February Portfolio Update 2023

Thoughts on the Market: February Edition

Market churn continued again in February with the market giving back about half of January’s gains. The price action in the world of equities over the past year can be seen in the following chart of monthly returns for the S&P500 Index.

Figure 1. Monthly Return for the S&P 500 over the past year

Source: YCharts

Throughout the past year, the latest economic data and how it might affect Fed action has played a prominent role in the volatility experienced. After a very positive January, investor sentiment turned, once again, in February, this time on stronger economic data (real GDP running at 2.3%), a slight uptick in January core inflation and upside risk to inflation in the services sector, where labour shortages remain high in the face of strong demand. For example, personal services such as veterinary care (+9%) or Haircuts (+5.2%) and entertainment such as food away from home (+8.2%) remain sticky. The sentiment in the market is that the Fed still has more work to do.

We continue to believe that the trend in inflation is down as indicated by real-time housing data and lower energy prices. As well, improvements in supply chains should be a tailwind for profitability. For example, Dollar Tree indicated that, based on current conditions, shipping costs would be $200M lower in 2023 followed by an additional savings of $200M in 2024, which could conceivably add 10% to net income. Historically, these savings are ultimately passed on to end users. Another inflation data tracker from Truflation is supportive of our view, with inflation trending below 5% in recent days.

Figure 2. Truflation Realtime Inflation Index

Source: Truflation

(Truflation aggregates, calculates and publishes the first daily, unbiased, real-market inflation and economic data.)


Whether the inflation rate reaches the Federal Reserve’s target of 2% will remain unknown until late 2023 at the earliest, but we believe it is positive that the driver of inflation has changed from supply-side shortages to demand-driven factors. The fact that the economy appears to be withstanding the aggressive change in Fed policy is notable for equities as a strong economy is good for earnings growth, and it is earnings growth, not interest rates, that ultimately drive stock prices higher.  In fact, an analysis from Valuescope found that interest rates only explained 22% of P/E ratio variability. The study also indicated that current interest rates are consistent with a market P/E of ~21x, higher than the current ratio of 18x.

Throughout the ups and downs of markets, we continue to manage our funds in the same rigorous and consistent manner, keeping our eyes on the longer term.


The MWG Global Equity Growth Fund outperformed its benchmark falling 0.6% in February versus a decline of 1.0% for its benchmark (note the Canadian dollar depreciated 2% versus the US dollar to the benefit of both the Fund and its benchmark). Year to date, the Fund has returned 6.6% versus the benchmark return of 5.0%. The top three performers in the month were Meta Platforms (+20%), BP PLC (+13%) and Uber (+10%), while Converge (-19%), Aritzia (-13%) and Air Canada (-11%) were the biggest detractors.

We made no changes to the portfolio during the month.


The MWG Income Growth Fund fell 2.9% in February versus -2.1% for its benchmark. Year to date, the Fund has returned 5.5% versus the benchmark return of 4.6%. The top three performers in the month were Russel Metals (+13%), BP PLC (+13%) and Danone (+5%), while Corus Entertainment (-15%), Rio Tinto (-10%) and Chemtrade (-9%) were the biggest detractors.

During the month, we sold our position in Russel Metals for a gain of 53.9% as the share price approached our target price and its dividend yield was among the lowest in the portfolio. We originally purchased the shares in late 2020 near the $21 level.

This Month’s Portfolio Update is written by our Head of Research, Jamie Murray, CFA.

The purpose is to provide insight into our portfolio construction and how our research shapes our investment decisions. As always, we welcome any feedback or questions you may have on these monthly commentaries.

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