KELTF - ClearBridge Canadian Small Cap Strategy Q4 2023 Portfolio Manager Commentary

2024-02-04 02:45:00 ET

Summary

• ClearBridge is a leading global asset manager committed to active management. Research-based stock selection guides our investment approach, with our strategies reflecting the highest-conviction ideas of our portfolio managers.
• The fourth quarter advance for small cap Canadian equities was broad-based. Despite a stronger end to the year, small caps meaningfully underperformed large caps for the year.
• The Strategy outperformed its benchmark for the quarter, largely due to strong stock selection in the utilities, energy and financials sectors.
• We continued to add to our defensive/non-cyclicals exposure in consumer staples and utilities, as well as to other robust businesses with predictable free cash flow, while trimming some of our value/cyclicals exposure in energy and industrials.

By Garey J. Aitken, CFA, & Michael Richmond, CFA

Canadian Small Cap Strategy

Market Overview

Small cap Canadian equities finished 2023 on a strong note, as the S&P/TSX Small Cap Index increased 6.0% and finished the calendar year up 4.8%. It was an eventful 12 months for financial markets as wide variability in interest rates meaningfully impacted equities. Canadian and U.S. central banks continued to raise policy rates throughout the year to tame inflation. While inflation eased, it remains above policymaker targets. Benchmark 10-year interest rates in Canada and the U.S. reached 2023 highs of 4.24% and 4.99%, respectively, in October before ultimately giving way in the final two months of the year to close at 3.11% and 3.88%. Following a U.S. Federal Reserve meeting in December that highlighted easing inflation and slowing economic growth, rates priced in a more dovish consensus....

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