Manager commentary - June 30, 2019

IA Clarington Global Opportunities Class Series A returned -5.6% during the second quarter of 2019. Its benchmark, the MSCI World Index1, returned 1.7% in Canadian dollars.

The Fund invests substantially all of its assets in units of IA Clarington Global Opportunities Fund (“the Reference Fund”). Its performance therefore largely reflects the performance of that fund. All reference made to “the Fund” hereinafter reflects a discussion of the portfolio holdings and characteristics of the Reference Fund.

The Fund’s positioning in consumer discretionary and U.S. stocks were the main detractors from performance. One of the largest detractors within consumer discretionary was Foot Locker Inc., a U.S.-based retailer of athletic shoes and apparel. The sell-off in Foot Locker was caused by a small downgrade to the company’s quarterly sales guidance, which led investors to become skeptical of the company’s ability to meet its full-year targets.

The main contributors to performance during the quarter were the Fund’s positioning in financials and Brazilian equities. One of the best performers was Qualicorp SA (a leading health care benefits administrator in Brazil), which rerated on signs of a turnaround in beneficiary growth at the company.

New positions initiated during the quarter were investments in Atos SE, ConvaTec Group PLC and Pets At Home Group PLC. We exited our positions in Countrywide PLC, NGK Spark Plug Co. Ltd., and Citigroup Inc. during the quarter.

For the rest of 2019, we believe that markets will continue to be concerned with political uncertainty, global monetary policy and global economic growth. With our global long-term value approach, we will continue to look for the best investment opportunities around the world and take advantage of any opportunities caused by market volatility. Our focus on companies with strong balance sheets or asset value support should help protect on the downside from company-specific or macro events.

We have positioned the Fund to avoid expensive stocks that are priced for perfection. Our view is that stocks with low investor expectations offer much more compelling risk/reward opportunities for long-term investors. We have built a solid value portfolio that is quite a bit less expensive than the market. The Fund’s median forward price-to-cash flow ratio is 6.7x, the forward price-to-earnings ratio is 9.9x and the dividend yield is 4%, in contrast to the benchmark’s price-to-earnings of 18.3x and dividend yield of 2.5%.

Fund and benchmark performance, as at June, 30, 20191 year3 year5 year10 year
IA Clarington Global Opportunities Class - Series A-14.8%1.3%2.0%5.1%
MSCI World Index5.6%11.9%11.0%12.0%

 

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1Source: MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. The performance data comparison presented is intended to illustrate the Fund’s historical performance as compared with historical performance of widely quoted market indices. There are various important differences that may exist between the Fund and the stated indices that may affect the performance of each. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of 24 developed market country indices. The Fund’s market capitalization, geographic and sector exposure may differ from that of the benchmark. The Fund’s currency risk exposure may be different than that of the benchmark. The Fund may hold cash while the benchmark does not. It is not possible to invest directly in market indices. The performance comparison is for illustrative purposes only and does not imply future performance. Effective November 30, 2011, Radin Capital Partners Inc. replaced OppenheimerFunds, Inc. as sub-advisor to the Fund.