Manager commentary - December 31, 2018

North American equities declined during the fourth quarter, despite continued constructive macroeconomic fundamentals. In Canadian dollar terms, Canadian stocks lagged their U.S. counterparts largely as a result of a historically wide spread between Western Canadian Select and West Texas Intermediate oil prices, which negatively impacted energy stocks. Although the new United States-Mexico-Canada Agreement alleviated concerns around North American trade, there were still worries about Brexit, the U.S.-China trade war, Iran and the independence of the U.S. Federal Reserve.

The Fund’s holdings within the health care sector were the largest positive contributors to performance during the period, led by a position in Harvest Health & Recreation Inc., a private holding that was repriced higher upon becoming publicly listed in November. Beyond health care holdings, the Fund saw meaningful wins in Questor Technology Inc., Air Transport Service Group and Aecon Group Inc.

The largest detractors from performance came from cyclical sectors including energy, materials and industrials. While the Fund’s energy exposure largely outperformed relative to Canadian listed energy stocks, significant declines occurred in positions such as Yangarra Resources Ltd., Birchcliff Energy Ltd. and Whitecap Resources Inc. Within materials, declines in Cobalt 27 Capital Corp., Geodrill Limited and Interfor Corporation hit hardest, as did an underexposure to precious metals stocks, which rallied during the quarter. The decline in industrials was led by a fall in Hardwoods Distribution Inc.

During the period, the fund managers added several new holdings to the Fund, including Chorus Aviation Inc., Finning International Inc., International Gaming and Premium Brands Holdings Corp., while utilizing market softness to add to positions including Hardwoods Distribution Inc., Park Lawn Corp., Savaria Corp., Titanium Transportation Group Inc., Tricon Capital Group Inc. and Yangarra Resources Ltd. The Fund’s position in AltaGas Ltd. was eliminated ahead of an announced distribution cut. A position in Live Nation Entertainment, Inc. was also exited after strong share price appreciation.

The fund manager believes that global growth will continue, albeit at a slower rate than prior years, which should help raise demand for Canadian products. Although housing and government policies are a concern, low inflation and low unemployment rates should ensure that the Canadian economy remains on a solid foundation. Canadian equities continue to be historically inexpensive relative to U.S. equities. Due to 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 December 31, 20181 year3 yearSince inception (Dec. 2014)
IA Clarington North American Opportunities Class – Series A-9.4%2.9%2.8%
50% S&P/TSX Composite Index, 50% S&P 1500 Index-2.6%7.7%6.8%

 

Learn more about IA Clarington North American Opportunities 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 (50%) and S&P 1500 Index (50%). 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 1500 Composite Index is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500 and the S&P 600. 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.