Tuesday February 17th, 2015
The Fund holds a portfolio of fundamentally selected stocks together with a dynamic futures hedge. The Fund also incorporates an un-hedged series (PHE.B) which maintains the same portfolio of equities and short S&P futures but does not hedge its USD exposure.
The Fund was negative in January with U.S. stocks generally underperforming Canada and Europe. Global bond yields fell this month as central banks increased accommodative policies to fend off deflationary pressures. The Bank of Canada was no different as a surprise rate cut sent Canadian yields to all-time lows and caused the loonie to plunge 8.7%. This had a material positive impact on PHE.B which benefitted from its unhedged USD exposure.
This month the only positive performing sector was Healthcare. The best performing names were Alliant Techsystems, Dick’s Sporting Goods and Parexel.
Materials, energy and industrials were the worst performing sectors. Commodity cyclical holdings continued to face difficult headwinds from falling oil and base metals prices. The worst performing names were Freeport McMoran, Oasis Petroleum and Chart Industries.
The Fund completed a monthly rebalance, turning over 14 names in the portfolio. The new additions were Andersons Inc, Carpenter Tech, Fott Locker, Group 1 Automotive, Harsco, Kennametal, Netapp, Sandisk, Steel Dynamics, Superior Energy, Tenet Healthcare, Tupperware Brand, Westlake Chemical Whiting Petroleum. The deletions were Alliant TECH, Arrow Electronic, Bed Bath and Beyond, Crown Holdings, Dick’s Sporting Goods, General Motors, Humana, International Paper, Marathon Oil, Marvell Tech, Oasis Petroleum, Rock-Tenn, SPX Corp and Supervalu.
The short futures hedge increased to 28% 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 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.