September 27, 2024
This month, we asked one of our portfolio management teams, Wellington Management, to provide their insights into the markets and to explain how their portfolio is positioned.
The U.S. equity markets continue to have narrow leadership this year. For context, in 2Q, markets reached new highs, driven by a narrow set of names, with particularly strong contributions from technology and AI-related companies. In fact, Nvidia and Apple combined contributed approximately 60% of the Russell 1000 Growth Index’s return during the quarter. From a sector perspective, information technology, communication services, and utilities were the strongest areas of the market, as investors optimistically engaged with the build-out of more AI-related infrastructure across the economy. Sectors including materials, industrials, financials, and real estate were all negative during the period as earnings results and macro data, outside of demand in certain parts of technology, reflected a relatively muted economic environment. Continued pressure on U.S. consumers led to uneven demand trends in consumption parts of the economy as depleted savings and continued debt service costs weighed on overall spending. Inflation remained reasonably contained, but equity markets grappled with a potentially more patient Fed as core inflation measures remained above the Fed’s stated target. In 3Q, the focus remains on Fed policy and a potential rate cut in September.
As the 2024 U.S. election cycle comes into focus, policy positioning regarding fiscal deficits, tax policy, and trade are likely to be more relevant to financial markets in the second half of 2024. We expect policy headlines and the continued focus on the pace and magnitude of Fed rate cuts to create volatility. Amid this volatility, we believe the continued focus on company earnings in the latter half of the year, specifically within the leadership sectors like information technology, should create an opportunity for more differentiation within the narrow market.
As a reminder, U.S. Equity Growth is a diversified portfolio where our efforts are focused on stock selection. Given our focus on stock selection being the central driver of portfolio returns, we’ve found more individual opportunities in broader parts of the market outside of technology including holdings in healthcare, industrials, and real estate. We also remain watchful for broadening implications of the significant AI-driven capital investment cycle as a range of industries start to potentially see productivity benefits from these innovations. As noted above, we are monitoring the dynamics of the presidential race, Fed policy, and company earnings, as near-term volatility may create potential opportunities over our long-term investment horizon.
As of July 31, 2024, some of our largest active weight holdings in the portfolio versus the Russell 1000 Growth Index are Alphabet, Broadcom Inc, and Mastercard. We highlight commentary on each below:
About the Author
Alfred Lam, Senior Vice President, Co-Head of Multi-Asset, joined CI GAM in 2004. He brings over 23 years of industry experience to his portfolio design, asset allocation, portfolio construction, and risk management responsibilities, which include chairing the multi-asset investment management committee and sizing investment bets to drive added value and manage risk. Alfred holds the CFA designation and an MBA from York University Schulich School of Business. He is a recognized leader in multi-asset investing in Canada. During his tenure, his team has won multiple investment awards, including the Morningstar Best Fund of Funds, and saw assets growing four-fold.
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