'I’m pleased enough with our performance year-to-date,' said AIMCo CIO Marlene Puffer, pictured in Edmonton on July 27, 2023.Jason Franson /The Globe and Mail
Alberta Investment Management Corp.’s chief investment officer is cautiously optimistic about the rest of 2024 after reporting mixed results in the first half of the year, anticipating a potential boost to stock and bond markets if central banks follow through on expected cuts to interest rates.
Monetary policy decisions are “the big variable” for markets in the coming months, according to Marlene Puffer, who joined AIMCo as CIO last year. The chair of the U.S. Federal Reserve, Jerome Powell, said last week that “the time has come” for a shift in the central bank’s policy, and markets are now pricing in a September rate cut, with more to come.
If the Fed follows through, “then we will have some tailwinds for the economy,” Ms. Puffer said. “But we have a lot of geopolitical uncertainty, a lot of variables that could come in to shake that up.”
AIMCo reported a 5.4-per-cent return across its funds in the first half of 2024, according to a midyear update the pension fund manager released on Tuesday. Its balanced fund, which reflects a typical mix of client assets, earned 5.6 per cent over the same six-month span.
Over 10 years, the balanced fund has an average annual investment gain of 7.2 per cent, which equals a $63.3-billion net investment return.
AIMCo invests on behalf of 17 pension, endowment, insurance and government clients in Alberta. It now has nearly $169-billion in assets, up from $161-billion at the start of the year.
“I’m pleased enough with our performance year-to-date,” Ms. Puffer said.
The midyear update from AIMCo does not provide a detailed breakdown of performance for each asset class in its investment portfolio. But the publicly traded stocks it owns, which make up about 37 per cent of its investments, delivered the strongest investment gains in the first half of the year. “That has really been the tailwind for us,” Ms. Puffer said.
AIMCo also recorded gains from investments in infrastructure, renewable resources, mortgages, private debt and private equity.
Though stock-market gains have been fuelled for some time by a collection of large U.S. technology giants – a group labelled the Magnificent Seven that includes Apple Inc., Amazon.com Inc., electric-vehicle maker Tesla Inc. and chip manufacturer Nvidia Corp. – Ms. Puffer cited a period in June when small-cap stocks outperformed their larger peers as a potential sign that the broader market is starting to reassert itself.
“It remains to be seen whether that trend is going to truly continue, but it took the wind out of the Magnificent Seven′s sails somewhat,” she said.
Returns from private assets have been up and down, with real estate continuing to be a sore spot. Ms. Puffer said some large real estate assets are starting to trade in the market, but in the more distressed pockets of the office and retail sectors, property values are still murky.
By contrast, AIMCo is still reaping strong gains from its private debt and loan business, which invests in a burgeoning market for loans to privately owned businesses. That market has been getting more crowded and competitive, and there have been modest increases in defaults as more companies buckle under the pressure of a slowing economy and high borrowing costs.
Even so, “we still feel very good about the space,” Ms. Puffer said. “We’re not chasing deals. We’re not sacrificing quality even as we still have capital to deploy.”