Market Commentary
The financial markets extended its impressive YTD gains in Q3 with the majority of asset classes performing extremely well. The first of what are perceived to be many future rate cuts in the US served as the primary catalyst. Post quarter-end however, the data on US growth has remained strong and the rate inflation is still higher than the Fed’s comfort level, and as a result, 10 year bond yields have risen from 3.62% to 4.21% (as of October 24). We continue to view the US and Canadian economies to be on substantially divergent paths, and with US inflation remaining sticky, further volatility in the markets is likely and continued vigilance is warranted.
Quarter and YTD performance were as follows:
Equities
S&P 500: +5.75% for the quarter, +21.85% YTD;
TSX 60 +11.07% for the quarter, +16.41% YTD;
Global Equities: +4.80%, +21.14%
Bonds
US Bonds: +5.29% for the quarter, +4.24% YTD
Canadian Bonds: +4.64%, +5.79%
High Yield: +5.47%, +7.95%
60/40 Balanced: +5.52% on quarter, +13.38% YTD
We maintain our view that a structurally higher interest rate regime will present challenges for equities and other traditional asset classes moving forward. While we are enjoying the gains to date, we will not lose our discipline and remain focused on protecting your portfolios. We have been able to generate positive stable returns for you despite not having outsized allocations to equities and continue to maintain a healthy allocation to the same capital protective differentiated investment strategies that have served our clients well.
Portfolio Positioning and Outlook
The Anchor Pacific Fortress Portfolios are constructed to meet your long-term investment goals and provide a secure base for your financial operations.
As we made no meaningful changes to the composition of the Portfolios in the most recent quarter, now would be a great time to review the three major sub portfolios that comprise the Fortress Portfolios.
Capital Growth Portfolio
The Capital Growth Portfolio comprises between 35 – 50% of the overall Fortress Balanced Portfolio. The primary goal of this allocation is long-term capital appreciation. The Capital Growth Portfolio is principally composed of funds that own globally diversified portfolios of public and private equities as well as a small allocation to gold and potentially other commodities and currencies. It is intended to provide an efficient exposure to global equities and economic growth.
The Capital Growth Portfolio within the Fortress Balanced Model Portfolio as of September 30 is shown below.
Stable Portfolio
The Stable Portfolio comprises between 35 – 60% of the overall Fortress Balanced Portfolio. The primary goal of this allocation is stability of returns with some income. The Stable Portfolio is principally composed of funds that own public and private fixed income, real assets and companies that own real assets, as well as various actively managed strategies that access the global markets non-directionally. It is intended to provide a consistent and stable return by capturing returns that are independent of the direction of global equity markets.
The Stable Portfolio within the Fortress Balanced Model Portfolio as of September 30 is shown below.
Defensive Portfolio
The Defensive Portfolio comprises between 10 – 20% of the overall Fortress Balanced Portfolio. The primary goals of this allocation are liquidity, safety of principal, and income. The Defensive Portfolio is principally composed of funds that own high quality government and investment grade corporate bonds. The primary risks are from rising interest rates (duration), inflation, and deteriorating credit fundamentals.
The Defensive Portfolio within the Fortress Balanced Model Portfolio as of September 30 is shown below.
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