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 second quarter of 2023.
How did the economy perform?
Central bank interest rate hikes had an impact on worldwide inflation, which continues to decrease. For example, in the United States, this rate dropped from its peak of 9.1% in June 2022 to 3.0% by June 30, 2023.
We’re approaching the end of this money tightening measure (increased central bank rates). However, uncertainty remains as a result of inflation, which still hovers above the 2% target of North American central banks. With stronger-than-expected economic growth, central bank rates could stabilize at higher levels for a longer period. Until recently, the market predicted rate drops for the second half of 2023—now pushed back to the second quarter of 2024.
Will we experience a recession?
The more difficult monetary conditions will likely unleash a recession by the end of 2023, but this should be limited on either side of the border primarily due to the labour shortage.
In addition, the difficult negotiations around raising the American debt ceiling came to a successful conclusion in the second quarter, thereby avoiding negative impacts on the economy.
Lastly, artificial intelligence, which is now front and centre on the economic stage, is raising many hopes. The potential increased productivity generated by this could reduce inflation.
How did markets perform?
There’s been a sense of positivism on stock markets thanks to the expectations of an imminent end to the money tightening policy and of a moderate recession, resolution of the American debt-ceiling crisis, and buzz around artificial intelligence.
The all-country equity index recorded a return of 3.8% (in Canadian dollars). Meanwhile, Canada’s main index (S&P/TSX) posted a performance of 1.1%.
Sectors performed quite differently compared to last year at this time. In fact, the technology sector (related to artificial intelligence) currently leads the pack despite lagging far behind in 2022. In contrast, the energy sector is now one of the weakest, even though it was at the top in 2022.
Unlike the stock markets, bond markets recorded negative yields in the second quarter due to the expectation that central bank interest rates would remain high for a prolonged period. As such, the FTSE Canadian Universe Bond Index saw a -0.7 % return.
What kind of performance did Equity Multi Funds have in the second quarter?
Bâtirente’s Canadian Equity Multi fund advanced by 2.6%, exceeding its benchmark of 1.5%. The fund’s outperformance can be attributed mainly to underweighting in the energy sector, which made little progress during this period.
Bâtirente’s Global Equity Multi Fund had a total return of 1.7%, providing a yield of 8.2% for 2023.
Lastly, our Global Small Cap Equity Multi Fund ended the quarter with a -1.6% performance. Yet it still remains the strongest fund since the beginning of the year, with a performance of 8.3%.
What about fixed income Multi funds?
These funds yielded slightly negative returns. The increase in interest rates contributed to the Bâtirente Treasury Multi Fund’s -0.3% performance (compared with the -0.8% benchmark return) and -0.1% for Bâtirente’s Bond Multi Fund (compared with the -0.7% benchmark). Once again, we’re seeing the excellent performance of these funds in relation to their benchmarks, mainly due to the shorter term involved for the bonds, which is profitable in an inflationary context.
What were the repercussions for Bâtirente Diversified Funds?
In the second quarter, Bâtirente Diversified Funds posted returns ranging between 0.0% and 0.7%, depending on their risk profile, i.e., from least risky (more bonds) to most risky (more equities). For 2023, total performance has been between 3.1% (Income) and 6.4% (Energetic).
What advice would you give for the coming years?
At Bâtirente, we know that in periods of economic volatility, one should stay the course and look to the long term. And that holds even more true when we think about retirement or other future plans! That’s because, for the past 10 years, Diversified Funds have generated annualized yields varying between 3.8% and 8.5%—well above the Canadian inflation rate (2.5% annualized) recorded for that same period.
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 nearly 20 years’ experience in financial markets.