Income Fund

March 31, 2024

Market Context

• The Canadian bond market declined 1.4% in the quarter (interest less capital depreciation).
  
• Bond yields rose, with longer term yields seeing the biggest increases (reminder: when yields rise, prices fall). The benchmark 10-year Government of Canada yield started the year at 3.1% and ended March at 3.4%.
  
• Canadian stocks rose 6.8%. Energy, healthcare and industrial stocks were areas of strength while REITs and telecoms were weak.
  

Portfolio Specifics

• The bond component of the portfolio (75%) declined as yields rose (bond prices fall when yields rise) and investors adjusted their expectations to reflect a slower pace of interest rate cuts by central banks. Nonetheless, the fund’s fixed income investments held up better than the broader market.
  
• The fund’s corporate bond holdings have served the portfolio well but our manager, Connor Clark & Lunn, has been reducing exposure to the sector as the yield pickup (compared to federal bonds) has diminished. Instead, there is an opportunity to invest more in provincial bonds, which haven’t seen spreads contract to the same extent. Almost half of the fund’s bonds are invested in provincials.
  
• The portfolio’s structure has had a tilt toward shorter-term bonds which has helped performance. The month of March marked the longest period in which the yield curve has been inverted (where short-term rates are higher than long-term rates).
  
• Higher interest rates have contributed to a slowdown in global activity. Inflation is moderating and lending standards are tightening. Yet, employment remains strong. It paves the way for a measured slowdown in growth, although Canada faces greater risks than the U.S. due in part to higher mortgage servicing costs. CC&L is sticking close to the fund’s asset mix targets in this environment (75% fixed income; 25% stocks).
  
• The equity portion of the fund (25%) performed well, although the real estate sector was an area of weakness. Our focus is on companies with strong balance sheets, resilient earnings, and a history of dividend growth, such as the banks (RBC, BMO, CIBC), rail companies (CN, CPKC) and industrials (Thomson Reuters, WSP Global). Real estate investments are focused primarily on residential REITs (Canadian Apartment Properties, Boardwalk, Crombie).
  
• The fund paid a distribution of $0.07/unit at the end of March.
  

Positioning

• Our focus remains on high-quality companies. Our manager expects some rate cuts in the middle of the year but remains nimble in response to interest rate volatility.
  
• 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.