In this mid-year period, stock markets have been generous to investors. Prospects of a global recovery in manufacturing activity and possible rate cuts that could ease central banks’ monetary policies helped support the markets. These movements could support commodities and more cyclical indices.
Canadian interest rates moved up and down, peaking in April, and the prevailing inflation outlook weighed in favour of restrictive financial conditions. Despite support from immigration, the Canadian economy ceded to signs of contraction. Major geopolitical disruptions around the world also helped maintain a climate of uncertainty. All of this taken into account, in June, the Bank of Canada became the first G7 central bank to cut its key rate following COVID-19.
The performance of medium- and long-term Canadian bonds was disappointing at close to -1%, with interest rate movements cancelling out the effect of the interest coupon. Finally, preferred shares, private equity, infrastructure and commercial mortgages all generated attractive returns.
We favour healthy diversification and will seize opportunities to add private securities. The portfolio is optimized to support the dividend scale interest rate. We are confident about achieving our performance targets and adequately investing the strong growth of participating policies.
