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Written by the Mackenzie Betterworld Team
Key takeaways
Equities took a breather in August with Canada declining -1.4% and the MSCI World reporting a slight +0.4% gain. The energy sector led gains for the month while Utilities and Consumer discretionary sectors were laggards. Canadian equities are beginning to garner some upgrades from equity strategists following a meaningful underperformance year to date relative to US markets. Equity outflow data from Canada shows foreign selling has also likely peaked which supports demand recovery in Canadian equities.
Renewables continue to be out of favour and reflective of utility sector underperformance in August. This also aligns with discounted utility sector forward price/earnings multiple valuations that are below both 5 year and 10-year averages. We continue to see opportunity in the renewable power generation space as Europe continues to reiterate support for the wind industry and the EU parliament votes in favour of significantly increasing renewables by 2030 to 42.5% of energy consumption from a previous level of 32%.
Worries/what keeps us up at night?
The energy sector continues to benefit from tighter supply and resilient demand that results in elevated oil prices. This combination of factors has overshadowed positive security selection that our mandates have generated in other sectors of the economy such as Communication Services in global equities or Real Estate in Canadian equities. With oil prices well above analyst estimates, we expect this divergence to normalize over time.
Outlook
Equity markets continue to show impressive resilience in earnings data and economic statistics. Market sentiment will continue to be supported by moderating inflation statistics as we head into the fourth quarter and investors collectively anticipate central banks moderating their interest rate expectations. Canadian equities stand out as attractively valued relative to the US market.
Stewardship Update
The Betterworld team engaged with Canadian Life insurer, Sun Life, for a discussion on the sustainability initiatives the company has been integrating into their operations. Sun Life offers a broad range of protection,wealth products and services to individuals, businesses, and institutions. The company’s climate-related goals are to achieve carbon neutral operations globally from 2021, 50% absolute reduction of GHG emissions in operations from 2019 to 2030, and net-zero GHG emissions by 2050 for operations and investments. Its activities align with SDG13 (Climate Action), as it reduced absolute GHG emissions in operations by 36.9% against 2019 baseline.
Sun Life’s recent acquisition of DentaQuest was a key focus of our conversation. DentaQuest manages dental and vision benefits for 30+ million Americans and provide direct patient care through their network of more than 80 oral health centers in 6 states. The company provides outcomes-based, cost-effective dental solutions for Medicaid and CHIP, Medicare Advantage, small and large businesses, and individuals nationwide.
The Canadian federal government recently awarded a contract to Sun Life worth up to $15 million to lay the groundwork for a new national dental insurance plan. This initiative follows the 2022 temporary dental benefit worth up to $650 for each child under 12, depending on family income. Last spring the government said 300,000 children had already received the benefit to help cover dental fees.
Proxy Voting
There were no company meeting held in August for the Betterworld team to participate in. August is typically a very quiet month for annual meetings.
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