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Written by the Mackenzie Betterworld Team
Portfolio and Sectors review
Betterworld Global
The Mackenzie Betterworld Global Equity Fund underperformed its benchmark (MSCI World ex Fossil Fuels Index) for the month. Stock selection in consumer discretionary and information technology detracted most from portfolio performance while stock selection in financials contributed positively to help offset portfolio underperformance.
In December, markets experienced volatility due to a 25-basis point cut by the Fed, which initially caused equity markets to drop nearly 3%. Investors were concerned about the Fed's cautious approach to future rate cuts, indicating a slower pace in 2025 than previously anticipated. 2025 began with continued challenges, many of which involve US President Trump. Tax cuts, tariffs, immigration, inflation, climate change, and armed conflict all contribute to economic uncertainty. Despite these challenges, 2025 US GDP estimates have been positively revised to over 2%. Economists do not foresee any signs of an extended slowdown that would necessitate lowering these estimates. At these levels, the monetary policy easing cycle is expected to continue in 2025, with the Fed remaining vigilant for inflationary pressures. We anticipate that Canada and Europe will progress further along the easing cycle than the US, which will maintain pressure on the euro and CAD dollar.
On December 11, 2024, Alphabet rolled out Gemini 2.0, introducing significant advancements in AI capabilities, including enhanced multimodal support and advanced reasoning features. Analysts released favorable reports and raised price targets for the firm, citing strong performance in AI and digital advertising. Additionally, Alphabet unveiled a breakthrough quantum chip named Willow, capable of performing computations in minutes that would take today's fastest supercomputers 10 septillion years. While not financially material, this innovation underscores the company's commitment to cutting-edge technology.
Betterworld Canadian
The Mackenzie Betterworld Canadian Equity Fund underperformed its benchmark (S&P/TSX Composite Fossil Fuel Reserves Free Index) in December. Stock selection in materials and utilities detracted most to fund’s performance while stock selection in consumer staples and consumer discretionary contributed positively to help offset portfolio underperformance.
The S&P/TSX took a breather in December, declining by 3.2% during the month. This decline followed a five-month rally leading into December, during which the market gained over 16% on a price return basis and hit new all-time highs. Strategists note that as the Bank of Canada adopted a more aggressive stance on rate cuts in 2024, confidence began to return, pushing valuations back above long-term averages. Additionally, the second-half rally was broad-based, with all sectors except Communication Services posting positive returns.
Portfolio’s holding Aritzia had another strong month on the backdrop that the company met the high end of 4Q sales guidance of 31% growth (adjusting for the extra week) to C$850 million. This was driven by three upsized flagship reopenings -- two in New York and one in Chicago -- along with 11 new boutiques opened. From a financial perspective, EBITDA margin, is poised, in the team’s view, to grow another 500 basis points in 4Q, on higher initial mark-ons, lower clearance and as the company leverages fixed costs.
Proxy Voting
The Betterworld team participated via proxy in two company annual shareholder meetings in December with US Software firm, Microsoft and US cybersecurity firm Palo Alto Networks.
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