Wednesday August 13th, 2014
July can be summarized as a volatile month which initially saw a continuation of the equity market rally, but ended with a sharp correction lower into month end. Consequently, volatility came off multi-year lows, rebounding higher as equity markets sold off. Geopolitical concerns in Ukraine were front and center with the EU and U.S. jointly increasing sanctions on Russian entities to put a stop to the escalating conflict.
The U.S. economy strengthened further, with improving employment, manufacturing and higher inflation increasing the probability of a rise in interest rates. China equities strengthened with stronger manufacturing numbers. Europe was volatile as markets reacted to a potential bank default in Portugal.
In commodities, base metals outperformed while energy, precious metals and agriculture declined. Copper outperformed on improving manufacturing data in the U.S. and China. Oil declined as supply was not impacted by rising tensions in the Middle East. Gold and silver were uncharacteristically lower even as rising inflation and major geopolitical events affected the markets. Corn continued to decline after the WASDE report showed a 9% increase in corn acreage, a potential bumper crop for 2014/15. Soy also declined in anticipation of a bumper 2014/15 harvest.
In the credit markets, high yield sold off as general risk aversion and anxiety over higher interest rates caused investors to pare back.
The U.S. dollar rebounded across major currencies on improving interest rate differentials and safe haven demand. The U.S. dollar was up to 1.09 levels versus the Canadian dollar by month end. The weaker Canadian dollar was attributed to weaker energy prices and the BoC’s continued commitment to low rates.
The Fund seeks to provide shareholders with attractive long-term capital appreciation by investing in a high conviction portfolio of North American equities. The Fund invests in a portfolio of North American equities held by some of world’s most renowned investment managers.
The Fund declined during the month of July as the equity markets declined. The top performing sectors were information technology, health care and real estate, while the bottom performing sectors were consumer discretionary, consumer staples and materials.
The best performing stocks were Baidu Inc, HCA Holdings and eBay, while the worst performing stocks where Twenty First Century Fox, Monsanto and Micron.
Baidu continued to outperform and benefitted from both a rally in Chinese equities and plans to spin out their video business in an IPO within the near term. HCA Holdings gained as hospital systems were expected to increase their profits as the Affordable Care Act generated increased benefit spending. eBay gained post earnings but continues to experience slowing growth. The company also recently ended a proxy battle with Carl Icahn which centered on spinning off the Paypal division. Paypal had revenue growth of approximately 20% last quarter, while eBay had only 9% revenue growth over the quarter. Twenty First Century Fox declined as it made a bid for Time Warner Inc. Monsanto declined as investors took profits, its exposure to geopolitical turmoil in Ukraine, and also from its exposure to Soy and Corn. The last WASDE report anticipates a bumper crop for 2014/15 which depressed prices in July. Micron sold off following weak Q3 guidance due to supply constraints from Sandisk.
The Fund hedges its USD currency exposure, maintaining a net long USD exposure of approximately 10% of the Fund’s NAV.