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INOC

Portfolio Manager Commentary – February 2019

Horizons Inovestor Canadian Equity ETF (INOC)

The S&P/TSX Total Return Index ended the month of January up 8.1% offsetting in one month most of last year decline of 8.9%, making it one of the best month in the last 20 years. This upturn has been driven by several catalysts including a softening in the tone of last minutes of the FED, relatively strong results from earnings releases of large North American corporations, and the end of the US government shutdown. Meanwhile, prices of most key commodities including crude oil and gold were stronger in the month. Our Nasdaq Inovestor Canadian Equity Index (NQICA) rose 8.1% for the same period, 60bps below the benchmark. Our sector allocation removed 110bps as our decision to underweight Energy and underweight Healthcare proved to be unfruitful in January. However, our stock selection contributed a positive 50bps as a several of our stocks outperformed.

INOC’s constituents were changed on January 18th

Ins:

  1. THE NORTH WEST COMPANY INC (NWC)
  2. PAREX RESOURCES INC (PXT)

 

Outs:

  1. NFI GROUP Inc. (NFI)
  2. WEST FRASER TIMBER CO. Ltd. (WFT)

Best,

The Inovestor Asset Management Team

Portfolio Manager Commentary – December 2018 – Horizons Inovestor Canadian Equity ETF (INOC)

The S&P/TSX Total Return Index ended the month of December down 5.4% and the year of 2018 down 8.9%, making it the worst year for stocks since 2015. This downturn has been driven by signs of a global economic slowdown, concerns about the direction of the US monetary policy, inflation fears from a strong job market, ongoing trade tensions between the US and China and the political dysfunction causing a US government shutdown. Meanwhile, the price of crude oil plunged 9.6% to $45.81, its lowest settle since August 2017, on fears of a weak oil demand from lower global growth. Our Nasdaq Inovestor Canadian Equity Index (NQICA) fell 6.8% for the same period, 143bps below the benchmark. Our sector allocation contributed 50bps as our decision to overweight staples and underweight energy proved to be fruitful. However, our stock selection contributed a negative 193bps as a couple of stocks underperformed. You will find below the top three and bottom three contributors to performance. (Download)

The top three contributors to performance were:

1.       Metro (MRU:CN), a food & staples retailer, rose 3.4% following the approval of the TSX for its Normal Course Issuer Bid (NCIB) program to repurchase 2.7% of its outstanding shares.

2.       Stella Jones (SJ:CN), a paper & forest producer, declined -1.3% after the company announced it would pursue its own NCIB program to repurchase 4.3% of its outstanding shares.

3.       West Fraser Timber (WFT:CN), a paper & forest producer, fell -2.5% after implementing a temporary production curtailment in BC over the holiday period at four of its BC sawmills.

The bottom three contributors to performance were:

1.       Canadian National Railway (CNR:CN), a railway operator, declined -11.1% as investors fear a global growth slowdown might impact the firm’s crude-by-rail and commodities shipments.

2.       Equitable Group (EQB:CN), mortgage and thrift company, fell -14.7% as Canada’s mortgage credit growth continued to decelerate in Q3 2018, on pace to weakest growth in 22 years.

3.       TFI International (TFII:CN), a transportation company, dropped -19.5% as price increases in the trucking market are leveling off. This could prove difficult for operating margins in 2019.

Best,

The Inovestor Asset Management Team

Portfolio Manager Commentary – October 2018

Horizons Inovestor Canadian Equity ETF (INOC)

The S&P/TSX Total Return Index ended the month of October down 6.27% as investors are selling off risky assets on slower global growth, mounting inflation, peaking corporate earnings and rising bond yields, which coincides with a late-stage of the economic cycle. The Bank of Canada hiked its interest rate to 1.75% citing the economic output is operating close to its potential and trade risks are subdued with NAFTA 2.0. Meanwhile, the Canadian dollar fell 1.91% as commodities retreated. Our Nasdaq Inovestor Canadian Equity Index (NQICA) fell 6.35% for the same period, 8bps below the benchmark. Our sector allocation contributed 82bps as our decision to overweight staples and underweight energy proved to be fruitful. However, our stock selection contributed -90bps as a couple of our stocks clearly under performed. You will find below the top three and bottom three contributors to performance.

The top three contributors to performance were:

1. Metro (MRU), a food retailer, rose 3.3% as investors chose to invest in defensive sectors such as staples, which only declined 0.7% this month as stocks retreated from their highs.

2. Parkland Fuel (PKI), a consumable fuel producer, gained 2.1% after saying it would buy a 75% stake in SOL Investments, the largest independent fuel marketer in the Caribbean.

3. Gildan Activewear (GIL), an apparel manufacturer, increased 0.1% as Moody’s shifted the apparel industry to a positive outlook from stable after watching faster than anticipated growth.

The bottom three contributors to performance were:

1. CAE (CAE), a simulation equipment maker, declined -11.4% as industrial stocks faced a route with several bellwethers like Caterpillar (CAT) and 3M (MMM) warning of higher costs ahead.

2. NFI Group (NFI), a bus manufacturer, dropped -11.7% as industrial stocks faced a route with several bellwethers like Caterpillar (CAT) and 3M (MMM) warning of higher costs ahead.

3. Equitable Group (EQB), a mortgage and thrift company, fell -12.2% as the Bank of Canada raised its interest rates, another sign the Canadian real estate market could cool even more.

Best,

The Inovestor Asset Management Team

Portfolio Manager Commentary – September 2018

Horizons Inovestor Canadian Equity ETF (INOC)

The S&P/TSX Total Return Index ended the month of September down 0.89% as the Canadian equity
market was pressured lower on uncertainties surrounding a new trade agreement with the US.
Meanwhile, the Bank of Canada decided to maintain its overnight rate target at 1.5% and adopt a wait
and see approach. The Canadian dollar rose on higher crude oil prices and hawkish comments from
Governor Poloz at the Bank of Canada on a potential rate hike next month. Our Nasdaq Inovestor
Canadian Equity Index (NQICA) fell 1.83% for the same period, 94bps below the benchmark. Our sector allocation contributed -15bps as our decision to overweight discretionary, and underweight health care proved to be detrimental. Our stock selection contributed -79bps as a couple of our stocks clearly underperformed. You will find below the top three and bottom three contributors to performance.

The top three contributors to performance were:

  1. Equitable Group (EQB:CN), a thrifts & mortgage provider, rose 6.4% after origination activity,
    borrowing retention, loan growth all came better than expected in Q2 2018 last month.
  2. Linamar (LNR:CN), an auto part manufacturer, gained 3.7% as investors are optimistic the US
    and Canada will reach a trade agreement that won’t impose auto tariffs on Canadian vehicles.
  3. Couche-Tard (ATD.B:CN), a convenience store operator, increased 3.6% as it posted strong Q1
    2018 results: EPS of $1.15 (beat by $0.09) on Revenues of $19.3B (beat by $1.4B).

The bottom three contributors to performance were:

  1. Canadian Tire (CTC.A:CN), a general merchandise retailer, declined -7.3% after DOL reported
    weaker same-store sales and revised its guidance downward, which is a bad omen for CTC.A.
  2. Norbord (OSB:CN), a wood-based panel maker, dropped -13.8% after CIBC analyst downgraded
    the company’s outlook on lower-than expected building permits in the U.S. housing sector.
  3.  Dollarama (DOL:CN), a chain of dollar store operator, fell -17.6% after disappointing investor
    expectations in its Q2 2018: EPS of $0.43 (miss by $0.01) on Revenues of $868M (miss by $24M).

Best,

The Inovestor Asset Management Team

What to expect in a market downturn – Inovestor Asset Management

Market conditions suddenly changed in February after a strong start in 2018. This new development is not surprising considering equities made these new all-time highs on thin volume. This prompts us to ask ourselves: Is this the beginning of a bear market or a bump down the road? Only time will tell…

In this article  written by Inovestor Asset Management, you will learn how our Canadian Model Portfolio behaved when equities tanked and infer what could happen with the Horizons Inovestor Canadian Equity ETF (INOC) in a downturn.