Manager commentary - Q4 2019

The Fund invests substantially all of its assets in units of IA Clarington Canadian Conservative Equity Fund (“the Reference Fund”). Therefore, its performance 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 is primarily focused on quality, well-established Canadian and U.S. large-capitalization dividend-paying equities.

North American equities, both large and small cap, posted positive quarterly results to end the year on a strong note. The market results were aided by reduced uncertainty stemming from the U.S.-China trade deal and the U.K. election results, which gives the government a solid mandate to finally complete the Brexit process. Accommodative central bank monetary policies also provided further stimulus to the stock market.

Unstable Middle East oil production, a lack of transportation options for Canadian oil, slowing U.S. economic growth and an inverted yield curve for a period in 2019 continue to stoke fears of an economic recession. However, on the positive side, unemployment, inflation and interest rates remain low and consumer confidence remains strong.

Security selection within the communication services, energy and industrials sectors contributed to the Fund’s performance. Top individual contributors to the Fund’s performance included holdings in Cineplex Inc., Enbridge Inc. and Canadian Natural Resources.

An underweight allocation to the materials and information technology sectors and security selection within the materials sector detracted from the Fund’s performance. During the quarter, precious metals companies outperformed due to rising gold and silver prices. Given the Fund’s focus on conservative dividend-paying stocks and the relative lack of such companies within the materials sector, the Fund is likely to remain underweight the sector going forward. Individual detractors from performance included Toronto-Dominion Bank, Royal Bank of Canada and Bank of Nova Scotia, as underwhelming quarterly results, coupled with rising impaired loans, drove investors to take profits.

During the period, the fund manager added one new holding to the Fund – Northland Power Inc. The company was added because the fund manager expects it to have the highest EBITDA growth in 2020 versus its peer group, while trading cheaper than its peers.

The Fund’s position in Boralex Inc. was sold in order to realize profits as the stock price appreciated strongly during 2019. Positions in BCE Inc., Parkland Fuel Inc. and Sun Life Financial Inc. were also reduced on profit taking, as a result of the strong market rally during the quarter.

The fund manager believes that global growth should continue, which will help increase demand for Canadian products. Although housing and government policies are a concern, the Canadian economy remains on a solid foundation and should grow in-line with G7 economies. Furthermore, Canadian equities remain historically inexpensive relative to U.S. equities.

Fund and benchmark performance as at December 31, 20191 year3 year5 yearSince inception
(Jul. 2011)
IA Clarington Canadian Conservative Equity Class– Series A18.3%4.5%3.2%4.3%
S&P/TSX Composite Index22.9%6.9%6.3%6.1%

 

Learn more about IA Clarington Canadian Conservative 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. As this fund invests substantially in its Reference Fund (IA Clarington Canadian Conservative Equity Fund), the differences discussed are those of the Reference Fund. 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 stocks 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’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 April 1, 2016, IA Clarington Investments Inc. was added as a portfolio sub-advisor. Effective December 31, 2016, Leon Frazer & Associates, a member of iA Investment Counsel Inc. was removed as portfolio sub-advisor. These changes may have affected the Fund's performance.