Q4 2024 Overview                                   

Dynamic U.S. Equity Income Fund

Dynamic U.S. Strategic Yield Fund

 

January 29, 2025

 

 

Key Themes & Outlook

 

President Trump’s Policy Agenda in the spotlight for Q1 2025

  • The election of President Trump will have significant implications for both US stock and the US economy. A key campaign promise was around immigration, which has been watered down from deporting 20M people, which is certainly physically impossible, to a focus on individuals with criminal records. 
  • Curtailment of immigration is expected to keep the labour force tight, with the most notable impacts on services and home construction. This could lead to inflationary pressures.

Rate Path Uncertainty

  • The path of interest rates appears more uncertain now than it did six months ago. Despite the labour market showing signs of cooling down, recent short-term inflation measures have started to tick up again, making it challenging for the Fed to cut rates at the pace the market was hoping for.

AI’s Transformative Potential

  • The reduction in population growth will require continued productivity growth that AI will be instrumental in delivering. This will require significant investment in areas such as energy, data centres, servers and semiconductors.  
  • We are still in the infrastructure build-out stage of AI, ahead of the application phase. While there are some scaled AI applications now, the next few years will see dramatic changes. 
  • In terms of investment, there will be winners and losers in AI. We aim to be in the less cyclical areas and think software as a service is generally a great place to be. We own companies like Microsoft and Oracle, which offer SaaS and cloud services. We expect that over the next year or two, there will be more ways to invest in AI themes quality, dividend- oriented investors. 
  • Many other non-tech companies will undoubtedly also see meaningful productivity and margin improvement as they implement AI to replace labour and generate insights from proprietary data.

 

Dynamic U.S. Equity Income Fund

 

Performance Overview

Dynamic U.S. Equity Income Fund (Series F) returned 3.7% in Q4 2024, bringing the total 2024 return to 20.8%.

  • The portfolio has underperformed the S&P 500 Index, which saw market concentration come roaring back in Q4. 

The top performing sectors for 2024 were Financials, Communication Services and Information Technology.

  • Financials staged an impressive rally given the election of President Trump, as the sector stands to gain significantly from deregulation under the new administration.
  • Communication Services were primarily driven by our holding in Alphabet, while Information Technology was driven by Oracle, Apple, Microsoft and Salesforce.
 

While no sectors ended the year down, Consumer Staples and Healthcare were laggards.

Portfolio Changes

Health Care saw the largest changes, with the portfolio exiting positions in Johnson & Johnson and Abbvie and trimming UnitedHealth Group.

Communication Services and Real Estate weightings both increased.

  • Prologis, an industrial REIT, was added as well as a real estate services names (CBRE Group).
  • Walt Disney was added in Communication Services.

 

Dynamic U.S. Strategic Yield Fund

 

Performance Overview

  • Dynamic U.S. Equity Income Fund (Series F) returned 3.1% in Q4 2024, bringing the total 2024 return to 16.8%.
  • Equity performance and positioning was similar to the comments above.

Fixed Income Comments

  • During the fourth quarter we reduced the relative underweight in duration post a strong increase in yields. Defensive positioning was maintained as the return profile offered by credit did not look attractive when considering the broader macro-economic risks.
  • The Funds underweight in communications and consumer discretionary issuers is offset by an overweight in energy where we see stakeholder alignment, strong earnings profiles, and debt reduction activities driven by free cash flow generation.
  • Most energy companies are showing disciplined balance sheet stewardship and are allocating free cash flow to pay down debt. Our exposure to energy was reduced slightly during the quarter via the liquidation of issuers with higher leverage and more sensitivity to a potentially weaker oil price.
  • We have maintained an overweight in the mortgage originator subsector where we have identified companies that generate stable free cash flow and possess a natural business hedge to counterbalance periods of slower activity. We see room for the mortgage originator securities to appreciate as housing activity returns to long term trends.
  • The Funds are not exposed to large-sized cyclical High Yield issuers that represent an outsized component of benchmarks. We believe these large-sized cyclical issuers and their “jumbo” balance sheets are increasingly at risk in a recessionary environment and investors are not being adequately compensated for the default risk that is inherent in these structures.
  • Furthermore, the Funds have limited exposure to private issuers and those that are controlled by private equity sponsors where we see excessive leverage and poor stakeholder alignment coupled with extremely weak covenant protection.

 

Fund Positioning

 

Dynamic U.S. Equity Income Fund

Sector Mix (as of December 31/24) Fund S&P 500 Over /
Under
Weight
Financials 14.5% 13.6% 0.9%
Consumer Discretionary 13.2% 11.3% 1.9%
Industrials 8.2% 8.2% 0.0%
Energy 3.0% 3.2% -0.2%
Materials 2.1% 1.9% 0.2%
CYCLICALS 41.0% 38.2% 2.8%
Information Technology 21.9% 32.5% -10.6%
Health Care 10.6% 10.1% 0.5%
SECULAR GROWERS 32.5% 42.6% -10.1%
Real Estate 7.2% 2.1% 5.1%
Communication Services 5.4% 9.4% -4.0%
Utilities 4.7% 2.3% 2.4%
Consumer Staples 4.1% 5.5% -1.4%
DEFENSIVES 21.4% 19.3% 2.1%
Cash 3.8% 0.0% 3.8%

 

Data as of December 31, 2024
Source: Dynamic Funds, Bloomberg

 

 

Dynamic U.S. Strategic Yield Fund

 

Asset Mix

 

 

 

 

 

Performance Summary

Returns (Series F)
As of December 31, 2024		 YTD 1 mth 3 mth 6 mth 1 yr 3 yr 5 yr Since Inception1
Dynamic U.S. Equity Income Fund 20.8% -2.1% 3.7% 10.2% 20.8% 8.5% 10.6% 11.3%
S&P 500 Index (C$) 36.4% 0.3% 9.0% 14.0% 36.4% 13.8% 16.9% 16.0%
1 Fund launched September 2016
Returns (Series F)
As of December 31, 2024		 YTD 1 mth 3 mth 6 mth 1 yr 3 yr 5 yr 10 yr
Dynamic U.S. Strategic Yield Fund 16.8% -1.3% 3.1% 8.7% 16.8% 6.5% 7.9% 7.5%
Blended benchmark3 25.5% 0.6% 6.7% 11.2% 25.5% 9.1% 10.9% 10.9%
2 Fund launched September 2016
3 60% S&P 500 Index ($C) – 40% Bloomberg U.S. Aggregate Bond Index ($C).

Important Information