Tuesday December 17th, 2013
In November, markets focused on the transition of the Chairman of the Board of Governors of the Federal Reserve System from Bernanke to Yellen. Markets reacted positively from Yellen’s dovish comments and U.S. Equities performed well across the board with the Dow and S&P 500 hitting new all time highs. Looking forward, closely watched economic data indicate higher odds of tapering, with the street consensus expressing concern over a risk of correction. High yield names were quite volatile after better than expected October payroll and GDP data caused U.S. yields to return to recent highs.
The Canadian dollar weakened approximately 2%, breaching the 1.06 level for the first time since 2010. Weakness in the exchange rate was driven by analyst projections for USD/CAD to reach 1.15 based on their expectations of widening interest rate differentials and lower commodity prices into 2014. The bearish commodity story expanded by a further rout in precious metals equities and physicals, with the iShares Gold Trust (GLD) down 5.39%, and iShares Silver Trust (SLV) down 10.28% in November. We expect a further decline in these underperforming equities caused by year-end tax loss selling.
The Fund traded higher in November as the fund continues to benefit from the rally in the U.S. equities markets. Losses in positions in the Real Estate sector dampened returns after better than expected economic indicators increased the odds of a tapering program in 2014. The best performing sectors were Health Care, Industrials and Financials. The worst performing sectors were Real Estate, Consumer Staples and Information Technology.
The best performing stocks were Merck, Lockheed Martin and Arc Resources, and the worst performing stocks were Emera, Cominar REIT and Phillip Morris. Merck’s gains were from better earnings and positive news from successes in their Alzheimer’s, Melanoma, Hepatitis and Cholesterol pipeline. Lockheed performed well on better than expected earnings and guidance. Arc Resources was up 8.77% over the period as they near completion of planned infrastructure designed to increase the companies’ year over year gas and liquids production by 17% in 2014.. Emera reported weak Q3 earnings, missing estimates by 17% on lower than expected results from their Nova Scotia and Maine utilities plus a $7 million write-down of their Algonquin Power equity investment. Cominar was another underperformer, missing Q3 earnings by 6.12% while Philip Morris was down considerably on reduced 2014 guidance.
The Fund completed its quarterly rebalance at the end of November, targeting profit taking on the sales and adding new value names. The Fund added Bonavista Energy, Boardwalk REIT, Brookfield Office Properties, Campbell Soup, HCP Inc, Husky Energy, IGM Financial, Jean Coutu, Canada REIT and Integrys Energy and sold its positions in Bristol Myers, Agrium, Bell Aliant, Canadian Oil Sands , Calloway REIT, First Capital Realty, Philip Morris, Potash Corp, RioCan REIT and The Southern Company. The rebalanced portfolio maintains a 30% weight in U.S. equities with a continued currency hedge on the USD exposure. The Fund declared a dividend in November, distributing $0.063/share to ETF and Series F shareholders and $0.0438/share to Series A shareholders.