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June 05, 2023

Commentary: NCM Pension Portfolios

On June 5, 2023, Portfolio Manager John Poulter, CFA provided insight into his current asset allocation and approach to equity and fixed income exposures.


Good afternoon. My name is John Poulter. I'm the portfolio manager for the NCM Pension Portfolios. Today is Monday, June 5th, and I am here this afternoon to give you a little bit of an update on what is happening within the funds and reiterate some of our expectations and some of the items that we're using to help us do our asset allocations within the funds.

So given that we now have May behind us and we're in June and looking into the first half of this year, I thought I would talk a little bit on a year to date direction and recap. And I call it a recap because by and large the allocations that we have in the fund were set during the first quarter for some expectations and our outlook for this year.

And a lot of those expectations and our outlook for this year have for all intents and purposes remained the same. So our allocations that we've been making through the first half of the year are expected to remain with us until either our outlook changes or our return assumptions are fulfilled. So again, the year to date, direction and recap, the last trades that we did with the Pension funds was to reflect the outlook that we believe that the USA in general will outpace Canada and probably international markets.

And we also believe that the growth sectors and some of the cyclical sectors in the market will be seeing a continuation of recoveries from a lot of damage that was done through last year. And I did a lot of work coming out of 2022, looking at the damage that had been done to many sectors in the markets and the differences between the sectors. And I made some recommendations, I made some allocations to reflect what I thought was going to be the recovery mode for both equity markets and, you know, central bank-driven damage that's happened to fixed income.

So what I did coming through the first quarter of the year is I traded down some of the direct global positions which tend to have significant non-North American exposures. I traded those to lower percentages and I wanted to get the direct beta meaning the direct market action of two of the main indexes in the U.S. that reflect my outlook of cyclical and higher growth and the U.S. in general. So that means that I sold out some of the global positions and I added directly to the S&P 500 and I added directly to an ETF that tracks the NASDAQ 100.

And the reason I've done that, again, is because I have a favorable outlook for the U.S. and also the NASDAQ 100 very much captures the theme that I'd like in the growth index. And just a small aside there, if you look at the S&P 500, over 50% of that index is communications. And that's going to be the things like your Metas and some of the new economy communications companies.

Then there's consumer cyclicals, which has the likes of Amazon and some of the other consumer companies that are web-based. And of course, high tech. They represent over 53% of that market today. And if you look at the Nasdaq 100, it's over 80%. So that captures my beta.

In Canada specifically, I wanted to allocate more to some future growth. So that means that I reduced NCM Core Canadian, which is a low beta fund at NCM and I increased NCM Income Growth Class so that Income Growth is now two thirds of my Canadian exposure and low beta Canada is one third. And those equity allocations today are pretty much in place with what I had put together last quarter.

And I'd like to think that the performance that we're seeing in the market, specifically the outperformance of the S&P and the growth sectors are adding to the value within the equity side of the pension funds. So expectation is more of the same. Growth will continue to lead, US in general over Canada and the international markets.

In fixed income in the pension funds, this trade we've had on for a long time now, and it's reflective of our expectations that it's going to be continued volatility in the long end of the yield curve, meaning that bonds with longer maturities are going to bounce around or probably bounce between two and a half and 4% yields. I'm expecting that they're going to center on somewhere around 3 to 3 and a half coming into 2024.

But before we get there, we're going to be experiencing some data point volatility. That means that we remain short in investment grade and better high credit yields. That means we're in the short end of the yield curve where we see opportunities and specifically opportunities because we're trading at elevated yields in the short end of the curve, we're seeing discount prices, which means that there's capital appreciation potential in that end of the curve.

So we like the yields and we like the capital appreciation. We think that this end of the yield curve is going to benefit directly when central banks ease and we think central bank easing will be coming in the coming months. But easing means we're going to see a pause in rates going, being manufactured higher, meaning that the type of policy that means higher interest rates will stop. There will be a pause and then maybe later into the fall we might even see cutting starting to happen.

The short balance between the investment grade and high yield short maturities remains in place. Our expectations are that the yield curve will normalize starting sometime in the next quarter or so, and we're going to look to extend or investigate extending maturities selectively as the curve normalizes. And selectively means buying yields at the high end of my range and selling them once they trade below three.

So that means we'll try to make some money if the pinch comes from the volatility in the long end of the curve, we're going to be very happy to remain short and rolling back to short positions that that volatility presents itself through the balance of this year.

So that's fixed income and our equity outlook for the Pension Portfolios. We think we're positioned for a decent recovery year both in fixed income and in equities. And we look forward to talking to you in our next cycle. Thank you very much.


John Poulter is a Portfolio Manager, with Cumberland Investment Counsel Inc. (CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of June 5, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



John Poulter, CFA

John oversees key strategic asset allocation decisions across the firm and manages the NCM Pension Portfolios