Tuesday February 17th, 2015
The Fund has an income allocation to bonds and high-dividend equities, and has a real asset allocation for purchasing power protection.
The Fund was positive in January. The best performing equity sectors were utilities, real estate and materials. Interest sensitive sectors rallied higher as global bond yields sank lower. Mining stocks were also lifted higher as precious metals rallied. Financials, energy and industrials were the weakest sectors. Banks stocks were under pressure this month on the back of soft earnings and the prospect of a flattening yield curve. Energy names continued to experience headwinds from the falling price of oil.
Fixed income positions drove most of the gains this month with all three bond classes posting gains. The surprise 25 bp rate cut by the Bank of Canada sent bond prices soaring. As a result, Canadian government and corporate holdings in the Fund were the strongest performers. High yield outflows also stabilized which helped the Fund`s high yield holdings recover higher. This month the Fund decreased its allocation to high yield from 18% to 9%, and increased its allocation to corporate bonds from 29% to 33% and to government debt from 2% to 7%. This was a timely increase in the Fund’s Canadian exposure, as these holdings benefited from the rate cut that occurred later in the month.
Real assets were mixed as gains in gold and silver were offset by losses in crude oil and corn.
The Fund continued to hedge its USD currency exposure, maintaining a net USD exposure of approximately 10% of the Fund’s NAV.
Markets were volatile this month as central bank activity dominated most of the headlines. Deflation worries spurred the ECB to initiate a Euro 1.1 trillion stimulus package targeting the purchase of sovereign debt. The Bank of Canada shocked the market with a 25 bp rate cut citing recent weak economic data and concern over the negative effect of plummeting oil prices. The Swiss national bank roiled financial markets when it removed its long held peg versus the euro triggering a historic 20% move higher in the Swiss franc. This month European equity markets were the strongest performers on the back of the ECB action. U.S. markets ended down 3% and the S&P/TSX closed slightly positive. Commodities continued to experience weakness this month. The energy sell off extended lower as crude fell another 10%. Copper fell 13% to 5 year lows on declining demand and worse than expected economic data in China. Precious metals bucked the trend as gold rallied on safe haven flows. Currency markets were extremely volatile this month as central banks drove large moves. The dollar continued to see strength versus the Euro and other commodity currencies. Canada was the worst performing G10 currency falling 8.7% after the BOC’s surprise rate cut.