Tacticals

Portfolio Manager Commentary – May 2018

The S&P/TSX Total Return Index ended the month of May up 3.12% as investors are skeptical the Bank of Canada will keep the tightening pace with the Federal Reserve. As the economy is showing signs of strength and is running against capacity constraints, investors are turning bullish. However, enthusiasm is now curbed by uncertainties on the new NAFTA deal. Our Horizons Inovestor Canadian Equity ETF (INOC) increased 1.22% for the same period, -190bps below the benchmark. Our sector allocation contributed 53bps as our decision to underweight financials and overweight discretionary, industrials and info tech proved to be fruitful. Our stock selection contributed -243bps as a couple of our stocks underperformed. You will find below the top three and bottom three contributors to performance.

 

The top three contributors to performance were:

  1. CAE (CAE:CN), an aerospace & defense supplier, rose 12.5% on positive outlook after releasing its Q4 2018 earnings: EPS of $0.37 (beat by $0.05) on Revenues of $780.7M (miss by $3.11M).
  2. Constellation Software (CSU:CN), a software developer, gained 11.3% on strength of the info tech sector in the U.S., which increased as much as 7.4% in May leading all other sectors.
  3. Magna (MG:CN), a car part manufacturer, increased 10.2% as the company surprised analysts with its Q1 2018: EPS of $1.84 (beat by $0.15) on Revenues of $10.79B (beat by $740M).

 

The bottom three contributors to performance were:

  1. Canadian Tire (CTC.A:CN), a general merchandise retailer, declined -5.7% after announcing its intention to purchase Helly Hansen, a global sportswear and workwear brand, for $985M.
  2. NFI Group (NFI:CN), a bus manufacturer, dropped -7.8% as Q1 2018 showed margin pressure in aftermarket segment: EPS of $0.75 (miss by $0.05) on Revenues of $741.5M (miss by $25.1M).
  3. Linamar (LNR:CN), a car part manufacturer, fell -9.6% on lower than expected Q1 2018 earnings in Skyjack & Auto: EPS of $2.37 (miss by $0.08) on Revenues of $1.89B (beat by $7.3M).

 

Best,

François Soto CFA, MBA, FRM, CIM