AGF U.S. Sector Class

By: • February 28, 2018 • Product Insight

Risk Regime - Elevated

The Fund’s Market Risk model, which typically generates signals that have historically been implemented using a three step cash allocation approach, has been enhanced to a six step cash allocation approach, with each risk regime (except Calm) having the following cash allocation increments:

Market Risk Regime Cash Increments 
Calm 0%
Elevated 12.5% or 25%
High 37.5% or 50%
Extreme 75% or 100%

Current Guidance: As of May 31st, 2019, the Market Risk model resided in the Elevated risk regime while the U.S. market volatility increased during the month of May from the previous month (please see VIX chart below).


At the beginning of May, a disruptive tweet by Trump announcing plans to raise tariffs on China brought investors back to the reality that US-China trade issue remains unresolved. Instead of approaching a widely anticipated/wished deal, the sudden deterioration in negotiations shocked the market, which quickly turned into risk-off mode. The Fund’s cash position has effectively absorbed the impact and protected the Fund from downside risk.

us-sector-class

Source: Bloomberg, as of May 31, 2019

The Fund’s cash allocation remained at 25% during May after the Fund increased its cash allocation from 12.5% to 25% in January due to increasing downside risk driven by deteriorating macro indicators.

Risk Regime Changes - Timeline us-sector-class

Current Currency Hedge

The 25% hedge position remained in place during May which was initiated in early March responding to the rapid depreciation of CAD. During May, CAD moved mostly in the narrow range between 74 and 74.6 USD cents. Oil price rolled over and dropped at the second half of the month, however the impact on CAD was minor.

Sector Class Hedge Level

Source: Bloomberg and AGF Investment Operations, as of Mar 31, 2019

Current Positioning & Sector Allocation Update

Asset Class % Allocation 
Equities 76%
Cash & Cash Equivalents 24%

Source: AGF Investment Operations, as of May 31, 2019

Summary

The sector positions remained unchanged since January. In the environment where investors seek safety amid geopolitical and economic uncertainties, defensive sectors had outperformed cyclical ones. The Fund’s overweights in Real Estate and underweights in Energy and Tech have contributed to the outperformance of allocation relative to S&P500.
U.S Sector Rotation Model Active Weights vs. S&P 500 (Net of Cash) Sector Class Hedge Level

Source: HighStreet Asset Management, as of May 31, 2019

AGFiQ U.S. Sector Class Sector ETF Weights

ETF Name Weight
(Jan. 31, 2018)
Weight
 (Feb. 28, 2018)
S&P 500 Weight
(Jan. 31, 2018)
Active Weight
vs. S&P 500
Communication Services Select Sector SPDR 3.4% 3.4% 10.4% -7.0%
Consumer Discretionary Select Sector SPDR 7.9% 7.7% 10.2% -2.5%
Consumer Staples Select Sector SPDR 5.5% 5.6% 7.4% -1.8%
Energy Select Sector SPDR 0.7% 0.6% 4.9% -4.3%
Financial Select Sector SPDR 12.3% 12.1% 13.2% -1.1%
Real Estate Select Sector SPDR 4.2% 4.5% 3.2% 1.3%
Health Care Select Sector SPDR 10.4% 10.7% 14.2% -3.5%
Industrial Select Sector SPDR 11.7% 11.4% 9.3% 2.1%
Technology Select Sector SPDR 14.1% 13.6% 21.1% -7.6%
Materials Select Sector SPDR 5.9% 5.7% 2.6% 3.1%
Utilities Select Sector SPDR 0.8% 0.8% 3.4% -2.6%
SPDR Barclays Capital 1-3 Month T-Bill 22.3% 23.5% 0.0% 23.5%

Source: AGF Investment Operations, as of May 31, 2019

AGFiQ U.S. Sector Class Sector Positioning US Sector Class 6

Source: AGF Investment Operations, as of May 31, 2019

PERFORMANCE (%, CAD, NET OF FEES)

Name 1 Mo 3 Mo YTD 1 Yr 3 Yr 5 Yr Since PSD* Std Dev 1 Yr Std Dev 3 Yr Std Dev 5 Yr Std Dev Since PSD*
AGFiQ US Sector Class Series MF -4.3 1.2 5.8 5.1 10.2 7.9 9.9 11.7 9.2 9.1 8.9
AGFiQ US Sector Class Series F -4.2 1.5 6.3 6.4 11.5 9.1 11.2 11.7 9.2 9.1 8.9
S&P 500 Net Return Index CAD -5.6 1.9 9.3 7.5 12.2 13.9 16.1 14.6 10.7 11.1 10.7
Canada Fund US Equity Category -5.4 0.8 9.1 4.8 10.2 10.9 12.7 15.3 11.4 11.9 10.2

Source: AGF Operations, Morningstar Direct, as of May 31, 2019
* Performance start date (PSD): August 19, 2013.

The All World Tax Advantage Group is a mutual fund corporation that currently offers approximately 20 different classes of securities. In addition to fund diversification by investment style, geography and market capitalization, a key benefit of investing in any of the classes within the group is the possibility of sharing incurred expenses (and losses) of the combined structure potentially offsetting income earnings to minimize chance of a dividend declaration. While the articles of AGF All World Tax Advantage Group Limited provide authority to make distributions out of capital and AGF All World Tax Advantage Group Limited intends both to calculate capital in the manner contemplated by the corporate statute for corporations that are not mutual fund corporations and only to declare distributions out of capital if there is sufficient capital attributable to a series, no definitive case law exists to confirm that a mutual fund corporation may make distributions of capital and how it is to be calculated. Further, no advance income tax ruling has been requested or obtained from Canada Revenue Agency, nor is AGF aware of any published advance income tax ruling or the possibility of obtaining such a ruling, regarding the characterization of such distributions or the calculation of capital for such purposes.

The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero

Commentary and data sourced from Bloomberg, Reuters and company reports. The commentaries contained herein are provided as a general source of information based on information available as of April 30, 2019 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. Investors are expected to obtain professional investment advice. References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AGF Investments. The specific securities identified and described in this commentary do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share and/or unit value and reinvestment of all dividends and/or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

Publication date: June 14, 2019

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