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 2022 situation.
How did the economy behave in 2022?
Global inflation reached a 40-year high due to several factors, such as the war in Ukraine, the persisting pandemic, the world’s supply chain failures, and the lack of labour as well as housing. Various central banks significantly increased their key interest rate in an aim to reduce the demand for goods and services and slow down this inflation. For example, in Canada, we’re now seeing that these rate increases worked even if inflation remained high. The latter dropped from 8.1%, at the end of June, to 6.3% at the end of December. These rate increases led to a slowdown in economic growth, and many experts have predicted a recession in 2023.
How was the market performance in 2022?
Central bank interest rate increases had a major impact on financial markets. As with most crisis episodes, the US dollar serves as a haven since the American economy is considered more stable and inspires confidence. The Canadian Universe Bond Index had a negative performance of close to 12% in 2022—a record drop for this index. The TSX Composite (Canada) fell by 5.8%. Moreover, all-country equities ($CAD) decreased by more than 12%.
In short, the most important thing to remember is that the probability of positive returns for 2022 was very low across all investor profiles.
What were the repercussions for Bâtirente Diversified Funds?
In 2022, Bâtirente Diversified Funds experienced a negative performance, posting results ranging between -8.6% and -5.7% 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 (see definition below) varying from 0.8% (Income Fund) to 1.7% (Energetic Fund). The reason for this is that Bâtirente has been moving away from speculative securities while paying particular attention to preserving its members’ capital.
How did Equity Multi Funds perform in 2022?
Bâtirente’s Global Equity Multi Fund had a total return of -11.7% (compared to -12.4% for the benchmark index). Meanwhile, our Global Small Cap Equity Multi Fund performance was -9.0% (compared to -13.3% for the benchmark index). The emphasis on capital protection for members here also helped limit any negative impacts. For example, our Global Small Cap Equity Multi Fund yielded a return that was 4.3% above its benchmark. Bâtirente’s Canadian Equity Multi fund had only a 1.3% decrease and managed to yield returns of 4.6% more than its benchmark index.
What about fixed income Multi Funds?
These funds also had negative returns. The dramatic increase in interest rates contributed to the Bâtirente Treasury Multi Fund’s -3.0% performance (compared to -4.0% for the benchmark index) and the -8.7% return (compared to -11.7% for the benchmark index) for Bâtirente’s Bond Multi Fund. Yet, compared to the benchmark for these funds, their performance was still excellent, mainly due to the shorter term involved for the bonds, which is profitable in an inflationary context.
What’s the outlook for 2023?
In 2022, a number of central banks responded robustly by raising their interest rate to reduce inflation, which seems to be working, and this could restore investor confidence. However, the right balance will have to be found between economic growth and inflation. It seems that the central bank rate hike is drawing to a close. With the end of China’s zero-COVID policy, the reopening of the Chinese economy could balance out the rest of the world’s more difficult economic performance. On the other hand, this reopening could lead to rising inflation.
What advice to follow for the coming year?
At Bâtirente, we often say that in periods of 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 3.6% and 8.5%—well above the inflation rate 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 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 quite 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 -1.3%, when the benchmark S&P/TSX Composite Index performance was -5.8%.