Income Fund

June 30, 2024

Market Context

• The Canadian bond market returned 1.0% in the quarter.
  
• Bond yields rose in April but pulled back in May and June, finishing the quarter close to where they started. The benchmark 10-year Government of Canada yield ended June at 3.5%, up marginally in the period.
  
• Canadian stocks declined 0.5%. Real estate, telecom, and bank stocks were weak while the basic materials and consumer staples sectors were areas of strength.
  

Portfolio Specifics

• The bond component of the portfolio (76%) provided a positive return in the quarter and benefited from opportunistic positioning across the credit curve. Our provincial, corporate, and high yield bonds all contributed to performance, with the latter seeing the strongest gains year-to-date.
  
• The Bank of Canada lowered its key lending rate by 0.25% (to 4.75%), making it the first G7 country to cut rates this cycle. This led to less of an inversion in the yield curve (where short-term rates are higher than long-term rates). The fund benefited from the move as a result of its shorter duration and yield curve positioning, which favoured a transition toward normalization.
  
• Inflation has subsided in Canada, and the trend is encouraging, with many measures now below target (with the notable exception of housing costs). The central bank no longer needs to be as restrictive, but will take a measured approach to cutting interest rates further. The fund’s bond holdings stand to benefit from any further declines in rates (when yields fall, prices rise).
  
• Corporate bonds held in well despite the continued flow of new issuance, as demand for credit remained strong given attractive yields and solid fundamentals. Our manager (Connor, Clark & Lunn) trimmed some bank and telecom bonds and added to power generators, as electricity usage is seeing strong structural demand.
  
• The equity portion of the fund (24%) detracted from performance. The real estate sector was a particular area of weakness. Our focus continues to be on companies with strong balance sheets, resilient earnings, and a history of dividend growth. We reduced our exposure to banks (Bank of Nova Scotia was sold), as a slowing economy suggests rising delinquencies. Conversely, we added to energy producers as more companies in the sector are using free cash flow to pay down debt, increase dividends, and buy back stock, which CC&L likes to see.
  
• The fund paid a distribution of $0.07/unit at the end of June.
  

Positioning

• Our focus remains on high-quality companies. CC&L expects Canada to enter a mild recession, with the central bank taking a careful approach to further rate cuts.
  
• Stocks make up 24% 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.