NexC Partners Corp. February Commentary

Market Commentary

Global stock markets shrugged off their January losses and rallied back in February as investors reversed their aversion to risk assets and poured money back into equity markets across the globe. The geopolitical trouble in Ukraine impacted agriculture and energy exports from the region raising anxiety and world commodity prices. Natural gas was especially volatile as the cold snap continued into February, depleting the already low reserves in the U.S. and Canada. Physical gold and equities continued their 2014 rally and were top performing asset classes. The ECB echoed the U.S. Fed’s statements about continuing with their policy of low rates to avoid a weak inflationary environment. Currencies saw increased volatility, with the Canadian Dollar touching 1.12 relative to the U.S. Dollar towards the end of January and then settling back in at 1.11 for February.

Fund Commentary

The Fund’s diversification supported a gain in the month of February as a selloff in telecommunications was offset by gains in all other sectors.

The best performing sectors were consumer staples, energy and financials, while the worst performing sectors were telecommunications, consumer discretionary and information technology. Finning was up as due to positive earnings from their Canadian operations and increasing commodities prices which helped fuel a rally in equipment services companies on the hopes of increasing capex in the industrial sector. Lockheed Martin continues to outperform as the stock gives investors direct exposure to government defence spending. Bonavista was swept up with the February natural gas rise.

The worst performing stocks were TransAlta, Rogers Communications and Thomson Reuters. TransAlta was the worst performing name as they cut their dividend after a Q4 loss; the stock declined by about 7% on the news and was down 11.8% for the month. Rogers Communications was negative for the month as it won the Canadian wireless spectrum auction paying $3.3B for a 700MHz licence. This amount was double what BCE and Telus paid combined and the market viewed it as an overpayment. Thomson Reuters was down over the month as it missed earnings and lowered its fiscal 2014 margin guidance.
The Fund completed its quarterly rebalance and increased its U.S. holdings from 30% to 45% of the net assets of the Fund. The new additions were BCE, Canadian Oil Sands, Duke Energy, Kraft Foods, Macerich Co., Mattel, Meadwestvaco, Philip Morris, Potash, PPL Corp, RioCan REIT, Rayonier, AT&T, Teck Resources and Verizon, while Boardwalk REIT, Bonavista Energy, Brookfield Office Properties, Campbell Soup, Cominar REIT, Dundee REIT, Great Plains Energy, Husky Energy, IGM Financial, Intel, Merck, Jean Coutu, Can REIT, TransAlta and Thomson Reuters were rotated out.

The new portfolio holds 18 U.S. equities and 22 Canadian equities, and continues to hedge U.S. Dollar currency exposure, maintaining a net U.S. Dollar exposure at approximately 10% of the Fund’s net assets. We continued the option overwriting program on 14 Canadian names and 5 U.S. names. The Fund has not deployed leverage.

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