Portfolio Manager Commentary – June 2018

Note: The Horizons Inovestor Canadian Equity Index ETF (INOC) tracks the Nasdaq Inovestor Canadian Equity Index (NQICA).

The S&P/TSX Total Return Index ended the month of May up 1.69% as energy stocks increased the most. Crude oil surged to $74 per barrel as Saudi Arabia increase of production is probably not going to offset production declines of risky producers such as Iran, Libya and Venezuela. Moreover, the Canadian dollar weakened as the Bank of Canada fretted about a more uncertain trade outlook. The Nasdaq Inovestor Canadian Equity Index (NQICA) increased 0.86% for the same period, -83bps below the benchmark. Our sector allocation contributed -95bps as our decision to underweight energy and overweight discretionary and industrials was detrimental. Our stock selection contributed 12bps as a couple of our stocks outperformed. You will find below the top three and bottom three contributors to performance.

The top three contributors to performance were:

  1. Enghouse Systems (ENGH:CN), a diverse software developer, rose 14.7% after releasing a strong Q2 2018 earning: EPS of $0.56 (beat by $0.06) on Revenues of $85.2M (miss by $1.4M).
  2. Equitable Group (CSU:CN), a mortgage lender, gained 9.5% after the company announced it has successfully reduce its secured liquidity backstop facility to $850 million from $2.0 billion.
  3. Couche-Tard (ATD/B:CN), a convenience store retailer, increased 5.5% as Irving Oil said it has signed a deal with the company to allow the acquisition of 23 retail sites across Atlantic Canada.

The bottom three contributors to performance were:

  1. Magna (MG:CN), a car part manufacturer, declined -8.0% on trade war woes. The company is joining a chorus of automotive companies urging the U.S. not to impose tariffs on their products.
  2. NFI Group (NFI:CN), a bus manufacturer, dropped -9.1% along with other Canadian automotive manufacturers despite announcing a share buyback plan and a new electric bus deal in June.
  3. Linamar (LNR:CN), a car part manufacturer, fell -11.0% to a 14-month low in Toronto after Linda Hasenfratz, its CEO, said auto tariffs and end of NAFTA are final steps to an economic disaster.


François Soto CFA, MBA, FRM, CIM