AGF Elements Yield Portfolio

By: • November 13, 2017 • Managed Solutions

Throughout periods of market turbulence over the past decade, the AGF Elements Yield Portfolio (Portfolio) has exhibited a solid return profile that has outperformed the global fixed-income balanced category1 since its inception2 over a decade ago. Not only has the Portfolio outperformed with lower risk than the median fund in the category on average, the Portfolio has also exhibited greater downside protection for its investors.

 

Figure 1: Solid return profile relative to peers (For Illustration Purposes Only)

Source: Morningstar Direct, AGF Elements Yield Portfolio since performance start date of November 21, 2005 to October 31, 2017.

Performance (C$, net of fees) YTD 1 yr 3 yr 5 yr 10 yr PSD*
AGF Elements Yield Portfolio (%) 4.4 3.3 4.2 4.8 4.8 4.8
Morningstar Global Fixed Income Balanced (%) 2.1 1.8 3.7 5.1 4.3 -

*Performance start date (PSD): November 28. 2005
Sources: AGF Investment Operations, Morningstar at October 31, 2017.
Refer to the disclaimer of page 5 for details on the number of funds within the Global Fixed Income Balanced category.

1 Source: Morningstar Direct, October 31, 2017.
2 Inception date: November 21, 2005.

 

In addition to the Portfolio’s solid return profile and outperformance relative to peers in the global fixed income balanced category since inception3, monthly return volatility4 for the Portfolio has historically been lower than peers, while returns have been above both the average and median spanning the course of over ten years dating back to inception3 (figure 2).

 

Figure 2: AGF Elements Yield Portfolio has a strong risk-reward profile

Source: Morningstar Direct, October 31, 2017. Annualized returns and standard deviation of monthly returns for AGF Elements Yield Portfolio and its peers within the Morningstar Global Fixed Income Balanced category since common inception of AGF Elements Yield Portfolio: December 1, 2005 to October 31, 2017. Note that this analysis removes share classes of the same fund when an advisor series and Class F and/or Class I exist.

 

Solid downside protection

The Portfolio has offered solid downside protection for investors, as determined by analyzing losses incurred during down markets as compared to the Portfolio’s benchmark. Downside capture has been superior relative to peers, with a ratio of approximately 57%, as compared to the global fixed income balanced category at 89%. As global markets appear late in the current economic cycle, combined with persisting geopolitical tensions and stretched valuations, the Portfolio may provide an attractive solution for clients looking to participate in this late stretch of growth, yet prepare for a correction with strong downside protection.

 

3 Inception date: November 21, 2005
4 As determined by the standard deviation of monthly total returns

 

Figure 3: Upside & downside capture ratios

Source: Morningstar Direct, October 31, 2017. Upside and downside ratio for AGF Elements Yield Portfolio and its peer group within the Morningstar Global Fixed Income Balanced category as compared to their respective benchmark over the trailing 10-yer period. Note that this analysis removes share classes of the same fund when an advisor series and Class F and/or class I exist.

 

Consistent investment approach and strong risk management

The steady return profile and strong downside protection can be ascribed to the disciplined and consistent investment process and strong risk management. The Portfolio’s multi-layered diversification, consisting of a broad lineup of mutual funds covering multiple investment styles across equity and fixed income asset classes, provides an optimal portfolio allocation with strong diversification benefits. Strategic asset allocation recommendations and oversight are governed by the AGF Asset Allocation Committee (AAC) – consisting of senior members from AGF’s investment management team. As part of the ongoing monitoring, all AGF Elements Portfolios are regularly stress tested. Many of the stress testing scenarios originate from the AGF Asset Allocation Committee meetings. Key risks and opportunities to the Committee’s forecast view are used to help understand the impacts on underlying funds and the total portfolio. For example, prior scenarios centered on the potential impacts of higher interest rates in the U.S. In general, the Portfolio is expected to be less sensitive to rate hikes than the benchmark portfolio due to the inclusion of specific securities that should offer better protection in such an environment.

 

AGF Asset Allocation Committee – outlook

Canadian equity conditions appear favourable over the long-term, though over the short-term, we are cautiously monitoring the strengthening domestic currency and its impact on trade, as well as negative sentiment towards the Energy sector.


U.S. equities continue to be favoured on a relative basis, having displayed resiliency through political risk, economic longevity and stretched valuations. Continuation of this trend is expected, leading to further opportunities for growth.


European markets have withstood substantial political uncertainty, much of which has now passed, with little disruption. Some risk does remain with several upcoming elections and ongoing Brexit negotiations, leading to a neutral outlook.


Our view towards Asia ex-Japan is moderately unfavourable, as the Chinese economy has held up relatively well, though belief for a ‘soft-landing’ remains, creating some downside risk. Our outlook for Japan remains positive due to supportive policies and commitment from the central bank for necessary stimulus, though inability to get ahead of anemic growth warrants some caution.


Emerging markets have shown signs of strength in recent months, aided by the weakening of the U.S. dollar and continued reform spurring market growth. We currently maintain a neutral view, yet if the economic backdrop continues to hold over the medium-term, a greater conviction for the region may materialize.


Fixed income remains challenged as higher interest rates are expected in the coming months, weighing on the asset class. High yield bonds are the most preferred category as defaults remain low. Emerging market debt is also viewed favourably in the near-term, boosted by depreciation of the U.S. dollar. Interest rate sensitive bonds remain out of favour, as these are most susceptible to higher interest rates.

 

AGF Elements Yield portfolio positioning

The Committee continues to favour equities relative to fixed income as synchronized growth remains supportive late in the current cycle. Global markets continue to withstand geopolitical tension and weather-related setbacks with little disruption. As such, the Portfolio is positioned with an overweight equities, particularly within global developed markets.


The Committee’s preference for global bonds resulted in a modest increase relative to prior periods. Allocation to high yield bonds has been increased in light of our favourable outlook for the category, while exposure to rate sensitive bonds continues to decrease.

Summary

Global markets have generally earned positive returns and exhibited low volatility thus far in 2017 on the back of improving economic data. However, a backdrop of elevated risk still lingers as we move through the late stages of the cycle. Despite past and present challenges, AGF Elements Yield Portfolio has provided a solid return profile over the long-term, while doing so with strong downside protection. Further, its availability as part of our corporate class lineup provides potential tax savings to investors. The Portfolio continues to be a low-risk solution for those seeking a diversified blend of income-producing investments designed for low volatility.

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.


The commentaries contained herein are provided as a general source of information based on information available as of October 31, 2017 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the portfolio managers and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of the individual. We strongly recommend you consult with a financial advisor prior to making any investment decisions.


For more information regarding the underlying funds, please refer to AGF.com/Funds. For up-to-date information, visit AGF.com/Elements. The number of funds in the Global Fixed Income Balanced category for AGF Elements Yield Portfolio were: YTD: 467; one year: 450 funds; three years: 246 funds; five years: 185 funds; ten years: 65 funds.


Published Date: November 13, 2017