Wednesday November 12th, 2014
The Fund was positive in October. This month defensive holdings performed well while cyclical commodity related names saw selling pressure. The best performing sectors were staples, utilities, and financials while energy, materials and industrials were the worst.
The best performing stocks were Agrium, Integrys, and American Electric Power. Agrium jumped after activist investor Valueact disclosed a 5.7% stake. Last year, Agrium fended off another activist Jana Partners in a high profile proxy battle. U.S. yields sank this month with the 10yr briefly touching below 2% on safe haven demand. As a result, utilities saw a bid all month as income seeking investors sought out solid companies with attractive dividend yields such as Integrys and American Electric Power.
The Fund’s worst performing stocks were Lyondellbasell, Canadian Oil Sands and Arc Resources. Lyonedellbasell fell on the diminished outlook for ethylene margins. Competitor pricing would benefit more from declining crude prices and shrink the company’s production advantage from using lower cost U.S. natural gas. Canadian Oil Sands and ARX resources felt the downdraft across the overall Energy complex which extended its decline in October. Inventory overhang, waning global demand and continued indifference from OPEC in providing a price floor sent crude spiralling almost 15% lower.
The portfolio holds 20 U.S. equities and 20 Canadian equities, and continues to hedge USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV.
October was a bit of a roller coaster ride as markets sold off heavily in the first half of the month before bouncing back rapidly in the second half. Stock markets were initially dragged lower on fears of global slowdown as the IMF cut the global growth outlook while poor European economic data pointed towards a shaky recovery. Cyclical commodity sectors were hit hardest with energy and materials leading the sell-off. However, momentum shifted mid-month as the beginning of the ECB’s bond buying stimulus program combined with dovish Fed comments seemed to turn around the negative sentiment. Expectations of solid U.S. corporate earnings coupled with a strong GDP print helped drive a rebound in stocks. To close out the month, the Bank of Japan unexpectedly boosted its own stimulus measures accelerating purchases of bonds and domestic stocks, which gave a further lift to global markets.
This month commodities performance was mixed. The energy complex continued to see downward pressure from supply overhang. Gold broke lower as safe haven trades were exited and the dollar rallied. Grains bucked the trend and saw a squeeze higher on concerns that poor weather would negatively affect the harvest.
The U.S. dollar saw some initial weakness in October before rallying back later to close out the month strong. The loonie ended slightly weaker versus the dollar at 1.1260.