Market Commentary
During the second quarter of 2024 (“Q2”), U.S. long yields remained relatively stable. Increased Treasury auction supply was absorbed by strong overseas demand. Nonetheless, the long-term uptrend in U.S. Treasury yields remains intact. Contrary to the U.S. Federal Reserve’s steady rate policy, the Bank of Canada (“BOC”) cut its policy interest rate by a quarter-point on June 5th, from 5.00% to 4.75%, signaling that future decisions will be data-dependent. Although the Canadian economy is underperforming relative to the U.S., it is not in recession.
Coincidentally, in the same week as the Bank of Canada’s rate cut, Toronto Transit Commission (“TTC”) workers threatened to strike, demanding higher wages, better benefits, and larger pensions. Although negotiations averted the strike, such demands are prevalent. Unlike the TTC, the Liquor Control Board of Ontario was not able to avoid a strike and announced their intention to do so on July 5th for a number of reasons, higher wages being one of them. Economic principles dictate “prices follow money,” meaning rising wages typically lead to persistent inflation. True to form, Canada’s May inflation data, released on June 25th, showed a 0.6% increase in the Consumer Price Index (“CPI”).
Major U.S. stock indices advanced to new record highs though the second quarter. Gold and other metal prices also hit new peaks, and despite brief corrections, established clear uptrends. The strength in asset prices reflected the elevated level of household income, including interest income and capital gains.
As of this writing, the U.S. GDPNow projection is 2.0%, aligning with trend growth. Household finances remain healthy and substantial government spending should sustain growth. A ‘no landing’ forecast, has now become the consensus view.
We anticipate inflation to be more persistent than consensus expectations. Given substantial U.S. budget deficits and stock indices near all-time highs, the U.S. economy is likely to remain resilient, and bond yields in the U.S. and Canada have more room to rise in the near future.
Comparatively, the Canadian economy shows relative weakness to the U.S., however, despite vulnerabilities, overall growth has remained positive, likely supported by the stronger U.S. performance.
Fund Positioning
The Tactical Sovereign Bond Fund outperformed its benchmark in Q2 with a return of 1.4% versus a return on the Index of 0.9%. The Effective Duration of the Fund at the end of Q2 remained 0.1.
Performance throughout the quarter was primarily attributable to its short duration strategy and participation in ‘tradable rallies’ within the bond market. The present strategy is anticipated to persist through the third quarter of 2024, however, is contingent upon shifts in macroeconomic data, the emergence of geopolitical events or financial disruptions. While capital preservation remains a key tenet of the Fund’s strategy, the Fund benefits from its ability to capitalize on evolving market dynamics within bond and currency markets.
1Series F, total return CAD terms
2Duration is a measure of the sensitivity of the price of a bond to a change in interest rates. A fixed income security (or fund) with a higher (longer) duration would indicate a higher sensitivity to interest rates and thus, higher interest rate risk.
Standard performance as at June 30, 2024.
| Company | 1 Year | 3 Year | Since Reorganization3 (August 27, 2018) |
5 Year | Since Inception (July 25, 2016) |
|---|---|---|---|---|---|
| Caldwell Tactical Sovereign Bond Fund Series F | 3.9% | 1.6% | 1.1% | 1.2% | 0.4% |
| S&P Canadian Sovereign Bond Total Return Index | 3.0% | -1.3% | 0.8% | -0.2% | 0.3% |
3The Fund, following a security holder vote, changed its fundamental investment objective August 27, 2018 and also reclassified former Series I units to the current Series F. For more information refer to the Simplified Prospectus of the Fund.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Rates of returns, unless otherwise indicated, are the historical annual compounded returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
Publication date: July 18, 2024.