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 has exposure to three credit segments (government, investment grade and high yield) and cash. The fund was rebalanced at the end of the month, further reducing its cash position from 11% to 2.6%, increasing its exposure to investment grade credit from 15.3% to 29.2%, decreasing government bond exposure down from 7.75% to 2.1%, and maintaining a 66% weight in high yield. High Yield continued to perform well in a risk-on environment, and we increased our exposure to investment grade to pick up any upside in that sector into year-end as tapering comes into view for 2014. The Fund declared a dividend in November, distributing $0.0675/share to ETF and Series F shareholders and $0.058/share to Series A shareholders which is up from the previous month as the Fund increased its high yield holdings. The allocation to high yield has increased from 32% at launch to 52% in the first week of October, and to 66% by the end of October.