Thursday January 15th, 2015
The Fund holds a diversified portfolio of high quality North American companies that have shown a capacity to pay and grow their dividends.
The Fund was negative in December. This month the best performing sectors were utilities, energy and materials, while financials, telcoms and industrials were the worst.
The best performing stocks were Enbridge, Pembina Pipeline and Integrys. Enbridge shares spiked to new highs after the company said it would increase its dividend by 33% and transfer ownership of its Canadian pipelines to affiliates in an attempt to lower funding costs for future expansion and new projects. Pembina Pipeline saw dip buying this month after the board approved $1.9 billion in capital spending for 2015 which was 36% higher than the previous year. The company also reiterated its monthly dividend of $0.145 per share. U.S. 10-year yields moved lower this month, despite the outlook for a Fed hike in 2015. As a result, investors sought out yield and rotated into utilities which helped lift Integrys shares to all-time highs.
The Fund’s worst performing stocks were Verizon, Arc Resources and Bank of Nova Scotia. The U.S. telcom sector was the worst performer this month after Verizon and AT&T warned on the earnings outlook for Q4. In particular, Verizon said that wireless margins would be hurt as promotional offers and phone discounts from rival competitors had put short term pressure on EBITDA. Arc Resources confirmed its $0.10 per share dividend to be paid in January; however, the stock was dragged lower by weakness in the energy sector. Canadian banks were under pressure this December. Bank of Nova Scotia shares fell after reporting lacklustre earnings with net income falling 14% from the previous year to $1.44 billion, as it recognized $451 million in restructuring and charges related to downsizing and other items. The bank also warned of “headwinds” experienced in the past quarters which would persist into 2015.
The portfolio holds 18 U.S. equities and 22 Canadian equities, and continues to hedge USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV.
Markets were volatile into the end of the year. Weak economic data out of Japan, China and Europe dampened the global growth outlook, while heavy selling across Russian equities and the ruble dragged on emerging markets that was reminiscent of 1998. Stock indices fell early in the month as heavy selling across the energy sector and general risk reduction weighed on the broader market. However, the U.S. was the positive global influence as strong jobs and GDP numbers coupled with accommodative language from the Fed helped stem the decline and propel a recovery rally into Christmas.
Commodities saw general weakness into year end with most of the focus still on crude prices which tumbled an additional 19%. OPEC indifference continued to sway markets as the Saudis discounted crude prices for Asian customers and forecasted demand down into 2015.
The U.S. dollar closed out the year at the highs with the Fed on a course to hike rates in 2015. EUR fell to new lows on the year with many expecting the ECB to conduct further quantitative easing in early 2015. Emerging market and commodity based currencies saw weakness throughout December. CAD was no exception closing the year above 1.1600.