Income Fund

September 30, 2024

Market Context

• The Canadian bond market returned 4.6% in the quarter.
  
• Bond yields declined meaningfully, with shorter-term maturities seeing the biggest moves. The benchmark 10-year Government of Canada yield fell from 3.5% to 2.9%.
  
• Canadian stocks rose 10.1%. Financials, utilities, basic materials, and real estate were areas of strength, while the energy sector lagged.
  

Portfolio Specifics

• The fund gained an impressive 6.0% in the quarter, and is up 6.6% year-to-date. The bond component of the portfolio (75%) performed well, outpacing the broader market. Our fixed income strategy benefited from a flattening of the yield curve (whereby short-term yields saw sharper declines than their longer-term counterparts), and our provincial and corporate bonds turned in strong performances.
  
• As for our corporate bond holdings, we have a few key industry-specific themes in place: we’ve increased our exposure to utility generators (given the strong demand outlook for electricity and natural gas), reduced our weighting in banks (as consumers are increasingly levered), and added to telecoms as specific opportunities have arisen.
  
• Globally, we’re seeing an easing in short-term interest rates. The Bank of Canada lowered its key policy rate twice in the quarter (to 4.25%), and the U.S. Federal Reserve initiated its first cut, by a larger than normal 0.5%, while signaling more to follow so long as inflation continues to recede towards the central bank’s target. These easier financial conditions will help support the economy and should continue to benefit bonds, as their prices generally rise when interest rates fall.
  
• We’ve been building a modest position in real return bonds (which pay a return adjusted for inflation) more recently, as our manager, Connor, Clark & Lunn, believes these securities offer good value and are not reflecting the potential for a re-acceleration in inflation in 2025.
  
• The fund’s equities (25% of the portfolio) were the strongest performers in the quarter. Notably, our real estate and other interest rate-sensitive stocks (e.g., utilities, pipelines, and telecoms) saw strong gains. Our focus continues to be on companies with solid balance sheets, resilient earnings, and a history of dividend growth. We reduced our exposure to oil producers (Cenovus Energy and Veren were sold) and added to pipelines (TC Energy was purchased), which tend to be less cyclical.
  
• The fund paid a distribution of $0.07/unit at the end of September.
  

Positioning

• Our focus remains on high-quality companies. CC&L’s base case is still for a mild recession in Canada, with central banks taking a careful approach to further rate cuts.
  
• Stocks make up 25% of the fund and remain an important source of diversification.
  

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.