Portfolio Update

Global equity markets are off to a solid start in 2024 with the S&P 500 reaching a record high during the month. The global economy was far more resilient than many expected in the past year and recent developments provide further encouragement. The latest figures on U.S. housing starts, retail sales and employment reveal positive trends. Domestically, excess savings amassed by Canadian households during the pandemic should offer a buffer against increased costs related to debt servicing and challenges in the labour market. Back from their annual retreat, the investment team’s consensus outlook is that, while global growth is expected to soften this year, there are still exciting investment opportunities available.

Navigating the Markets with our Experienced Investment Team

Our team of twenty-two analysts and portfolio managers took a deep dive into our portfolio strategy during our 2024 investment retreat. The week-long offsite meeting covered various topics, including the impact of higher interest rates on the Canadian housing market and highly-leveraged asset classes such as private equity, advancements in generative artificial intelligence affecting productivity across industries, developments in the green energy transition, and the risks of heightened geopolitical tensions. A comprehensive review of the portfolios’ sector and geographical exposures took place, alongside the introduction of new investment ideas. To highlight one example, we recently initiated a position in Sprinklr, a U.S.-based software company that helps businesses manage their social media marketing, customer service and advertising. We believe this latest addition to our global portfolio is poised to benefit from the tailwinds of generative AI and remains attractively valued.

The portfolio management process is a collaborative effort, with decisions drawing input from all members of the investment team. Vice Presidents and Senior Portfolio Managers Stéphane Lebrun and Rohit Khuller lead the team with oversight from the Investment Council.[1] Investment team members are industry specialists and their expertise is applied globally to ensure comprehensive analysis and informed decision-making. Comprised of individuals with diverse academic and cultural backgrounds, our investment team includes engineers, healthcare experts and other professionals with relevant industry experience. Each investment proposal undergoes a rigorous peer review process, requiring consensus from other members. Irrespective of years of experience or seniority, our portfolio managers and analysts are required to articulate the rationale behind their recommendations to peers. Furthermore, our risk management and due diligence process includes extensive independent field research on our portfolio companies and potential investments. We regularly engage with the management teams, customers and suppliers of companies to validate industry and firm dynamics.

The value of a collaborative approach is best exemplified during periods of volatility. In March of 2023, as disruptions unfolded in the banking sector, reminiscent of the Global Financial Crisis of 2008-2009, our analysts specializing in the Financials sector conducted a comprehensive analysis of the global financial system. Their objective was to understand the causes behind the failures of two U.S. regional banks and assess the potential emergence of similar risk factors that could impact our banking investments. Moreover, they assessed the risk of potential spill-over to the broader economy by collaborating with our economists and other analysts. Ultimately, the team’s assessment proved effective. Amidst these challenges, we advocated for patience, emphasizing the financial system’s resilience and our investments’ capacity to withstand such headwinds. Subsequently, equity markets have generated positive returns and our investments in the Financials sector have been among the top performers in our diversified portfolios.

The collective decisions made by our investment team over the years have generated positive results. Since 1988, our investment process has yielded compound returns of 11.3% for all assets under management, compared with 8% for the benchmark.[2] The difference in performance versus the benchmark has added approximately $16 billion in gains for our clients, approximately twice the total market capitalization of Canadian Tire.[3]

Conclusion

Our portfolio team’s core mission is to seek out attractively-priced investments poised to deliver value over the medium- to long-term. Moreover, our proactive engagement, reflected in nearly one thousand interactions with company managements and industry experts in 2023 alone, serves as an effective risk management tool often overlooked in passively managed strategies. This approach allows us to develop a deeper understanding of the companies we own, differentiating our portfolios from underlying indices. We encourage you to visit our website to learn more about the investment team responsible for managing your capital.

[1] The Investment Council includes Letko, Brosseau & Associates Inc.’ founders Peter Letko, Senior Advisor, and Daniel Brosseau, President, as well as Vice Presidents and Senior Portfolio Managers Stéphane Lebrun and Rohit Khuller.

[2] The performance numbers are annualized and presented in Canadian dollars gross of fees for all assets under management and the equity segment from January 1, 1988 to January 31, 2024 and do not refer to any composite. The benchmark for total assets consists primarily of the FTSE Canada 91 Day T-Bill Total Return Index, FTSE Canada Universe Bond Total Return Index, S&P/TSX Composite Total Return Capped Index and MSCI World Total Return Net Index.

[3] Represents the net gains above the benchmark on all assets for all mandates under management from January 1, 1988 to January 31, 2024.