Tacticals

Portfolio Manager Commentary – July 2018

The S&P/TSX Total Return Index ended the month on a positive note with gains of 1.15% as industrials, telecom and financials led the way. Crude oil fell to $68.43 per barrel as a survey suggests OPEC’s output in July rose to its highest for 2018 and because Donald Trump appeared to soften his approach with Iran. Moreover, the Canadian dollar rose as domestic data shows a record high for exports. Our Nasdaq Inovestor Canadian Equity Index (NQICA) increased 0.83% for the same period, -32bps below the benchmark. Our sector allocation contributed +42bps as our decision to overweight industrials and underweight materials was fruitful. However, our stock selection contributed -74bps as a couple of our stocks unperformed. You will find below the top three and bottom three contributors to performance.

The top three contributors to performance were:

  1. Canadian National Railway (CNR:CN), a railway transport carrier, rose 8.0% after releasing a strong Q2 2018 earning: EPS of $1.51 (beat by $0.12) on Revenues of $3.6B (beat by $0.1B).
  2. TFI International (TFII:CN), a logistics provider, gained 6.5% after exceeding analyst expectations on Q2 2018 earnings: EPS of $0.99 (beat by $0.29) on Revenues of $1.3B (beat by $0.1B).
  3. Equitable Group (EQB:CN), a thrift & mortgage lender, increased 5.8% as investors are positive about the new Ontario government and the dovishness on short rates by the Bank of Canada.

The bottom three contributors to performance were:

  1. Stella Jones (SJ:CN), a wood manufacturer, declined -9.3% in July because U.S. housing starts fell 12.3% in June to a nine-month low as U.S. homebuilders struggle with higher lumber prices.
  2. Gildan (GIL:CN), an apparel manufacturer, fell -9.5% as analysts believe Q2 2018 on August 1st may disappoint due to higher raw material and input costs and manufacturing inefficiencies.
  3. Norbord (OSB:CN), a wood manufacturer, dropped -13.4% in July because U.S. housing starts fell 12.3% in June to a nine-month low as U.S. homebuilders struggle with higher lumber prices.

Best,

François Soto CFA, MBA, FRM, CIM