressures to slowing growth.

Given this backdrop, our equity exposure favors factors such as high quality and low volatility. We are cautious on international developed markets and cyclical equities. In addition, we view recessionary risks to be higher for Europe than for the U.S. In line with these views, we reduced our exposure to international mid-cap stocks that we believe are most sensitive to slowing growth and are tactically overweight U.S. equities that we believe can perform better across diverse scenarios.

We are neutral on both Canadian and emerging market equities. Canadian equities have held up better than most other markets thus far this year, thanks to a strong rally in energy stocks. However, Canadian markets’ concentration in materials, energy and other cyclical sectors could pose a challenge going into the second half of the year. While emerging market equities led by China could get a lift from a raft of easing measures targeted at growth, we are staying neutral towards the asset class on concerns over stringent lockdowns, disrupted supply chains and slowing trade.

In fixed income, we remain slightly underweight duration and we trimmed our exposure to corporate bonds. Given the rise in borrowing costs and higher spreads, we see downside to global high yields. Additionally, a stronger U.S. dollar could lead to tightening financial conditions for emerging markets and we remain tactically underweight emerging markets investment grade bonds.

We increased our exposure to Canadian bonds. The near-term stance of Bank of Canada towards inflation has been quite hawkish and the central bank raised interest rates by 50 bps in each of its past two policy meetings. Consequently, the yields on the 2-year bond jumped to 2.8%, the highest since 2008. We see these levels of yields to be attractive and used the opportunity to increase our Canadian fixed income exposure. 

Tactical Highlights

Change   Rationale
Trimmed our exposure to mid-cap global equities Most sensitive to slowing global growth
Underweight emerging market and high yield bonds Tightening financial conditions could lead to rising spreads
Overweight Canadian core bonds Near-term hawkishness from Bank of Canada has resulted in attractive yields

Tactical Allocations | Sun Life Granite Balanced Portfolio

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 JUNE 2021 to MAY 2022.  The Y-axis represents the percentage allocated to 12 asset classes as follows:  For November 2021, Canadian equity, U.S. equity, and International equity are large segments at the top of the bar, representing approximately 45% 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 5%, and the remaining 10% is comprised of Global Bonds, Emerging Markets Bonds, High yield bonds and Cash.  The months prior to November 2021 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.

 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Investors should read the prospectus before investing. The indicated rates of return 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. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

This document is provided for information purposes only and is not intended to provide specific individual financial, investment, tax or legal advice. 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 or sub-advised by SLGI Asset Management Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.

Information contained in this document 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. This document may contain forward-looking statements about the economy, and markets; their future performance, strategies or prospects. Forward-looking statements are not guarantees of future performance and are speculative in nature and cannot be relied upon.

© SLGI Asset Management Inc., 2022. SLGI Asset Management Inc. is a member of the Sun Life Financial group of companies.