Key Highlights

  • Series R securities returned 16.9% (after fees) for the year ended March 31, 2026, outperforming the broad MSCI ACWI (Net) Index (16.2%) but trailing the narrow MSCI AC Asia Pacific SMID Cap (Net) Index (21.2%).
  • Relative to the narrow index, stock selection in South Korea and underweight/selection in Taiwan were the primary detractors; Australia, China and energy positioning contributed positively.
  • S. tariffs announced in April 2025 drove significant volatility in export-oriented Asian markets, while AI-related semiconductor demand and Japanese and South Korean corporate governance reforms were positive catalysts.
  • Net assets increased 8.0% to $246.0 million, supported by approximately $40.2 million in investment income despite approximately $21.9 million in net securityholder outflows.
  • The fund invests primarily in small- to mid-capitalisation Asian companies, a segment that delivered 21.2% via the narrow benchmark but saw highly differentiated returns across countries and sectors.

Introduction

Mackenzie Asian Small-Mid Cap Fund (Manager: IGM Financial, TSX: IGM) has published its Annual Management Report of Fund Performance (MRFP) on SEDAR+ for the fiscal year ended March 31, 2026. The filing covers a twelve-month period that was among the most complex for Asian equity investors in recent years — one shaped by sweeping U.S. tariff announcements, an accelerating artificial intelligence capital spending cycle, corporate governance reform campaigns in Japan and South Korea, and a flare-up of geopolitical volatility in the Middle East with direct implications for Asian energy supply chains. Against that backdrop, the fund's portfolio management team navigated a diverse set of markets across a capitalisation band — small and mid-cap — that by its nature requires local knowledge and rigorous stock selection.

Before turning to performance, it is essential to clarify the fund's structure. Mackenzie Asian Small-Mid Cap Fund is a Canadian mutual fund, not an exchange-listed security. It has no exchange ticker of its own. The fund is managed by Mackenzie Investments, a wholly owned subsidiary of IGM Financial Inc., whose shares trade on the Toronto Stock Exchange under the symbol IGM. Units of the fund are purchased and redeemed at daily net asset value through advisors and distribution channels, not on a stock exchange.

For the year ended March 31, 2026, Series R securities returned 16.9% after fees. This exceeded the broad MSCI ACWI (Net) Index return of 16.2% but trailed the fund's more relevant narrow benchmark — the MSCI AC Asia Pacific SMID Cap (Net) Index — which returned 21.2%. This article examines the drivers of that result, the market environment in which it was achieved, and the risks and uncertainties that accompany investing in Asian small and mid-cap equities.

Fund Background: Objective and Strategy

Mackenzie Asian Small-Mid Cap Fund seeks to provide long-term capital growth and a reasonable rate of return by investing primarily in small- to mid-capitalisation companies domiciled in or substantially operating in Asia. The fund may invest directly in these companies or through other funds managed by Mackenzie Investments. The geographic scope encompasses the Asia Pacific region broadly — including Japan, South Korea, Taiwan, Australia, China, India, Hong Kong and Southeast Asia — with the portfolio tilted toward companies that fall below the large-cap threshold used in mainstream global indices.

The small and mid-cap focus is a deliberate and defining feature of the mandate. Smaller Asian companies tend to be less well-covered by global sell-side research, which theoretically creates opportunities for active managers with local expertise and analytical capability to identify mispriced securities. However, this same characteristic also introduces greater liquidity risk, higher volatility and more pronounced exposure to country-specific economic and political conditions than a large-cap Asian fund would typically carry.

The fund uses the MSCI AC Asia Pacific SMID Cap (Net) Index as its primary benchmark — the narrow index — because it most closely reflects the fund's actual investment universe. The MSCI ACWI (Net) Index, a broad global benchmark, is provided as a secondary reference. Performance comparisons in this article use the narrow index as the more meaningful measure of the fund's results against its mandate.

Mackenzie Investments, which manages the fund, brings the research infrastructure and global investment management capabilities of IGM Financial's asset management platform to bear on this specialised mandate. The fund is part of Mackenzie's international equity offering, complementing broader regional and global equity products with a focused, small-and-mid-cap Asian approach.

Summary of the SEDAR+ Filing (the MRFP)

The Annual Management Report of Fund Performance filed on SEDAR+ covers the period from April 1, 2025 to March 31, 2026. The document provides management's discussion of investment performance, financial highlights, a summary of the investment portfolio, and historical performance data across the fund's series. It is a standardised disclosure document required under Canadian securities law and is available under the fund's issuer profile on SEDAR+ at www.sedarplus.ca.

Series R is the reference series for performance reporting in this article, consistent with the primary MRFP disclosure. Investors holding units in other series — which may carry different management expense ratios and be distributed through different channels — should refer to the complete MRFP for the performance and financial data relevant to their specific series.

The MRFP's management commentary provides granular attribution analysis across both the broad and narrow benchmarks, identifying specific countries, sectors and positioning decisions that contributed to or detracted from the fund's relative performance. This level of detail is particularly valuable for a fund like this one, where country allocation decisions and sector tilts within a diverse regional mandate can have very different effects relative to each benchmark. Investors are encouraged to read the full SEDAR+ filing to access this commentary in its entirety.

The Most Important Details: Performance and Net Assets

Series R of Mackenzie Asian Small-Mid Cap Fund returned 16.9% (after fees) for the year ended March 31, 2026. The broad MSCI ACWI (Net) Index returned 16.2% over the same period, meaning the fund outperformed the global benchmark by approximately 0.7 percentage points. Against the more relevant narrow benchmark — the MSCI AC Asia Pacific SMID Cap (Net) Index — the fund returned 4.3 percentage points less, as the narrow index gained 21.2%.

Relative to the broad MSCI ACWI benchmark, the MRFP identifies several positive contributors: an overweight in Japan and Taiwan, an underweight in the United States, and stock selection in Australia were the main country-level contributors. At the sector level, stock selection in financials and an overweight combined with stock selection in materials helped. On the negative side, an overweight in India and stock selection in consumer discretionary and communication services detracted from relative performance against the broad index.

Relative to the narrow MSCI AC Asia Pacific SMID Cap benchmark — the more meaningful comparison — the attribution tells a different story. Stock selection in South Korea was the primary country-level detractor, along with the combination of underweight positioning and stock selection in Taiwan. At the sector level, stock selection in industrials and consumer discretionary detracted. Contributing positively against the narrow index were stock selection in Australia and China, strong performance from consumer staples selections, and an overweight combined with stock selection in energy. Understanding why performance versus the two benchmarks diverges so significantly requires recognising that the narrow index excludes the large-cap, non-Asian holdings that constitute a meaningful portion of the MSCI ACWI.

Net assets increased 8.0% during the year to approximately $246.0 million. Investment performance contributed approximately $40.2 million in net income. Net securityholder activity — the difference between new subscriptions and redemptions, net of distributions — resulted in a reduction of approximately $21.9 million. The net outflow was more than offset by investment gains, producing the overall asset increase. At $246.0 million, the fund is relatively small by Canadian mutual fund standards, which has implications for its liquidity management in less liquid small-cap Asian markets.

Why Investors May Be Watching the Fund

Mackenzie Asian Small-Mid Cap Fund occupies a genuinely differentiated niche within the Canadian mutual fund landscape. Funds focused specifically on Asian small and mid-cap equities are uncommon in Canada, and the mandate provides exposure to a segment of global equity markets that is largely absent from mainstream balanced or global equity funds. For investors seeking to diversify beyond North American equities and willing to accept the additional complexity and volatility of emerging and developed Asian markets at the smaller-cap end of the spectrum, this fund represents one of the few available options within the regulated mutual fund structure.

The fund's 16.9% return in a year shaped by multiple macro shocks — tariffs, geopolitical tensions, a Middle East flare-up, and a global AI investment cycle — will be assessed by investors as evidence of how the portfolio team manages risk across a diverse and volatile asset class. The underperformance relative to the narrow benchmark (21.2%) reflects genuine stock selection and positioning challenges in specific markets, particularly South Korea and Taiwan, which are covered in detail in the performance attribution section of the MRFP.

The fund's $246.0 million in net assets is a size that warrants attention. As a smaller fund, it must carefully balance its exposure to individual smaller-cap Asian securities to maintain adequate liquidity and avoid excessive position concentration. Investors and advisors considering the fund should assess whether its size is appropriate for the markets it accesses.

Market Context

The year ended March 31, 2026 was one of the most eventful on record for Asian equity markets. The period opened with the announcement of broad U.S. tariffs in April 2025, which sent immediate shockwaves through export-oriented Asian economies. Markets with significant manufacturing and export exposure to the United States — particularly in Southeast Asia and China — experienced sharp initial declines as investors assessed the potential impact on corporate earnings. The tariff announcements represented a significant shift in the global trade environment and added an ongoing layer of policy uncertainty throughout the fiscal year.

Against this backdrop, the global AI capital spending cycle provided a powerful countervailing force. Semiconductor companies in Taiwan and South Korea — key suppliers of chips used in AI infrastructure — saw strong demand as U.S. technology companies and hyperscalers continued to invest heavily in AI capacity. This dynamic meant that the performance of semiconductor-exposed markets was partly insulated from the tariff shock, creating a split within the Asian technology ecosystem between export-exposed manufacturers and chip-design and fabrication specialists.

Japan and South Korea were notable for developments in corporate governance. Both markets have been the subject of ongoing initiatives to encourage companies to improve capital allocation, increase shareholder returns through dividends and buybacks, and reduce the prevalence of cross-shareholdings that have historically depressed return on equity. Progress on these initiatives was a positive catalyst for certain Japanese and South Korean equities during the year, particularly in the mid-cap segment where reform implementation has sometimes lagged the large-cap space.

The Middle East conflict escalated in March 2026, raising volatility in Asian markets because of the region's dependence on oil transited through the Strait of Hormuz. This geopolitical shock created short-term turbulence and was a reminder of how geopolitical risks far from Asia can rapidly affect the region's equity markets through energy price and supply chain channels. Within the narrow MSCI AC Asia Pacific SMID Cap Index, South Korea, Taiwan and Hong Kong were the strongest markets over the full year; India, the Philippines and New Zealand were the weakest.

Industry Context

Asian small and mid-cap equity investing is a specialised field that demands local expertise, rigorous due diligence and careful liquidity management. The universe of investable securities varies enormously in terms of liquidity, corporate governance standards, disclosure quality and regulatory environment across the markets that make up the Asia Pacific region. This diversity is both a source of opportunity — creating information asymmetries that skilled active managers can exploit — and a source of risk, as less liquid and less transparent markets can be more difficult to enter and exit efficiently.

The 21.2% return of the narrow MSCI AC Asia Pacific SMID Cap benchmark demonstrates that, in aggregate, Asian small and mid-cap equities delivered strong returns in the year ended March 31, 2026. The drivers of that aggregate return, however, were highly concentrated in specific markets and sectors — particularly semiconductors in Taiwan and South Korea, governance-reform beneficiaries in Japan, and resource stocks in Australia. Navigating these concentrated return drivers requires active management that is both analytically rigorous and willing to take differentiated positions.

Canadian investors seeking Asian equity exposure have historically relied on globally diversified international equity funds or broad Asia Pacific funds. A dedicated small and mid-cap Asian fund like this one provides a more precise exposure, but it also concentrates risk within a narrower universe. Advisors and investors should consider how the fund fits within a broader portfolio context, particularly in terms of geographic and capitalisation diversification.

The MRFP filing on SEDAR+ is the primary regulatory disclosure for Canadian mutual funds, providing standardised and audited information that allows investors to assess performance, costs and strategy on a consistent basis. Mackenzie Investments' filing for this fund is available publicly on SEDAR+, making it accessible to all investors regardless of their advisory relationship.

Potential Opportunities

The case for Asian small and mid-cap equities over the medium to long term rests on several structural factors that remain relevant even after the volatility of the fiscal year ended March 31, 2026. Economic growth in the Asia Pacific region — particularly in markets such as India, Vietnam, Indonesia and parts of Southeast Asia — continues to outpace developed-market averages, creating a growing universe of domestic-consumption companies that may not be well-represented in large-cap benchmarks.

Corporate governance reform in Japan and South Korea, while uneven in its implementation, has the potential to structurally improve return on equity and shareholder returns over time if companies follow through on their commitments. For an active manager with deep knowledge of these markets, the ability to identify companies where governance reform is genuinely changing capital allocation behaviour — rather than simply being announced — represents a differentiated source of alpha.

The AI semiconductor cycle, while already reflected in market prices for the largest chip makers, continues to expand into adjacent areas of the supply chain — equipment, materials, testing and packaging — where smaller and mid-cap companies may offer more compelling valuations relative to growth prospects. If this cycle extends over multiple years, as some analysts expect, the fund's mandate to invest in smaller Asian companies may provide exposure to parts of the supply chain that are under-owned by global large-cap investors.

It is important to note that these potential opportunities are accompanied by substantial uncertainties. None of the themes described above is guaranteed to play out as described, and market conditions can shift in ways that are not anticipated. Investors should weigh these considerations carefully and consult a qualified financial adviser.

Key Risks and Uncertainties

Geopolitical risk is elevated for Asian equity investors. U.S.-China trade tensions, the ongoing Taiwan Strait situation, North Korean security dynamics, territorial disputes in the South China Sea and the indirect effects of Middle East conflict — through energy prices and supply chains — all create an environment of elevated political risk that can move markets quickly and without warning. The U.S. tariff announcements in April 2025 and the Middle East flare-up in March 2026, both referenced in the MRFP, illustrate how external geopolitical events can rapidly affect Asian equity prices.

Small and mid-cap liquidity risk is a specific concern for this fund. Smaller Asian companies often trade at lower volumes than large-caps, making it more difficult to build or exit positions without affecting market prices. In periods of market stress, liquidity in smaller-cap Asian stocks can deteriorate significantly, potentially limiting the manager's ability to reposition the portfolio at favourable prices.

Currency risk is multidimensional for an Asian small-cap fund. The fund holds assets denominated in Japanese yen, South Korean won, New Taiwan dollar, Australian dollar, Indian rupee, Hong Kong dollar and other currencies. Movements in any of these currencies relative to the Canadian dollar can meaningfully affect returns in Canadian dollar terms, independently of the performance of the underlying equities. The MRFP should be consulted for details on how currency risk is managed within the fund.

Country-specific risks — including regulatory changes, political instability, changes in foreign investment rules and accounting standards — vary across the fund's investment universe and are difficult to predict. India's underperformance within the narrow benchmark during the year, and the challenges in South Korea, illustrate how country-level factors can diverge significantly from regional averages. Readers should consult the full SEDAR+ filing for a complete discussion of all applicable risk factors.

What Could Affect the Fund Next

The trajectory of U.S.-Asia trade relations is perhaps the single most important macroeconomic variable for this fund in the near term. Any escalation or de-escalation of tariffs — particularly those targeting export-oriented Asian manufacturing economies — could significantly affect the earnings outlooks of many companies in the fund's investment universe. The April 2025 tariff announcements created significant volatility; any further policy shifts would likely do the same.

The AI capital spending cycle and its downstream effects on Asian semiconductor supply chains will continue to be a key driver for Taiwan, South Korea and Japan. The pace of AI infrastructure investment by global technology companies, the competitive dynamics among chip designers and manufacturers, and the expansion of AI use cases into new industries will all affect the return potential of semiconductor-adjacent small and mid-cap Asian companies.

Corporate governance reform progress in Japan and South Korea will be closely watched. If large domestic institutional investors and regulators maintain pressure on companies to improve capital efficiency, the reform cycle could continue to unlock value in the mid-cap segment of these markets. Conversely, if reform momentum stalls or companies fail to deliver on commitments, the governance premium embedded in some Japanese and South Korean equity prices may not be sustained.

India's trajectory deserves monitoring after its underperformance against the narrow benchmark in the year ended March 31, 2026. India's long-term growth story remains a key pillar of the Asian equity case, and any rebound in Indian mid-cap stocks could be a meaningful contributor to the fund's future performance. The timing and magnitude of such a rebound, however, are inherently uncertain.

Long-Term Outlook

Over the long term, the investment case for Asian small and mid-cap equities rests on the combination of above-average economic growth across much of the region, a large and expanding universe of investable companies, ongoing corporate governance improvements in more developed Asian markets, and the continued expansion of Asia's role in global technology supply chains. These are structural tailwinds that, if sustained, could support above-average returns from the asset class over full market cycles.

However, the long-term outlook must be set against equally significant structural risks. Geopolitical tensions — particularly around Taiwan and in the South China Sea — represent systemic risks that cannot be fully priced in advance. Demographic challenges in Japan and South Korea, regulatory unpredictability in China and the pace of development in frontier Asian markets all add layers of uncertainty to any long-term projection.

For the Mackenzie Asian Small-Mid Cap Fund specifically, the long-term outlook will depend on the investment team's ability to consistently identify mispriced opportunities within the small and mid-cap Asian universe, to manage the liquidity and currency risks inherent in the mandate, and to navigate the diverse regulatory and corporate governance environments across a dozen or more markets. The MRFP's historical performance tables provide some context for how the fund has navigated past cycles, though past performance does not guarantee future results.

At $246.0 million in net assets, the fund is of a size that allows it to be nimble in smaller markets while raising questions about whether it will attract sufficient new investment to grow over time. Investors with long time horizons and a high tolerance for volatility, who are seeking genuine diversification into a specialised Asian equity segment, may find the fund's mandate and manager track record worth examining in detail — always with the full MRFP in hand and in consultation with a qualified financial adviser.

Conclusion

Mackenzie Asian Small-Mid Cap Fund (Manager: IGM Financial, TSX: IGM) has delivered a Series R return of 16.9% for the year ended March 31, 2026, as disclosed in its Annual MRFP filed on SEDAR+. The fund outperformed the broad MSCI ACWI (Net) Index by 0.7 percentage points but trailed the more relevant narrow MSCI AC Asia Pacific SMID Cap (Net) Index by 4.3 percentage points. Stock selection challenges in South Korea and positioning in Taiwan were the primary drivers of the shortfall against the narrow benchmark; Australia, China and energy positioning contributed positively.

The year was defined by extraordinary complexity for Asian equity investors — U.S. tariff shocks, an AI semiconductor boom, corporate governance reform campaigns in Japan and South Korea, and late-year Middle East volatility affecting energy supply chains. The fund's 16.9% return in this environment reflects active management decisions that produced differentiated results against different reference points. Net assets grew 8.0% to $246.0 million despite net securityholder outflows, as investment performance more than compensated for redemptions.

The complete Annual Management Report of Fund Performance is available on SEDAR+ and contains detailed attribution analysis, financial highlights, historical performance tables and full risk disclosures. Investors interested in this fund — whether currently invested or considering an allocation — are strongly encouraged to read the full filing and discuss the fund's role within their broader portfolio with a qualified financial adviser.