Manager Commentary - Q3 2019

During the period, North American large-capitalization equities rebounded, aided by accommodative central bank monetary policies. North American small-cap stocks underperformed, posting negative returns as a result of increasing uncertainty that stemmed from renewed recession fears and inverted yield curves in Canada and the U.S. (A yield curve graphically illustrates the yields and maturities of bonds of similar credit quality. An inverted yield curve represents market conditions in which long-term debt instruments have lower yields than short-term debt instruments. An inverted yield curve has historically been a leading indicator of recession).

Ongoing U.S.-China trade tensions and slowing U.S. growth led the U.S. Federal Reserve to cut interest rates for the first time since 2008. Additional fears over the U.K.’s exit from the European Union, unstable Middle East oil production and lack of transportation options for Canadian oil contributed to recession concerns. However, on the positive side, unemployment and interest rates are low.

The financials, real estate and consumer discretionary sectors contributed to performance. Top individual contributors to the Fund’s performance included holdings in goeasy Ltd., Altus Group Ltd. and Seven Aces Ltd.

Exposure to the energy, healthcare and industrials sectors detracted from the Fund’s performance. Individual detractors from performance included Birchcliff Energy Ltd., Harvest Health & Recreation Inc. and Paramount Resources Ltd.

Effective May 30, 2019, the Fund had a change in fund manager. The new aim of the Fund is to closely replicate the IA Clarington North American Opportunities Class, which is managed by the same fund manager. Accordingly, the fund manager has initiated a number of transactions since taking over management of the Fund.

Maple Leaf Foods Inc. was added for its stability and to gain exposure to emerging growth in plant-based protein. Nutrien Ltd. was purchased to provide diversification into agriculture and for its potential from the pursuit of further consolidation of farm input retailers. OceanaGold Corp. was added in order to gain diversification in precious metals, where the Fund was underexposed. Superior Plus Corp. was purchased for its stability and for the potential sale of its chemicals business, which could occur in 2019. The fund manager purchased AG Growth International Inc. to add diversification into agriculture, and Cineplex Inc., to add resiliency in the event of a recession and for its growth opportunity from the company’s media division and the Rec Room (Canadian chain of entertainment restaurants owned by Cineplex Entertainment). The fund manager added to existing positions in Aecon Group Inc., Air Transport Services Group Inc., Chorus Aviation Inc., Finning International Inc., International Gaming Technology, Questor Technology Inc. and Tricon Capital Group to capitalize on share price weakness and manage portfolio weightings.

Planet 13 Holdings Inc., Slang Worldwide (including warrants) and Premium Brands Holdings Corp. were eliminated to take profits on share price strength. Chesswood Group Ltd., Celestica Inc., Empire Industries Ltd., First Cobalt Corp., Indus Holdings Inc., GreenSpace Brands Inc., New Flyer Industries Inc. and Neo Lithium Corp. were sold from the Fund amid deteriorating fundamentals, including weakening balance sheets. Positions in Altus Group, Geodrill Ltd., Harvest Health & Recreation and People Corp. were trimmed on profit taking.

The fund manager believes that global growth should continue, which will help to increase demand for Canadian products. Although housing and government policies are a concern, the Canadian economy remains on a solid foundation and should grow faster than most G7 economies. Currently, Canadian equities are historically inexpensive relative to U.S. equities. As a result of these factors, the fund manager has maintained the Fund’s overweight exposure to Canadian equities versus U.S. equities.

 

Fund and benchmark performance, as at September, 30, 20191 year3 year5 year10 year
IA Clarington Focused Canadian Equity Class – Series A-17.6%0.7%-1.0%3.7%
S&P/TSX Composite Index7.1%10.7%10.1%13.4%

 

Learn more about IA Clarington Focused Canadian Equity Class

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 benchmark is a blend of S&P/TSX Composite Index (80%) and S&P 500 Index (20%). The blended benchmark presented is intended to provide a more realistic representation of the general asset classes in which the Fund invests. The S&P/TSX Composite Index is the premier indicator of market activity for Canadian equity markets, with 95% coverage of Canadian-based, TSX-listed companies. The index includes common stock and income trust units and is designed to offer the representation of a broad benchmark index while maintaining the liquidity characteristics of narrower indices. The S&P 500 Index includes 500 leading companies in leading industries of the U.S. economy and is widely regarded as the best single gauge of the U.S. equities market. Although the S&P 500 Index focuses on the large cap segment of the market, its coverage includes approximately 80% of the market. 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 on or about May 30, 2019, the sub-advisor of the Fund was changed from Taylor Asset Management Inc. to IA Clarington Investments Inc.