Wednesday September 10th, 2014
Early in the month, geopolitical issues worried markets as conflict in Russia/Ukraine and Gaza continued unabated, while U.S. military action escalated in Iraq. Nonetheless, markets eventually shrugged off these concerns, and resumed dip buying which propelled U.S. and Canadian markets to all-time highs. After much fretting over the recent strength of U.S. data, payrolls came in slightly less than expected. At Jackson Hole, Yellen continued to voice concern over labour market slack, which helped calm the hawkish calls and provide a relief rally for rates. Corporate earnings for Q2 were generally positive and GDP growth figures were also solid. In Europe, weak economic activity was troubling for the recovery and spurred more calls for further accommodative action from the ECB.
In commodities, crude sank lower despite the turmoil in Russia and the Middle East. Supply overhang, coupled with declining Asian demand, were headwinds for energy prices. Gold and copper declined while grains staged a slight bounce off the lows.
In the credit markets, high yield had a dramatic bounce from July’s sell-off, as investors stepped in and bought the dip.
The U.S. dollar continued to see strength against most major currencies, however the loonie was able to buck the trend. Strong Canadian jobs data and M&A flows provided a tailwind for CAD strength during the month.
The Fund has an income allocation to bonds and high-dividend equities, and a real asset allocation for purchasing power protection.
The Fund was up during the month of August as its exposure to bonds and dividend paying equities generated positive returns while its exposure to real assets underperformed.
The best performing sectors were utilities, consumer discretionary and consumer staples, while materials and telecoms lagged. Real assets finished lower with energy and grains facing headwinds this month. The bond allocation was up in August. The Fund’s largest exposure was to high yield corporate credit which saw a large bounce back higher from July’s sell-off. To take advantage of the bounce, exposure to high yield was decreased and exposure to investment grade and government debt was increased.
The dividend equities within the Fund were rebalanced such that the Fund is now evenly split between 20 Canadian names and 20 U.S. names. The bond allocation was also rebalanced to shift exposure toward investment grade credit from high yield. The Fund continued to hedge its USD currency exposure, maintaining a net USD exposure of approximately 10% of the Fund’s NAV.