indicatorPortfolio Managers' Commentary

Portfolio Manager's Commentary, September 2020

By ATB Investment Management Inc.

The COVID-19 pandemic continued to overshadow all societal and economic norms into the third quarter. After a relatively calm summer, concerns surrounding back to school risks dominated headlines and investors grew increasingly wary of potential market volatility heading into September. Uncertainty surrounding continued levels of government support and a resurgence of virus cases resulted in early profit taking and overall negative equity market performance by quarter end.


The economic impact of the pandemic became apparent as second quarter GDP numbers became available in August, with both Canadian and US quarterly GDP falling dramatically over the period. Canadian GDP dropped close to -39%, and the U.S. was only slightly better at just under -32% on an annualized basis, both numbers largely reflecting the impact of lockdowns in April. Forward-looking 2020 GDP forecasts offer more promise as data continues to support stronger than expected economic improvement. In Canada, more than half the jobs lost immediately following the shut-down have been recovered or replaced. Additionally, retail sales figures bounced back to pre-pandemic levels in April and May.

Canadian retail sales and employment figures

Graph showing Canadian retail sales versus new jobs

Source: Stats Can via Bloomberg

Data in the US is showing a similar trend, where the savings rate rose to the highest level on record, likely due to households taking advantage of payment deferrals and government support payments. However, a slowdown in US income support will require that these short term savings be drawn upon to maintain current spending needs.

While the latest economic data may begin to tell the story of a speedy recovery, it is important to consider if the bulk of the “easy wins” have already been realised. Governments and central banks must continue to respond quickly with effective stimulus in order to maintain the economic momentum seen in the third quarter. As winter brings uncertainty and the risk of further containment action, many retail and service businesses will be impacted. Development of a safe and effective vaccine is vital to a full economic recovery.

Financial markets

The summer months are usually a quieter time for North American financial markets, and despite all that has happened year to date, this trend largely held true. The US market, represented by the S&P 500 peaked in early September to a new all time high, before paring back gains to the end of the month amid profit taking and some uncertainty surrounding government stimulus. Despite the slight setback, the US market remained in positive territory to the end of the quarter and year to date. The same cannot be said for other global equity markets. Year to date returns from the Canadian market as represented by the TSX, reached positive territory briefly in early September, but turned negative by quarter end, whereas most European and Asian markets have yet to experience positive returns year to date.

YTD broad market performance, 2020

Graph showing the 3 major market's returns year-to-date for 2020

Source: Bloomberg

One would only need to look at the US technology sector to understand why this market seems to be outperforming other global equity markets. Technology and internet companies have benefited from the shift towards an ‘online society’, leading to significant appreciation in their valuations and stock prices. Apple, Microsoft and Amazon combined account for 16.8% of the S&P 500, and have gained on average 47% year to date.

There continues to be a wide return disparity between sectors, with the technology sector gaining almost 23% in the third quarter and the financial sector experiencing the opposite with a decline of 23% year to date. This disparity in two important sectors highlights the perceived winners and losers of a tumultuous 2020.

Coming off of a challenging second quarter, corporate bond markets were also relatively calm over the summer. On a total return basis, high yield corporate bonds briefly rose to pre-pandemic levels, but subsequently sold-off towards the end of the quarter along with equity markets. Investment grade bonds were more resilient, and were largely unfazed by the September sell-off. The Bank of Canada’s commitment to its bond buying program and stimulative monetary policy remain key drivers of government and high quality corporate bond performance, pushing yields lower, with the 10 year Canadian government bond reaching an all time low of only 0.432% on August 4th. It appears that low yields are here to stay. Canadian and US central banks have both publicly expressed a commitment to maintaining low interest rates. In fact the Federal Reserve has stated a comfort with an average 2% inflation target even if unemployment levels fall below full employment temporarily. This strategy will ensure interest rates do not rise prematurely.

YTD US bond market performance, 2020

Graph showing the 3 bond market returns year-to-date in 2020.

Source: Intercontinental Exchange

The CompassTM Portfolios and ATBIS Pools

The Compass funds continued to regain ground during the third quarter, with all fund strategies turning positive for the year, with the exception of Maximum Growth which remained in negative territory year to date. Performance of the more conservative Compass funds benefited from the repositioning across fixed income sectors completed in late March. The funds with more equity exposure lagged technology heavy indices as ATB Investment Management favours equities that provide downside protection and long term value creation over short term momentum.

Compass Portfolios returns, series A
Year-to-date to September 30, 2020

Compass Portfolios total returns 2020 to September 30 chart

Source: Morningstar

The ATBIS Pool Funds mirrored the performance of the Compass Portfolios with the Fixed Income Pool outperforming it’s equity counterparts benefiting from the buildup in credit exposures in March followed by a sharp rebound in prices over the summer. Year to date the U.S. Equity Pool has outperformed the other regional equity pools, although the Canadian Equity Pool put in a strong showing in the third quarter led by the Industrials sector holdings.

ATBIS Pools returns, series F1
YTD to September 30, 2020

Graph showing the ATBIS Pools returns, year-to-date for 2020

Source: Morningstar


The road to economic recovery will continue to be bumpy and a return to the economic environment seen in early 2020 is not expected to return until beyond 2021. Fiscal and monetary policy will continue to play a strong role in protecting the economy from the downside impacts of the pandemic while providing a base for longer term recovery. A gradual return to pre-pandemic economic growth should translate into a recovery in corporate earnings and improved stock market performance in a lower for longer interest rate environment.

ATB Investment Management manages the Compass Portfolios and ATBIS Pools with a dual focus on downside protection and future growth and continues to look for the investment opportunities that inevitably present themselves in challenging market environments. The behaviour of the market during the third quarter further emphasizes the benefits of a long-term investment plan and the long-term picture is still one of economic recovery.

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