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MD Precision Portfolios

April 10, 2024 Tactical asset allocation update

April 10, 2024 Summary

After a detailed review of global economic and financial market conditions, MD Financial Management (MD) has made the following changes to the tactical asset allocation of the MD Precision Portfolios™ suite.

  • We increased our allocation to equities overall and are now neutrally positioned relative to fixed income and cash. The short-term acceleration in economic activity is countering our expectations for a more meaningful slowdown in the global economy due to the lagged impact of tighter monetary policy. However, red flags still exist, preventing us from moving to an overweight position. Inflation and concentrated markets remain the key risks to monitor.
  • We proportionately increased our allocation to Canadian equities. We remain modestly overweight. Canada ranking in our analysis is improving due to better macro conditions. The Bank of Canada is also expected to cut interest rates sooner than the U.S. Federal Reserve which could provide a positive boost.
  • We proportionately increased our allocation to U.S. equities to an overweight position. U.S. markets remain remarkably resilient and relatively independent from Chinese and European weakness. The U.S. continues to benefit from artificial intelligence, cloud computing and energy transformation tailwinds.
  • We proportionately increased our allocation to international equities but remain underweight. Eurozone economies continue to struggle with higher rates and tightening financial conditions.
  • We remain neutrally positioned in emerging market equities.
  • We decreased our allocation to fixed income to partially fund our overall repositioning to equities. We are now neutrally positioned.
  • We decreased our allocation to cash to partially fund our overall repositioning to equities. We are now neutrally positioned.

Portfolio changes

Bars that are above the 0% baseline indicate an overweight position versus the portfolios’ strategic asset allocation, while bars below the 0% baseline indicate an underweight position.

“Underweight” and “overweight” are relative terms, linked to the strategic asset allocation outlined in the simplified prospectus. An underweight position indicates a lower weighting and is generally an indication of the relative unattractiveness of an asset class. An overweight position indicates a higher weighting and is generally an indication of the relative attractiveness of an asset class.

Bar chart illustrating the tactical asset allocation tilts of the MD Precision Portfolios. Data is stated as a percentage overweight or underweight relative to each portfolio’s strategic asset allocation.

  MD Precision Conservative PortfolioTM (3+ years)
  MD Precision Balanced Income PortfolioTM (4+ years)
  MD Precision Moderate Balanced PortfolioTM (7.5+ years)
  MD Precision Moderate Growth PortfolioTM (10+ years)
  MD Precision Balanced Growth PortfolioTM (15+ years)
  MD Precision Maximum Growth PortfolioTM (20+ years)

Note: The number of years (in parentheses) indicates the investment time horizon.

PortfolioCanadian equitiesU.S. equitiesInternational equitiesEmerging markets equitiesShort Canadian fixed incomeCanadian universe fixed incomeCash
MD Precision Conservative PortfolioUnderweight 0.03% Underweight 0.24% Underweight 0.47% Neutral Neutral Overweight 0.47% Overweight 0.27%
MD Precision Balanced Income PortfolioUnderweight 0.03%Underweight 0.29%Underweight 0.54%NeutralNeutralOverweight 0.54%Overweight 0.32%
MD Precision Moderate Balanced PortfolioUnderweight 0.05%Underweight 0.38%Underweight 0.74%NeutralNeutralOverweight 0.74%Overweight 0.43%
MD Precision Moderate Growth PortfolioUnderweight 0.05%Underweight 0.45%Underweight 0.86%NeutralNeutralOverweight 0.86%Overweight 0.50%
MD Precision Balanced Growth PortfolioUnderweight 0.06%Underweight 0.55%Underweight 1.05%NeutralNeutralOverweight 1.05%Overweight 0.61%
MD Precision Maximum Growth PortfolioUnderweight 0.07%Underweight 0.64%Underweight 1.21% NeutralNeutralOverweight 1.21%Overweight 0.71%

Why make tactical asset allocation decisions?

MD makes tactical asset allocation decisions to shift the positioning of your portfolio in response to trends in financial markets. These decisions are made as market conditions change. Through discussions with our research partners, we look for temporary, shortterm opportunities that may increase returns and/or reduce the risk of your portfolio. This is distinct from your portfolio’s strategic asset allocation, which maintains a longer-term view

Tactical versus Strategic asset allocation

MD Precision Portfolios allow investors to benefit from a combination of tactical and strategic asset allocation. With our tactical decisions, we look for temporary, shorter-term opportunities, based on an outlook of six to 18 months, which can potentially increase the return and/or reduce the risk of your portfolio.

Strategic asset allocation reflects the policy weights (asset mix) that have been set for your portfolio based on your investment needs and objectives

We overlay the tactical asset allocation decisions on the strategic asset allocations that support each of the portfolios. This means that we may temporarily deviate from the strategic allocations to take advantage of shortterm opportunities. Tactical decisions are made within a defined range and “risk budget” (the amount of risk allowed for each portfolio).

MD’s unique tactical asset allocation approach

Ongoing, comprehensive monitoring of global economic and financial market conditions drives our tactical asset allocation decisions. As conditions change, opportunities may present themselves. To identify these opportunities, MD uses in-depth economic research from industry-leading sources in combination with our proprietary investment management methodology.

MD’s process takes multiple variables into account, including the macroeconomic environment, financial market conditions, market risk indicators and fundamental trends.

MD’s tactical asset allocation process is designed to make the following decisions:

  • Equities versus fixed income–Is the environment set to support equities or better suited for the stability of fixed income?
  • Relative equity–Within equities, which geographical locations provide the most potential?
  • Relative fixed income–Within fixed income, are short-term or longer-term bonds more attractive?
  • Currencies––How will the foreign currencies of our foreign investments behave relative to the Canadian dollar? most potential?

Tactical asset allocation decisions are supported by rigorous analysis and are adapted to the unique needs of MD clients.

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