Thursday January 15th, 2015
The Fund holds a portfolio of fundamentally selected stocks together with a dynamic futures hedge. The Fund also incorporates an unhedged series (TSX: PHE.B) which maintains the same portfolio of equities and short S&P futures but does not hedge its USD exposure.
The Fund was positive this month. The best performing sectors were healthcare, technology and consumer discretionary while energy, materials and staples were the worst.
The best performing stocks were ON Semiconductor, Corning and Rock-Tenn. ON Semiconductor rallied after the board approved a capital allocation policy that would return about 80% of free cash flow less repayments of long term debt to holders. The board also announced a $1 billion buyback program that would be spread out over 4 years. Corning shares rose after raising its quarterly dividend by 20% and announcing a $1.5 billion share buyback. Rock-Tenn rallied along with others in the paper packaging sector as lower oil input prices were expected to spur activity and demand across Asia and Europe.
The worst performers were Freeport McMoran, Huntsman and SM Energy. Freeport McMoran was exposed to weakness in copper and oil prices this month. This raised concerns regarding the company’s leverage and its ability to fulfill its target of reducing net debt to $12 billion by 2016. Huntsman shares fell after announcing the close of one of its European plants due to weak demand for its titanium dioxide pigment. SM Energy saw further weakness this month, as the continued fall in crude oil prices heightened concerns over future profitability.
The Fund completed a monthly rebalance, turning over 9 names in the portfolio. The new additions were AT&T, Chart Industries, Coca-Cola, Fresh Del Monte Produce, Jacobs Engineering, Parexel International, Tal International, Thor Industries and Tidewater.
The holdings sold were AOL, Apache, Avon Products, Best Buy, Exelis, Huntington Ingalls Industries, Laboratory Corporation of America Holdings, Pilgrim’s Pride and Textron.
The short futures hedge remained at approximately 25% of the Fund’s NAV.
The Fund continued to hedge its USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV.
Markets were volatile into the end of the year. Weak economic data out of Japan, China and Europe dampened the global growth outlook, while heavy selling across Russian equities and the ruble dragged on emerging markets that was reminiscent of 1998. Stock indices fell early in the month as heavy selling across the energy sector and general risk reduction weighed on the broader market. However, the U.S. was the positive global influence as strong jobs and GDP numbers coupled with accommodative language from the Fed helped stem the decline and propel a recovery rally into Christmas.
Commodities saw general weakness into year end with most of the focus still on crude prices which tumbled an additional 19%. OPEC indifference continued to sway markets as the Saudis discounted crude prices for Asian customers and forecasted demand down into 2015.
The U.S. dollar closed out the year at the highs with the Fed on a course to hike rates in 2015. EUR fell to new lows on the year with many expecting the ECB to conduct further quantitative easing in early 2015. Emerging market and commodity based currencies saw weakness throughout December. CAD was no exception closing the year above 1.1600.