Monthly Income Class Commentary
Portfolio Advisor: Industrial Alliance Investment Management
Inc.
Fund Commentary - December 31, 2012
Supported by the interventions of central banks globally to
restore economic growth, the majority of equity markets had a good
year in 2012. Investors gradually regained confidence in the second
half of last year, as several central banks adopted anticipated
measures to help stimulate the global economy.
Canadian equity markets, represented by S&P/TSX Composite
Index, underperformed their global counterparts, mostly due to
setbacks in both the Energy (-0.6%) and Materials sectors (-5.7%),
both of which are strongly represented in the Canadian index with a
combined weight of nearly 45%. These two cyclical sectors
particularly suffered from the decline in value of commodities. The
U.S. stock market, represented by the S&P 500 Index, had a
total return of 13.5%. All sectors recorded positive returns
with eight of the 10 sectors appreciating by more than 10%. Outside
of North America, most stock exchanges have seen significant
progress despite the ongoing situation in Europe. The MSCI
World Index and MSCI Emerging Markets Index had respective returns
of 13.3% and 16.0%.
The Canadian bond market represented by the DEX Universe Bond
Index returned 3.6% in 2012. Despite an ongoing environment
of extremely low interest rates, yields continued to decline and
longer-term bonds offered the greatest appreciation (+ 5.2%).
Medium-term and short-term bonds generated returns of 4.7% and 2.0%
respectively. High demand for Canadian bonds by foreign investors
has helped raise prices and further reduce yields.
The Fund invests across all asset classes including fixed
income, Canadian equity and foreign equity funds. The Fund's return
is primarily determined by the mix and performance of the
underlying funds. The IA Clarington Bond Fund, the largest fund
weighting of the fixed income component, had a significant
underweight in federal government bonds and an overweight in
corporate bonds which was beneficial to the Fund's overall
performance. The IA Clarington Tactical Bond Fund's
performance can be attributed in large part to its exposure to
corporate bonds.
Canadian equity funds also contributed positively to the Fund's
performance. IA Clarington Canadian Conservative Equity Fund
continues to focus on providing downside protection continues with
its investments in high quality, dividend paying stocks and
defensive sector allocation. The IA Clarington Dividend Growth
Fund's underweight in the Materials sector and the overweight in
the Financials sector were contributing factors to performance.The
IA Clarington Strategic Equity Income Fund's considerable
underweight in the Energy and the Materials sectors was beneficial
to performance. The overweight positions in the Consumer
Discretionary and in the Industrials sector also contributed
positively.
The Fund's foreign equity component had a mixed year. The IA
Clarington Global Dividend Fund's largest detractor to performance
was stock selection in the U.S. Industrials sector.
As we've experienced over the last few years, a spike in debt
fears tends to result in increased volatility in the equity
markets. Reigning in government debt throughout much of the
developed world will continue to characterize the economic backdrop
in 2013. Markets rose in the fourth quarter but at a more
moderate pace due to concerns surrounding the U.S. fiscal
cliff. As we enter 2013, it appears that this concern has
been alleviated for the time being. With respect to the
global economic context, the Portfolio Advisor expects that it
could be similar to that of 2012, moderate economic growth and a
sustained low interest rate environment.