Each quarter, Bâtirente’s Investment Strategy Manager, Jean-François Dumais*, shares our funds’ performance results with you and offers his comments regarding financial markets.
This issue looks at the situation as of June 30, 2022.
What’s happening with inflation?
Inflation continues to grow, due primarily to the ongoing pandemic as well as the war in Ukraine. In Canada, this inflation rate has even reached a 40-year high! And yet, various central banks increased their key interest rate in an aim to decrease the demand for goods and services and thereby slow down this inflation. These higher interest rates also affect financial markets.
What are the repercussions for Bâtirente Funds?
As was the case in the first quarter, Bâtirente Diversified Funds experienced a difficult second-quarter performance, posting results ranging between -8.9% and -4.6% according to their risk profile, i.e., from high-risk to low-risk. However, the right positioning of mandates entrusted to experienced managers helped generate returns that exceeded benchmarks, varying from 0.8% (Income Fund) to 1.5% (Provident and Energetic Funds). This is because Bâtirente has been moving away from speculative securities, favouring instead so-called “quality” securities that offer good internal growth and low volatility in terms of sales and earnings.
It’s often said that in periods of volatility, one should stay the course and look to the long term.
That’s true! Over the past 10 years, Diversified Funds have generated annualized yields varying between 3.7% and 8.5%—well above the inflation rate recorded for that same period.
How do you explain the past quarter’s negative performance?
The fact that there are a number of asset classes is the reason for this. With regard to shares, the Bâtirente Global Equity Multi Fund had a total return of -10.0%. Meanwhile, our Global Small Cap Equity Multi Fund performance was -10.4%. Fortunately, the quality of the securities chosen helped limit any negative impacts. The Bâtirente Global Equity Multi Fund produced a yield of 2.9% above its benchmark index. At the same time, our Global Small Cap Equity Multi Fund performance was 4.1% above its benchmark.
Bâtirente’s Canadian Equity Multi Fund declined by 10.3%. Thanks to the selection of securities at an affordable price (price/book value, price/earnings, etc.), the fund was able to yield a return of 2.9% above its benchmark index.
What about fixed income securities?
These funds also had negative returns. The dramatic increase in interest rates contributed to the Bâtirente Treasury Multi Fund’s -1.3% performance and the -4.6% return for Bâtirente’s Bond Multi Fund. However, compared to the benchmark for these funds, this performance was still excellent mainly because of the shorter term involved, which is profitable in periods of inflation.
Can we find a glimmer of optimism in this context?
Yes! This second quarter was obviously quite difficult for financial markets—one of the worst since 1976. Historically, we’ve often seen markets rebound after very negative quarters. Moreover, several central banks responded robustly by raising their interest rate to reduce inflation, which could restore investor confidence.
To learn more about Bâtirente Funds and get updated performance information, see the Bâtirente Funds of our website.
*Jean-François Dumais has worked as an Investment Strategy Manager at Bâtirente since 2019. He holds a Master of Business Administration (MBA) in finance. He has 18 years’ experience in financial markets.
Why is this important? Having a benchmark index for the performance achieved by our Funds makes it possible to determine, at least in part, whether the latter are performing well. Clearly, the aim is to achieve a performance that exceeds the benchmark index, even when this involves negative returns, as we’ve seen recently. A Canadian large-cap equity portfolio will frequently be compared to the benchmark, which is called the “S&P/TSX Composite.” For example, in 2022, the Bâtirente Canadian Equity Multi Fund achieved a return of -5.5%, when the benchmark S&P/TSX Composite Index performance was -9.9%.