NexC Partners Corp February Commentary

Fund Commentary

The Fund was positive in February. U.S. and Canadian stock markets rebounded higher this month as geopolitical concerns seemed to diminish. U. S. jobs data continued to exhibit signs of strength while Canada saw improvements in its trade numbers. Corporate earnings were generally positive, and the energy sector saw some stabilization as oil prices rallied off the lows. U.S. yields reversed sharply higher this month which negatively impacted some of our interest rate sensitive holdings. This month financials, staples and industrials were our most profitable sectors. Finning, Reynolds and Pfizer were the best performing names.

Utilities, real estate and energy were the weakest sectors, as U.S. interest rate sensitive names moved in tandem with bonds and sold off over the month. HCP Reit, Duke Energy and Entergy were the worst performers this month.

The Fund completed a quarterly rebalance this month where it added Corrections Corp. of America, Darden, GE, Liberty Property, Mid-America Apartment, Telus and Thomson Reuters. The Fund removed Bombardier, Finning, Mattel, McDonald’s, Pfizer, AT&T and George Weston. The portfolio now holds 19 U .S. equities and 21 Canadian equities, and continues to hedge USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV. The Fund has not deployed leverage.

Market Commentary

Markets rebounded higher in February with dip buyers emerging on waning geopolitical concerns and optimism on the global growth outlook. Concerns over Greece’s ability to meet its fiscal pledges receded as bailout provisions were extended by the ECB. Generally positive U.S. earnings, strong jobs data and supportive Fed comments helped the S&P close up 5.7% on the month. European equities outperformed other developed markets as inflows increased on the back of the ECB’s supportive actions from the previous month. U.S. 10 year yields squeezed quickly back above 2% as safe haven demand declined, and the market began to price in a higher probability of a June rate hike.
In commodities, oil managed to recover off the lows with prices buoyed by news of cuts in production and the potential for supply disruption in the Middle East. Gold gave back its January gains retreating lower as safe haven demand declined.
The U.S. dollar continued to exhibit selective signs of strength notably against Japanese yen, Swiss Franc and emerging market currencies. CAD was able to recover higher buoyed by signs of oil recovery and better than expected trade deficit numbers. However, the BOC’s recent dovish comments continued to provide an overhang on the loonie with further rate cuts expected in the coming months.

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