Sun Life Granite Managed Portfolios

Fund commentary | Q2 2022

By SLGI Asset Management Inc. Opinions and data as of June 30, 2022 unless otherwise noted. 

Q2 Tactical asset allocation

Sun Life Granite Balanced Portfolio
A bar graph showing the quarterly change in tactical asset allocation between various asset classes in the Sun Life Granite Balance Portfolio for the period between Q3, 2019 and Q2 2022.

Allocations are as at quarter-end and subject to change without notice. The graph above provides an at-a-glance comparison short-term portfolio allocations (tactical). With this information you are able to see how the portfolio composition reflects our investment views, and how the composition evolves over time in accordance with an ever-changing market environment. 

Key tactical changes

  • Trimmed overweight position in U.S equities to de-risk portfolios given a rising interest rate scenario
  • Added Canadian bonds to take advantage of attractive yields
  • Underweight U.S. and emerging market bonds to manage risks due to slowing growth
  • Overweight cash to deal with possible episodes of elevated volatility 

Across the developed world, rapid growth gave way to a perceptible slowdown in the second quarter of 2022. In the U.S., both consumers and businesses are showing increasing signs of fatigue. For instance, the ISM Manufacturing PMI, which started 2022 in the high 50’s, has now trickled to the low 50’s. The index measuring new orders in May fell nearly 6 points to 49.2, the largest drop since May 2020.

Further, consumer spending, which accounts for nearly two-thirds of the U.S. economy, advanced just 0.2% in May, the slowest pace of monthly gains this year according to data from the U.S. Department of Commerce. Additionally, U.S. consumer confidence, as measured by the Michigan Consumer Sentiment Index, hit a multi-decade low in June. With consumers strained, we believe U.S. corporations may face headwinds to pricing power and that profit margins for S&P 500 companies could slip from their current elevated levels.

The prospects for growth in developed markets outside the U.S., especially in Europe, look even more weak. Buffeted by an acute energy crisis, Germany, which accounts for about a third of the eurozone’s economic activity, grew just 0.7% in the first quarter of 2022. This was the slowest pace of growth for any country in the European Union other than Italy during this period. Other rate sensitive economies, such as Australia and Canada, are also heading for a growth slowdown as interest rate hikes work their way into the economy.

Given the bearish backdrop, we continued to increase the defensive positions within the Granite portfolios to navigate the volatile environment. During the second quarter, we took advantage of market rallies to de-risk our portfolios, positioning them for a slowing growth environment. We trimmed our overweight position in U.S. equities and stayed underweight in international developed equities. We also maintained our neutral positioning in emerging markets equities in the face of rising rates and a strengthening U.S. dollar.

As the Fed continued to raise short-term rates, bond markets suffered a historic rout during the June quarter. At its lowest point mid-June 2022, the Bloomberg U.S. Aggregate Bond Index returned -12% for the year, far exceeding its next worst performance of -2.9% recorded in 1984 and denting a three-decade bull market in bonds.

Further, the constant push and pull between inflation expectations and recession fears with an aggressive Fed in the background meant that 2-Year Treasuries continue to catch up with 10-Year Treasury notes. The spread between these two maturities ended the quarter flat indicating yet another sign of slowing growth in the U.S.

Frantic action in bond markets drove significant fixed income volatility. The MOVE gauge of volatility sprang to its highest level since March 2020, as bond market participants struggled for direction. Other bond market indicators such as rising spreads for junk bonds and the cost of protecting corporate bonds against defaults point to further difficulties.

We believe policy makers will be laser focussed on tightening until inflation data, which is lagging in nature, has shown a sustained cooling trend while paying less attention to softening economic leading indicators. Under this scenario of rising risks and elevated borrowing costs, we have grown cautious on credit. We have maintained our underweight to U.S. and emerging market investment grade bonds. Given our concerns on economic risks, we reduced our position in high yield bonds over the quarter. On the other hand, we continued to add to high quality bonds, more specifically to our core Canadian bond component as yields became more attractive. In addition, we also maintained our overweight position in cash to deal with any possible episodes of elevated volatility in the wake of aggressive central bank action.

Contributors (+) and detractors (-)


+ U.S. Equity Style 

+ U.S. and Canada Equity manager selection

- Overweight Equities

- Allocation to Bonds

- Global and U.S. Bond manager selection


+ Overweight Cash

+ U.S. Equity Style

- Overweight U.S. Equity

- Allocation to Bonds

- International equity and GLobal Bond manager selection


+ Canadian Equity Manager Selection

+ Global Equity Manager Selection

- Overweight Equities

- Underweight Cash

- U.S. Equity Style

View fund performance (Series F)


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 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. 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.