11 Sep 2018

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Portfolio Manager Commentary – August 2018

admin 11 Sep 2018

The S&P/TSX Total Return Index ended the month down -0.82% as Canada and the U.S. were unable to come to terms for a trilateral agreement. Moreover, Trump hardened its stance against China by threatening to impose tariffs on $200B worth of Chinese imported goods. Finally, markets experienced jitters as contagion risks from Turkey and Argentina increased. Our Nasdaq Inovestor Canadian Equity Index (NQICA) increased 1.30% for the same period, 212bps above the benchmark. Our sector allocation contributed -26bps as our decision to overweight discretionary and underweight health care was detrimental. However, our stock selection contributed 238bps as a couple of our stocks outperformed significantly. You will find below the top three and bottom three contributors to performance.

The top three contributors to performance were:

1. Norbord (OSB:CN), a manufacturer of wood-based panels, rose 15.4% after releasing a strong Q2 2018 earning: EPS of $2.50 (beat by $0.41) on Revenues of $920.2M (beat by $65.3M).
2. Gildan Activewear (GIL:CN), an apparel manufacturer, gained 15.2% after beating expectations in its Q2 2018 earnings: EPS of $0.99 (beat by $0.29) on Revenues of $994.6M (beat by $48M).
3. TFI International (TFII:CN), a transportation and logistics provider, increased 12.1% after posting strong Q2 2018 results and nominating Leslie Abi-Karam to join its board of directors last month.

The bottom three contributors to performance were:

1. Metro (MRU:CN), a food retailer, fell -6.8% after the firm reported lower profit in Q3 2018 on Jean Coutu acquisition costs: EPS of $0.75 (miss by $0.03) on Revenues of $4.64B (in line).
2. Canadian Tire (CTC.A:CN), a retail company, declined -7.8% after missing analyst expectations in its Q2 2018 earnings: EPS of $2.61 (miss by $0.45) on Revenues of $3.48B (miss by -$0.06B).
3. Magna (MG:CN), an automotive supplier, dropped -10.3% after posting weak Q2 2018 earnings where EBIT margin fell to 7.8% and the management lowered its guidance for the fiscal year.

Best,

François Soto CFA, MBA, FRM, CIM