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 benefitted from its relatively large exposure to high yield names which continued to perform well in a risk-on environment. The Fund’s exposure to investment grade credit was increased to pick up any upside in that sector into year-end as tapering comes into view for 2014. The Fund decreased government bond and cash exposures during the end of the month rebalancing. The portfolio continues to benefit from the rally in the U.S. equities markets, but saw losses in its positions in the Real Estate sector after better than expected economic indicators increased the odds of a tapering program in the coming year. The best performing sectors were Health Care, Industrials and Financials. The worst performing sectors were Real Estate, Consumer Staples and Information Technology. The Fund completed its quarterly rebalance at the end of November, targeting profit taking on the sales and adding new value names. Sectors with increased exposure included Agriculture, Base Metals and Energy. A dividend of $0.083/share was declared in November across all series.