RGMP Connected Wealth Core Income Commentary
February 11, 2016
Equity markets were extremely tranquil in August, a welcome change from years past, with Canada and the U.S. markets roughly flat on the month. Equity markets are at all-time highs in the U.S. and at multi-year highs in Canada, after a very impressive run during the past six months. There are reasons to cheer: The global economy appears to be doing better and earnings data is improving. Yet, we are heading into the two most volatile months from a seasonal perspective, the Fed’s next move remains a wildcard and valuations are certainly elevated. We believe a good environment to hold some cash as the fund sits with a little more than 10% dry powder.
The Fund appreciated just under 2% in August, outpacing the TSX’s 0.3% gain as a few things really helped. Our no gold stance, which has hurt relative performance for much of 2016, became a boost as gold stocks were among the worst performers in the market this past month. We continue to be void golds, given the lack of quality sustainable dividends in the space. During the month, we further reduced the most interest rate sensitive companies in the portfolio, exiting Fortis and TransCanada Pipeline. The Fortis sell early in August brought us to zero weight Utilities, which has helped as this was the 2nd worse performing sector for the month. Given the economic data and where bond yields sit, we simply see more risk than reward in these bond proxy names that have done so well this year.
A smaller position in the fund did some heavy lifting this month as Whistler Blackcomb is being acquired by Vail Resorts. Hurray for the fund but this does highlight one of the problems in the Canadian market, as the universe of quality dividend paying companies has certainly shrank over the years. Small selection can result in added risk especially if those companies are in similar industries. This is one of the critical structural reasons we augment a portfolio of the Core Income Fund with U.S. holdings. This helps diversification as most of the U.S. holdings are in sectors underrepresented in the Canadian market.
This commentary is for informational purposes only. The views expressed above should not be construed as investment, tax or legal advice.