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.

Sun Life Granite Managed Portfolios

Fund commentary | Q1 2022

By SLGI Asset Management Inc. Opinions and data as of March 31, 2022 unless otherwise noted. 

Q1 Tactical asset allocation

Sun Life Granite Balanced Portfolio
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.

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

  • Remained neutral on S&P/TSX Composite Index due lack of diversification, commodity price volatility
  • Underweight Europe on fallout from the Russia/Ukraine war
  • Increased exposure to high-quality U.S. growth stocks
  • Underweight emerging markets on slowing economic growth in China

In terms of the U.S., the country’s strong Q1 jobs report, and a 3.6% unemployment rate was overshadowed by war, inflation, and interest rate worries. Indeed, consensus forecasts suggest U.S. growth in Q2 will fall from 4.3% to 3.5%. However, U.S. households are sitting on US$2.5 trillion in excess savings. And while concerns over inflation and the Russia/Ukraine war appear to have hurt U.S. consumer confidence, strong household balance sheets could continue to support the economy. Further, the U.S. economy is not as exposed to Russia as Europe’s is. Hence, we may see U.S. large cap names hold up better in an uncertain market as investors seek potential security in stronger balance sheets.

Throughout much of the market’s two-year long rally off the March 2020 bottom, we have largely maintained our weighting in high-quality growth stocks. This worked as a counterweight to our exposure to value and cyclical stocks. And as noted in Q1 we added to our weighting in high quality growth, bringing us to a 2.2% overweight position in U.S. equities. This strategy worked well in Q1, with high-quality growth stocks leading the rebound following the market selloff in early March.

Going into the Russia/Ukraine war, Canada’s economic strength was reflected in a strong housing market and an employment rate that was back above pre-pandemic levels. As well, as the post-pandemic economy continues to improve globally, there has been a growing demand for commodities, particularly natural gas and oil. The S&P/TSX Composite Index, with over a 25% weighting in energy and materials, has benefitted from the increased demand for commodities. In fact, while the S&P 500 was down 5.7% in Canadian dollars on March 31, the S&P/TSX was up 3.8%. However, given the volatility in commodity prices, and lack of diversification in the index, we remain neutral on Canada at this point.

The MSCI Emerging Markets Index was down 7% in Canadian dollars on March 31. Growth was declining in China prior to the outbreak of war. It had been slowed by the country’s zero-tolerance COVID-19 policy, supply chain bottlenecks and high debt levels in the real estate sector. China’s COVID-19 and supply chain problems came in focus near quarter-end, when the government all but locked down Shanghai, a city of 26 million people and a hub for finance and international business. The city is also home to the world’s largest container-shipping port. China has cut interest rates to stimulate growth. However, China, accounts for about one-third of global manufacturing, and an economic slowdown will have a negative impact on global economy.  More broadly, inflation, surging oil prices and a strengthening U.S. dollar could all combine to hurt emerging markets in the coming months. Hence, we held to our neutral weighting.

As noted, the crisis in Ukraine appears to pose a greater risk to Europe’s economy than it does to the U.S. In fact, the MSCI EAFE Index was down 7.0% in Canadian dollars on March 31, while the S&P was down 5.7%. Coming into the year, Europe already faced challenges from rising prices and slowing growth. Moreover, Germany’s economy (Europe’s export engine) shrank by 0.2% in the last quarter of 2021. The slowdown from the war could now push it into a shallow recession.

Furthermore, Russia currently supplies 45% of Europe’s natural gas and 20% of its oil, and Germany has warned that its share of natural gas may have to be rationed. Even before rationing, rising energy prices had contributed to a 25.9% increase in Germany’s producer price index in the March. Given the challenges the European economy faces, we remained 1.4% underweight to international equities with exposure to Europe.

Contributors (+) and detractors (-)

SUN LIFE GRANITE CONSERVATIVE & MODERATE PORTFOLIOS

+ Underweight bonds

+ Overweight cash in the first half of the quarter

+ Overweight equities in the second half of the quarter

- Overweight global mid cap equities

- U.S. equity style

- International equity manager selection

SUN LIFE GRANITE BALANCED, BALANCED GROWTH & GROWTH PORTFOLIOS

+ Underweight bonds

+ Overweight cash in the first half of the quarter

- Overweight global mid cap equities

- U.S. equity style

- International equity manager selection

SUN LIFE GRANITE INCOME & ENHANCED INCOME PORTFOLIOS

+ Overweight equities

+ Underweight bonds

- U.S. bond manager selection

- Overweight U.S. equities

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.