Fixed income returns remain exceptionally strong as interest rates declined. Equity returns are in line with projections and while third-quarter performance for MD Precision Portfolios is slightly behind long-term expectations, year-to-date results are fantastic.
Overall markets were resilient, supported by accommodative monetary policy, fiscal stimulus, reasonable profitability and strong labour markets. Global developed markets generally ended Q3 with a positive note.
So how did MD Funds perform in the third quarter?
Within fixed income the MDPIM Short Term Bond Pool: appreciated 0.33% in the quarter and is up over 6% in the past 12-months. Excess return is positive over the past 3-months and strongly positive adding 2% over the benchmark over the past year.
The MDPIM Bond Pool appreciated 0.67% in the quarter and is up a whopping 15% over the past 12-months while slightly trailing the exceptionally strong performance of the index over both periods.
As interest rates declined back toward their all-time lows, fixed income risk has moved higher. We have repositioned our funds to be more focused on capital preservation by reducing duration, moving to more liquid investments.
Within Canadian equities the MDPIM Canadian Equity Pool delivered a return of about 1%, trailing the S&PTSX by 116 basis points in the quarter. The YTD return of 15% was very strong, but also trailed the benchmark over the period.
The main drivers of underperformance came from the month of August where our underweight positions in Financials and Energy held us back as both sectors outperformed. Within US Equities, the MDPIM US Equity Pool posted strong performance of 3% in the quarter, slightly ahead of the S&P500 Index.
Outperformance was due to stock selection in the consumer Discretionary sector led by Target, Dollar General and Amazon.
Within international equities, the MDPIM International Equity Pool posted a negative return for the quarter of 40bps underperforming the MSCI EAFE by 70bps. The YTD return for the pool is about 9%, again slightly behind the benchmark.
For the quarter, stock selection among Health care was the biggest negative, specifically Novartis.
Finally, in emerging markets the MDPIM Emerging Markets Equity Pool, outperformed the benchmark by 85 bps in the quarter, although it lost -2% for the period. The YTD return of 6% is in line with our long-term expectations however half of that came from outperformance versus the benchmark.
Wrapping things up, MD Portfolio’s as represented by the MD precision Portfolios experienced a positive quarterly return, ranging from 53bps for all fixed income portfolios to 192bps for all equity portfolios. While the quarter is slightly below long-term expectations, the year to date results are fantastic.
At the same time, the introduction of MD Precision Portfolio Strategy at the end of June reset our portfolios for continued success going forward, and importantly provided a stronger foundation to build a wide variety of portfolio solutions for our clients. I encourage you to speak with your advisor to see if one of our new solutions is better for you.