Reflecting on 2024’s first quarter.

Following on the heels of a strong year for equity investors, 2024 has started in similar fashion with global and US markets on pace to deliver high single-digit, or low double-digit price returns.

Canada has been lagging behind global and US markets because of its higher exposure to materials and energy and significantly lighter exposure to information technology (IT), which has been a driver of earnings and returns for markets recently.

Artificial intelligence is making waves.

Artificial intelligence (AI) and its developing ecosystem continues to generate lots of investor excitement, and while the investor focus has been on the IT sector,  and a few names – like Nvidia – it’s starting to percolate into other sectors as businesses start to recognize, evaluate, and discuss the benefits AI on their businesses.

The changing state of inflation.

The broader market is also being supported by a more positive economic environment.  The inflationary picture continues to improve, and consecutive decisions by the US Federal Reserve and Bank of Canada to hold their target interest rates at existing levels over the last few months indicates that the central bank tightening cycle is nearing an end.

Looking toward Q2 and beyond.

While there’s some risk that geopolitical tension could lead to an uptick in inflation, it’s widely believed that central bank rates have peaked or are nearing their peak.  Market concerns regarding a potential recession have also receded, and economic forecasts show positive economic growth through 2025.  While the set up for markets is positive, it’s also expected to remain volatile as markets digest the implications of data releases on potential future policy moves by central banks.

With regards to the Vancity Investment Management portfolios, we continue to find attractive opportunities in areas of the market that are being ignored by investors as they focus on a narrow band of perceived AI winners. Although most major markets are at or close to all-time highs, the breadth of names that are driving this performance remains limited, giving active investors an opportunity to find high quality businesses at reasonable valuations.

As always, we continue to evaluate our portfolios with a lens to the long-term and evaluate our companies in the context of current and expected future long-term trends.