NexC Partners Corp. February Commentary

Fund Highlights

  • Safe assets were the highlight of the month even though volatility came off in the later half as investors remained concerned by global market conditions. Canadian markets outperformed in anticipation of global energy supplies stabilizing.
  • Canadian banks and U.S. REITs were the biggest detractors from Fund performance whereas the option strategy contributed positively to Fund returns.
  • Inter Pipeline was the best performing stock in February as a crude bounce combined with record earnings for 2015 and stable dividend outlook led the stock to significantly outperform peers.
  • HCP was the largest detractor this month as the company took unexpected losses related to write-downs at subsidiary, HCR ManorCare – a provider of short and long-term care.
  • There was a quarterly rebalance of securities in the Fund in February; in total, 2 securities were replaced this rebalance. The Fund wrote cash covered calls on 35 names and cash covered puts on 31 names.
  • The Fund continued to hedge U.S. dollar currency exposure maintaining a net U.S. dollar exposure of approximately 7% of the Fund’s NAV.

Market Commentary
Markets tested lower early in February driven by heightened risk aversion. Risk assets have seen a strong correlation with oil in recent months as WTI sank to multiyear lows. However, as things looked bleakest, sentiment seemed to shift after rumours emerged that the largest oil producing nations were intent on meeting in March to discuss possible production cuts. Crude rallied over 30% off the lows which had a positive transmission effect across equity and high yield markets. Canadian equities outperformed as cyclical sectors saw a sizeable bounce. Talks of increased fiscal stimulus and a waning need for further rate cuts helped the loonie recover over 3%. US GDP and jobs growth was better than expected, and the Fed reiterated its outlook for a gradual liftoff in 2016. Europe still produced sluggish IP and PMI’s, while the threat of a UK Brexit was a further overhang for the Eurozone.

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