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 the rally in the U.S. equity markets. The top performing sectors were Health Care, Energy and Consumers. The Health Care sector outperformed this month, with double digit returns in Cardinal Health, Wellcare Health and Impax Labs. The Energy sector experienced gains from improving refinery spreads, which drove Delek and Marathon Petroleum to be the Fund’s top performers. Consumer sectors were also up across all names in the portfolio, with Macy’s and Pigrim’s Pride the best performing stocks in Consumer Staples and Consumer Discretionary. The bottom performing sectors were Telecom, Materials and Information Technology. In Telecom, Century Link, the only telecom holding, was down 7.76%, as it was swept up in the selloff among high yield equities. In the Materials sector, Rock Tenn was the worst performer on lower 2014 free cash flow guidance.
The Fund completed a monthly rebalance, adding Aecom Technology, Andersons, Ashland, Babcock and Wilcox, Cisco Systems, Amdocs, Energy XXI, Gran Tierra Energy, Health Net, Humana, Kroger, Murphy USA, Pultegroup and Wellpoint. The Fund sold its position in Abbott Labs, Arrow Electronics, CF Industries, CVR Energy, Dillards, Impax Labs, Lear Corp, Lifepoint Hospitals, Southwest Airlines, Sanmina Corp, Superior Energy Svcs, Molson Coors, URS Corp and Walmart. The rebalance targeted profit taking on names within sectors, upgrading to higher value names within Consumer Discretionary and Consumer Staples, Energy, Healthcare, Industrials, Information Technology and Materials. The rebalance also updated the short futures position to -20.4% from -25.6%, or a 69.6% net long U.S. equities position. The Fund continues to hedge its USD exposure throughout the period.