NexC Partners Corp. June 2016 Commentary

Fund Highlights

  • Slowing global growth and concerns around Brexit led investors into defensive sectors such as REITs and utilities as the Fund came performed well due to its yield oriented mandate.
  • While other member countries consider the possibility of following the U.K. out of the European Union, the uncertainty of the impact will likely leave central banks constrained in their arsenal of handling the global slowdown.
  • In this extended period of low/negative rate policies by the central banks, we expect dividend paying stocks to keep performing well as investors continue their quest for yield.
  • Over the last quarter, the loonie was volatile, finishing the quarter lower. A slowing growth outlook and concerns over a housing bubble weighed on the value of the currency.
  • The Fund wrote cash covered calls on 40 names and cash covered puts on 22 names.

Market Commentary
This quarter, concerns over Brexit and uncertainty over the Federal Reserve’s interest rate policy outlook dominated global markets. The risk of potential events kept investors in a holding pattern ahead of the vote, prompting trading activity to move sideways in the months leading up to the U.K. referendum. The eventual decision to “leave” shocked the markets, which largely anticipated a “stay” vote in the preceding days. As a result, growth expectations for the Eurozone were lowered and the British Pound plunged as bond yields sank to multi-year lows. It also paved the way for possible additional exits from member countries which would exacerbate uncertainty for years to come.
In the U.S., the Feds’ path for another rate hike was shrouded in uncertainty. Therefore, the market had been priced in anticipation of multiple rate hikes this year. However, data that showed slowing employment, sluggish global growth and deflationary price pressures prompted Federal Reserve Chairman Janet Yellen to revert to a dovish stance.
Meanwhile, central banks in Europe and Japan initiated negative interest rate policies which accelerated a global hunt for assets with higher yields. The Canadian economy saw some slight upside surprises to GDP and jobs data. However, concerns over a housing bubble, and the expected drag to growth resulting from the Alberta wildfires in June dampened the country’s economic outlook for the remainder of the year.
Commodities rallied in general. Oil pushed through the $50 a barrel mark as supply and demand continued to adjust. Gold surged higher on safe haven flows and as a store of wealth in a negative yielding environment. Grains, specifically soybeans and corn, rallied as bad weather across South America and the U.S. negatively impacted the supply outlook.

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