Manager commentary - December 31, 2018

The correction in Canadian equities in the final three months of 2018 erased the recovery that the S&P/TSX Composite Index had been staging heading into the fourth quarter. The defensive consumer staples and communications services sectors were the leading areas of positive contribution in the period. IA Clarington Inhance Canadian Equity SRI Class Series A posted a return of -11.2% for the fourth quarter, compared to -10.1% for the benchmark. The leading source of underperformance during the period was negative stock selection in the energy, industrials and materials sectors. Notable detractors from performance were NFI Group Inc. and Whitecap Resources Inc. This was partially offset by a positive contribution from avoiding environmental, social and governance (ESG)-ineligible companies such as Suncor Energy Inc. and Canadian Natural Resources Ltd. The portfolio also had positive contributions from Agnico Eagle Mines Limited and InterRent Real Estate Investment Trust, and benefitted from holding excess cash in a declining market.

Vancity Investment Management Ltd. (VCIM) actively repositioned the portfolio in the fourth quarter. Three companies were added: Jamieson Wellness Inc., Colliers International Group Inc. and Kinaxis Inc. Norbord Inc. was eliminated as a source of funds and excess cash was applied to top up existing positions across the portfolio.

In terms of ESG and engagement activity in the fourth quarter, VCIM filed shareholder resolutions with Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, Bank of Nova Scotia and Sun Life Financial Inc., calling on each company to evaluate and disclose progress towards achieving gender pay equity. VCIM engaged in follow-up dialogue with Royal Bank of Canada and Manulife Financial Corp. on the same issue. VCIM also filed resolutions with Canadian Pacific Railway Ltd. and Canadian National Railway Co. requesting each company to report on the costs and benefits of eliminating the use of herbicides on rail tracks and property. VCIM filed a resolution with Franco-Nevada Corp. seeking disclosure on scenario analysis for climate risk exposure. VCIM participated in a collaborative engagement with the Retail Council of Canada on the Task Force on Climate-Related Financial Disclosures. VCIM also requested Restaurant Brands International Inc. to engage in a dialogue on policies and practices to combat anti-microbial resistance in the supply chain. Lastly, VCIM wrote to Loblaw Companies Ltd. to initiate dialogue addressing neonicotinoid pesticide use in the supply chain.

The Canadian equity market, like most global developed markets, endured a very challenging and volatile 2018. In fact, with cash being the best performer, there wasn’t a major asset class that beat U.S. inflation in 2018. Trade concerns and interest rate normalization, particularly by the U.S. Federal Reserve and the Bank of Canada (BoC), weighed heavily on markets heading into the fourth quarter. Falling oil prices globally and the discount applied to most Canadian production had a significant impact on Canadian energy firms and created headwinds for the S&P/TSX Composite Index. In addition to U.S.-China tariff concerns, Canadian business investment has been weak as Canada works through the North American Free Trade Agreement overhang now that the trilateral United States-Mexico-Canada Agreement is set for implementation in 2019. Economists see the Canadian economy at capacity and inflationary pressures increasing for the BoC to balance with high consumer debt levels. A rebound in commodity prices could be the swing factor towards rate increases that narrow the differential between Canada and the U.S. and a strengthening of the Canadian dollar. We would expect global sentiment on Canada to improve and interest in Canadian equities to grow from currently depressed levels. In financials, for example, banks remain attractively valued, possess manageable credit risk, provide healthy dividends and continue to generate healthy profits to apply towards share buybacks.

Fund and benchmark performance as at December 31, 20181 year3 year 5 yearSince Performance Start Date 
(Dec. 2009)
IA Clarington Inhance Canadian Equity SRI Class – Series A-10.8%4.6%2.4%4.4%
S&P/TSX Composite Index-8.9%6.4%4.1%5.5%

 

Learn more about IA Clarington Inhance Canadian Equity SRI 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 Fund’s benchmark is the S&P/TSX Composite Index, which 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 Fund holds securities of companies which meet the fund manager's socially responsible investment principles, while the holdings in the benchmark may not align with these principles. 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. Around December 7, 2009, a material fund merger occurred. Around December 14, 2009, the sub-advisor changed. These changes may have affected the Fund's performance.