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 seeks to provide shareholders with attractive long-term capital appreciation by investing in a high conviction portfolio of North American equities. The Fund invests in a portfolio of North American equities held by some of world’s most renowned investment managers.
The Fund was positive in August. The top performing sectors were information technology, consumer discretionary and financials, while the lagging performing sectors were consumer staples and materials.
The best performing stocks were Dollar General, Twenty-First Century Fox, and Transdigm while the worst performing stocks where Walgreen, Motorola and Hertz. Dollar General rallied after making an all cash bid of $80 for competitor Family Dollar. If approved, the merger would create estimated synergies amounting to almost $600 million per year, and offer a strong challenge to Walmart in the discount retail market. After falling in July following a bid for Time Warner, Twenty-First Century Fox bounced back after withdrawing its bid. Shares also received a boost after reporting higher earnings and a share buyback. Transdigm rallied after reporting strong third quarter fiscal results driven by the company’s strategic acquisitions in 2013, robust commercial after market growth and general strength in the aerospace market.
Walgreen sold off sharply after deciding not to pursue a tax inversion as part of acquiring the rest of UK domiciled Alliance Boots. Motorola dropped after missing earnings and warned that sales in the current period were weaker than expected. Hertz had a volatile month as the stock initially plunged after withdrawing 2014 guidance due to operational challenges and an ongoing accounting review. However, shares recovered most of their losses on strong activist interest, notably from Carl Icahn who revealed an 8.48% stake in the company.
The Fund completed its quarterly rebalance adding Actavis, CBS Corp and Hertz, and removing Capital One, Fedex and Qualcomm. The portfolio continues to hedge USD currency exposure, maintaining a net USD exposure at approximately 10% of the Fund’s NAV.