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Granite Managed Portfolios Tactical Update

November 2022

Opinions as of December 9, 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.

Investor sentiment was low at the start of November as the U.S. Federal Reserve (the Fed) raised rates by 75 basis points (bps). However, things changed as the Fed released a statement suggesting it may potentially ease future hikes. At the same time, Fed chairman Jerome Powell reiterated that rates may stay higher for longer. Both equity and fixed income markets rallied following a lower-than-expected inflation report a week later.

Equity markets rose for the month of November, with the three major indices – the Nasdaq, the Dow Jones Industrial and the S&P 500, posting gains.

We remain cautious on equities and maintain U.S. equities position to underweight via hedges. Our Canadian Equity position remains neutral.

We are overall underweight equities and using options to hedge the downside while positioned against further downside. With hopes that the Fed may be near the end of its rate hike cycle, bonds delivered positive returns for the month. The yield on the 2-year U.S. Treasury saw its largest drop in over 10 years.

We believe that high quality bonds are well positioned to overcome recessionary risks, which we think may rise. Longerterm bond yields are likely to stabilize and ultimately fall as the recessionary environment is fully priced in. We are tactically adding long-term bonds in the portfolio and reducing our exposure to high yield credit.

Our stance on Canadian equities remains neutral as we believe the energy-dominated equities could face headwinds if aggregate demand and growth softens due to monetary tightening

As central banks approach the limits on interest rates, we believe yields could peak at levels not far from current readings. We are optimistic on high quality bonds that could withstand a recessionary environment. We deployed more cash towards Canadian investment grade bonds where we maintain an overweight position. While we have put some of our cash position to work investing in high quality bonds, we still hold an overweight position in cash as we look for opportunities in higher duration assets.

Tactical Highlights

Change   Rationale
Underweight U.S. equities The focus of our hedging is in this region so we are opportunistic in our underweight position when conditions moderate and downside risk is elevated.
Remain overweight Canadian investment grade bonds We maintain a preference for Investment Grade over High Yield. Also, given Canada’s sensitivity to higher rates, we think the Bank of Canada will not be able to raise rates to same level as the Fed.
Maintain an overweight position to cash With Interest rates at 4%+ the bar to invest in other Asset Mix categories becomes higher. When we are risk-off in Equities and not Fully allocated to duration Bonds then cash is the preferred choice.

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.