9/30/2018 12:00 AM < Back
Sub-Manager Commentary Q3 2018 - Investment Strategies


FIXED INCOME

Short Term Floating Rate Notes

Contributed by Canso Investment Counsel Ltd.

  

The Short-Term portfolio (the “portfolio”) returned 0.6% in the quarter, outperforming the benchmark by 0.2%. The outperformance was driven by strong returns from covered bonds along with GE and Lloyds Bank. The return over the last year of 2.0% is ahead of the benchmark by 0.2%. Since inception, the return of 2.0% has exceeded its benchmark, the FTSE TMX Canada Floating Rate Note Index by 0.6%.

The portfolio yield to maturity increased by 0.2% in the period. This change was primarily driven by the increase in 3M CDOR. The short-term weight increased with a corresponding decrease in the mid-term weight as Lloyds Bank is now less than 5 years in term. The portfolio is entirely comprised of short-term bonds. The weight in AA & Higher issues increased to 56.4% from 49.6% primarily as a result of the systematic upgrade of Canadian banks by Moody’s in early July. A corresponding decrease can be seen in A issues. Additionally, proceeds from interest and principal have been reinvested in higher quality issues.

FIXED INCOME

Canso Corporate Value Bond

Contributed by Canso Investment Counsel Ltd.

  
The Corporate Value portfolios (the “portfolios”) returned 0.7% to 0.8% in the quarter which outperformed the benchmark by 1.2% to 1.3%. Issues of Teva, Postmedia and Bank of Nova Scotia performed well in the quarter, partially offset by issues of ClearStream, Cogeco and Sobeys. Over the last year, the portfolios returned 2.8% to 3.0%, outperforming the benchmark by 0.7% to 0.9%. For the seven-year period, the portfolios achieved annualized performances of 7.6% to 7.9% which was 3.9% to 4.2% ahead of the benchmark respectively. Since inception, the portfolios returned 8.7% to 9.1% on an annualized basis, outperforming the benchmark by 3.5% to 3.9%.

The portfolios’ short-term holdings decreased from an average of 86.4% to 84.7%, while mid-term holdings increased from an average of 10.3% to 11.9% over the quarter. This was largely the result of the purchase of AT&T financed from the sale of short-term holdings. The average long-term holdings remained unchanged over the quarter.

Excluding the Compass Growth portfolio, which was still in the process of being invested at the end of the last quarter, the portfolios’ average Canadian Corporate holdings decreased from 72.4% to 66.9% over the quarter in favour of Foreign Corporate holdings which increased from an average of 16.2% to 22.7%. All other holdings remained essentially unchanged. The increase in Foreign Corporate holdings resulted from the purchase of AT&T with the proceeds of Canadian corporate securities.

FIXED INCOME

Canso Investment Grade Bonds

Contributed by Canso Investment Counsel Ltd.​

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The Investment Grade portfolios (the “portfolios”) returned -0.1% to 0.0% this quarter, underperforming the benchmark by 0.1% to flat. Issues of Bank of Montreal, Lloyds and Bank of Nova Scotia performed well in the quarter, partially offset by Shaw, Austria, AT&T and Apple. The one year returns in the Universe portfolios range from 2.7% to 2.8%. Since inception, the portfolios have returned between 3.6% and 3.7%, outperforming the benchmark by 0.8% to 0.9%.

The average mid-term holdings decreased from 26.7% to 24.0% in favour of short-term holdings which increased from 54.8% to 57.3% on average over the quarter. This was largely the result of the roll down of the Lloyds floating rate notes from a mid-term to a short term holding.

The portfolios’ average Canadian Corporate holdings decreased slightly from 63.5% to 62.6% in favour of foreign corporate holdings which increased from 25.6% to 27.7% over the quarter. The increase in foreign corporate holdings reflects increases in Apple, AT&T, Disney and Met Life with the proceeds of Canadian corporate holdings. The remaining average sector holdings remained largely unchanged over the quarter.
CANADIAN LARGE CAP STOCKS

Mawer Canadia​n Large Cap Stocks

Contributed by Mawer Investment Management Ltd. 

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The S&P/TSX Composite Index (the “TSX”) returned -0.6% in the third quarter of 2018. Six of the eleven sectors recorded positive returns. The Health Care sector was the best performer during the quarter, returning 31.4%, while the Materials sector declined the most with a return of -12.9%.

The Mawer Canadian Equity Fund (the “Fund”) returned 1.7% before management fees, therefore outperforming the benchmark by 2.3%. Sector allocation and security selection both contributed to the Fund’s relative outperformance. The effect from sector allocation was largely attributable to an underweight position in the Materials sector and an overweight position in the Industrials sector. From a security selection standpoint, selection within the Consumer Discretionary, Industrials and Materials sectors positively affected the Fund’s relative performance, although the effect was slightly offset by selection within the Financials sector.

The Fund’s outperformance within Industrials was mainly driven by ATS Automation, Toromont Industries Ltd. and Canadian Pacific Railway Ltd. ATS Automation. reported strong results including elevated order flow which helped the price increase 21.9% over the quarter. Toromont Industries Ltd., which strongly beat expectations in their Q2 results with revenues and EBIT margins both higher than expectations, increased 17.9%. The price of Canadian Pacific Railway Ltd. rose by 13.7% over the quarter, benefitting from the current strong North American economy.

The largest detractors from performance, Canadian Natural Resources Ltd., Maxar Technologies Ltd. and Constellation Software Inc. were down 10.4%, 31.2% and 6.7% respectively. Widening of the Western Canadian Select discount to West Texas Intermediate took its toll on the stock price of Canadian Natural Resources Ltd. Maxar Technologies Ltd., which was eliminated during the quarter, reported lower margins and order backlog highlighted the continued headwinds in the Geo-stationary Earth Orbiting satellite market. Constellation Software Inc. released below expected results including a lower acquisition spend, an important factor in its valuation.

CANADIAN LARGE CAP STOCKS

QV Investors Canadian Large Cap Stocks

Contributed by QV Investors Inc.

The QV Canadian Equity Strategy (the “strategy”) returned -1.9% in the quarter versus -0.6% for the S&P/TSX Composite Total Return Index (TSX). The one-year return was 1.2% for the strategy compared to 5.9% for the benchmark.

Weak performance in the energy and materials sectors led the benchmark decline. In the quarter, the strategy saw reasonable returns in most sectors. However, this was more than offset by stock-specific pressure within utilities and industrials, resulting in underperformance on a relative basis. 

The strategy’s top contributing investments were Cineplex Inc., Canadian Pacific Railway Ltd. and Canadian Imperial Bank of Commerce. The largest detractors were AltaGas Ltd., Maxar Technologies Ltd. and SNC-Lavalin Group Inc. Shares of AltaGas have been under significant pressure since the company’s acquisition of WGL Holdings Inc. earlier this year. Increased leverage and uncertainty regarding asset sales have weighed heavily on investor sentiment. While the current performance of the shares is disappointing, we believe the company has several options that will allow it to maintain a strong balance sheet while demonstrating the cash generating capabilities of its quality asset base. Shares of Maxar responded negatively to a short report released in August. While we disagree with the short seller’s thesis, Maxar has put itself in a vulnerable position with record levels of debt during a trough in the satellite market. Today, the shares are trading at a wide discount to comparable companies, while providing services with strong competitive barriers. Combined, these two companies detracted 2.1% in the quarter.

During the quarter, we initiated an investment in ARC Resources Ltd., an oil and gas producer focused in Western Canada. The company has a strong asset base and record for growing production per share without excessive use of leverage. Weak natural gas prices and transportation constraints allowed us to purchase the company at an attractive valuation. Until Alberta natural gas prices recover, the higher liquids content in the company’s production should help fund future production growth and dividends. Proceeds from the sale of Gibson Energy Inc. helped fund additional opportunities in the energy space, including increases to Cenovus Energy Inc. and Enbridge Inc. The new management team and refreshed board at Cenovus have committed to improving the company’s financial position. As progress continues, we believe the valuation will better reflect the earnings power and asset quality of this low-cost producer. With its strong organic growth profile over the next few years, Enbridge is attractively valued relative to its history. It also provides a dividend yielding more than 6%.

Within the financials sector, we recently added to our positions in Industrial Alliance Insurance and Financial Services Inc., Bank of Nova Scotia and Power Financial Corp. These companies have attractive dividend yields and are trading at below-average valuations.

Much of the year has been characterized by uncertainties, including the outcome of trade negotiations and decisions on major infrastructure projects. These factors have contributed to Canada’s continued underperformance relative to the U.S. market. As earnings growth and momentum remain in vogue, value stocks continue to lag their growth counterparts. Despite this, we continue to focus on high quality businesses trading at below-average valuations. In particular, we are focused on businesses boasting strong asset bases, long-term track records demonstrating resiliency through market cycles and visible earnings growth.

In aggregate, the strategy continues to trade at an attractive discount to the market’s long-term average valuation and its dividend yield of 3.2% is at the highest level since 2008. We believe the process of selecting good businesses at reasonable prices will add value over longer periods of time and offer downside protection in more difficult markets.​​

CANADIAN SMALL CAP STOCKS

Mawer Canadian Small Cap Stocks

Contributed by Mawer Investment Management Ltd. 

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Macroeconomic risks continued to build through the quarter. Another rise in U.S. interest rates tightened liquidity conditions for emerging market countries with U.S. dollar debt. Currencies and equities in many emerging markets declined. However, U.S. markets ventured to new highs as we began to see more dispersion in returns between its markets and the rest of the world’s. Economic indicators also began to show more dispersion. While the U.S. economy forged ahead, China implemented policies to broaden domestic demand to counteract impacts from its trade war with the U.S., and European industrial production indicators appeared more mixed.

In Canada, with the NAFTA renewal coming on the last day of the quarter and too late to impact equities, the S&P/TSX SmallCap Index posted a negative overall return on the quarter, though our portfolio fared somewhat better. As has often been the case, it was the two resources sectors that drove this difference in return. Negative returns in the Energy and Materials sectors that make up approximately half of the index dragged the benchmark performance down overall. Our investment philosophy leads us to focus on wealth-creating business models led by strong management teams purchased at prices that we believe embeds a margin of safety. This not only leads us to allocate a much lower weight to these sectors but also led to positive individual performance from our respective holdings this quarter.

Over the third quarter we added one company to the portfolio while exiting two. We initiated a position in Savaria Corp., North America’s leading residential mobility-aid company and one whose management has shown an excellent ability to profitably consolidate its industry. We exited two businesses related to the Energy sector. AltaGas Corp., a utilities, power and gas infrastructure company and Secure Energy Services, an oilfield waste disposal business. We felt that management teams for both companies have made a series of disappointing capital allocation decisions. We also continued to build our positions in People Corporation, the benefits consultant, and Photon Control Inc., a leading fibre-optic semiconductor sensors manufacturer, and added to our holdings of Stella-Jones Inc. as its valuation compressed after the founding family exited. As well, we decreased our investment in the anesthesia services company, CRH Medical Corporation due to a worsening pricing environment and alternative mortgage lender Equitable Group due to cyclical concerns and new government rule changes.

Currently there are several variables we are monitoring closely – the escalating U.S./China trade war, rising interest rates, emerging markets weakness, and Brexit negotiations. Any of these variables, sufficiently severe, could lead us to a downturn. However, our portfolio is not positioned to anticipate any of these variables. Rather, we hold companies that should be resilient in any macroeconomic scenario, and the portfolio itself has inherent contradictions to lessen the impact of any manifest macroeconomic risk. As we continue through what appears to be a late stage economic rally, we remain less inclined to take on portfolio risk as macroeconomic risks continue to build. Should economic expansion continue, we believe our clients will continue to participate, but should there be economic shocks, we are confident in the resiliency of this portfolio.

The S&P/TSX SmallCap Index posted a 2.8% loss overall in the third quarter of 2018 as five of eleven sectors posted declines. The Energy and Materials sectors were the main drivers of negative performance in the Canadian small cap universe. Meanwhile, the Industrials and Consumer Staples sectors were the best-performing sectors.

The Mawer New Canada Fund (the “Fund”) performed somewhat better, adding 7.1% in the quarter before management fees. In a reversal from last quarter, both sector allocation and security selection contributing positively to relative performance, adding 4.6% and 5.3%, respectively. With respect to sector allocation, an overweight allocation to the Industrials, Information Technology and Consumer discretionary sectors and an underweight position in the Materials and Energy sectors mainly accounted for relative performance. Adding to relative outperformance was selection within the Consumer Discretionary and Materials sectors. The Fund’s relative performance in Energy and Materials is a recurring theme. Our investment philosophy leads us to invest in wealth-creating business models led by strong management teams purchased at prices that embeds a margin of safety. This not only leads us to allocate a much lower weight to these sectors but also led to positive individual performance from our respective holdings this quarter.

The Fund’s holdings in within the Consumer Discretionary sector performed very well relative to the benchmark, with Enercare Inc. and MTY Food Group Inc. producing quarterly returns of 62.6% and 27.9%, respectively. EnerCare Inc. announced it was being acquired by Brookfield Infrastructure Partners, to close in the fourth quarter. MTY Food Group Inc. continued the execution of its business model, leading it to be added to the S&P/TSX Composite Index. In Materials, plastic packaging manufacturer Winpak Ltd. beat expectations showing year-over-year growth in revenues and earnings despite rising input costs and competition. Within the Energy sector, Parkland Fuel Corporation, Canada’s largest independent fuel distributor, delivered a record quarter, with strength in its top and bottom line across most divisions as recent large acquisitions delivered synergies.

Bottom contributors to the Fund’s performance included Stella-Jones Inc., after the price plummeted due to the founding family exiting their position at a 17% discount to its previous day’s close, and Sleep Country Canada, which reported slowing revenue growth in in the second quarter of 2018. As well, Photon Control Inc. fell by 24% on cyclical worries. We used this opportunity to continue to build our position in the company through the quarter.

CANADIAN SMALL CAP STOCKS

QV Investors Canadian Small Cap Stocks

Contributed by QV Investors Inc.

The QV Canadian Small Cap Strategy (the “strategy”) returned 2.0% in the quarter versus -0.7% for the BMO Small Cap Blended Total Return Index (unweighted). The one-year return was 6.7% for the strategy compared to 0.0% for the benchmark.

The quarterly benchmark decline was led by weakness in the materials sector, with the gold sub-index down nearly 14% in the period. The strategy’s energy holdings outperformed significantly, advancing nearly 16% while the benchmark sector declined 1%. Brookfield Infrastructure Partners’ recent offer to acquire Enercare Inc. also benefited the strategy, with the proposed transaction valuing the shares at a 50% premium to the fund’s average cost of purchase.

The strategy’s top contributing investments were Enercare Inc., Parkland Fuel Corp. and Secure Energy Services Inc. The largest detractors were AltaGas Ltd., Maxar Technologies Ltd. and Lassonde Industries Inc. Shares of AltaGas have been under significant pressure since the company’s acquisition of WGL Holdings Inc. earlier this year. Increased leverage and uncertainty regarding asset sales have weighed heavily on investor sentiment. While the current performance of the shares is disappointing, we believe the company has several options that will allow it to maintain a strong balance sheet while demonstrating the cash generating capabilities of its quality asset base. Shares of Maxar responded negatively to a short report released in August. While we disagree with the short seller’s thesis, Maxar has put itself in a vulnerable position with record levels of debt during a trough in the satellite market. Today, the shares are trading at a wide discount to comparable companies while providing services with strong competitive barriers. Combined, these two companies detracted 2.1% in the quarter.

During the quarter, we initiated investments in Crombie REIT and Enerflex Ltd. Crombie invests in retail, office and mixed-use properties across Canada. The strength of Crombie’s franchise is supported by its relationship with Empire/Sobeys, which owns over 40% of the company. It’s grocery and drugstore-anchored tenant base provides defensive, inflation-protected cashflows, and negative sentiment affecting the retail REIT space allowed us to invest at a historically attractive valuation. Enerflex is the second largest manufacturer of natural gas compression equipment in North America. Despite difficult end markets in the last number of years, the company has maintained strong excess cash generation. We are constructive on the long-term drivers of natural gas demand and expect Enerflex to continue to grow its revenues organically in line with global natural gas production. To fund these opportunities, we exited Laurentian Bank of Canada and Solium Capital Inc. Operational execution at Laurentian Bank has lagged our expectations. Solium has benefitted from expanding valuation multiples in the technology space and now provides less attractive risk/reward

Stocks exhibiting growth and momentum continue to outperform, often to the detriment of value investments. In this environment, we continue to avoid the speculation in the cannabis sector and instead remain focused on businesses with solid underlying fundamentals and adequate margins of safety. Although some of these businesses are currently out of favour, we anticipate continued improvement of these franchises will benefit our clients over time. While sentiment on Canadian markets has generally been negative, recent developments on major infrastructure projects and trade negotiations may ease investor uncertainty and spur incremental business investment.

The strategy provides a higher dividend yield, lower payout ratio and stronger balance sheet metrics than the benchmark, which should all contribute to downside support in a more challenging market environment. Continued growth in dividends supported by earnings growth should also help to offset potential negative implications from inflationary pressures and  higher interest rates.


US LARGE CAP STOCKS 

Mawer US Equity

Contributed by Mawer Investment Management Ltd. 

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The US equity market was a standout performer globally and pushed to new all-time highs with the S&P 500 Index (the “S&P”) advancing 5.8% during the quarter. With rising U.S. interest rates creating flashpoints in emerging markets, investors showed distinct preference for safer-haven equity markets. Performance was positive in eight of the eleven sectors in the S&P, with Health Care, Industrials, and Information Technology leading the way. The impact of currency was negative for Canadian investors as the Canadian Dollar strengthened by approximately 1.7% against the U.S. dollar over the quarter. All performance values are provided in Canadian dollar terms, unless stated otherwise.

The Mawer U.S. Equity Fund (the “Fund”) returned 5.1%, before management fees, which trailed the S&P by 0.7%. Sector allocation had a positive impact on relative performance thanks to the absence of holdings in energy, real estate, and utilities – three of the four weakest-performing sectors in the S&P. The Fund’s overall relative return was driven by unfavourable effects from security selection that was most acute in the Financials and Health Care sectors.

Within Health Care, Dentsply Sirona Inc. declined 15% after the company reported disappointing earnings results in a quarter marred by market share losses, inventory write-offs, and heavy restructuring costs. Four of the five bottom contributors to the Fund’s performance came from the Financials sector. Willis Towers Watson Ltd., the largest detractor, fell 8% over the quarter after reporting some margin contraction. Partially offsetting these negatives, the Fund’s Materials holdings outperformed those of the index. Dispensing and sealing application manufacturer Aptar Group Inc., up 14%, reported strong results across all business segments, especially in pharma. Within Information Technology, Visa Inc. and Mastercard Inc. were rewarded for continuing to demonstrate strong revenue and earnings growth. Both continue to be top 10 names in the portfolio.

INTERNATIONAL LARGE CAP STOCKS 

Mawer International Equity

Contributed by Mawer Investment Management Ltd. 

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The Mawer International Equity Benchmark (the “Benchmark”) fell 1.04% during the period. The benchmark was driven by weakness among its Information Technology and Consumer Discretionary constituents. Conversely, Health Care and Energy were the greatest contributors to benchmark performance. Geographically, Asia Pacific, and the U.K. were the primary drivers of the benchmark’s negative performance. All performance values are provided in Canadian Dollar terms (unless otherwise stated).

The Mawer International Equity Fund (the “Fund”) declined 1.57% during the quarter (before management fees), underperforming the Benchmark by 0.53%. The Fund’s relative performance was driven primarily by negative security selection in Industrials. Intertek Group led losses in the sector. Security selection in Health Care and Consumer Staples also detracted from relative performance. Within Health Care, losses were led by Bayer AG while Anheuser- Busch InBev, led the detraction in Consumer Staples. Geographically, the underperformance of our holdings in Asia Pacific ex. Japan and the U.K. were the largest detractors to relative return. The appreciation of the Canadian Dollar on a relative basis against a majority of the currencies represented in the benchmark detracted from performance.

The top contributors during the period were Aon plc, Amadeus IT Group, and Wolters Kluwer. Global financial company, Aon plc, was up 11% during the quarter. The company saw improved organic revenue growth, margin expansion, and working capital improvement. Amadeus IT Group is a global technology company servicing the travel and tourism industry. The company expanded its presence in the hospitality sector with the acquisition of TravelClick, a provider of reservation systems to smaller hotels. Dutch publisher of professional content, Wolters Kluwer, was up 9% over the period. The company released robust financial results, highlighted by strong organic revenue growth and upward changes in guidance in two of its divisions, Tax and Legal.

The top detractors during the quarter were Intertek Group, JD.com, and Tencent. U.K. testing and certification company, Intertek, released its first half results, reporting a drop in first half revenue, a slight decline in organic growth, particularly in its Products division, and sizable currency headwinds due to the weakening of the British Pound. The market penalized the company as these results missed expectations. JD.com is the 2nd largest e- commerce company in China. The company’s founder and CEO, Richard Liu was arrested after a sexual assault complaint in August. Furthermore, the company is increasingly investing into new business areas which weighed on profitability. Chinese internet company, Tencent, fell 19% over the period. With a bulk of the company’s revenues and growth coming from gaming, Beijing’s unveiling of proposals to curb time spent playing online hurt the company’s performance. The proposals, which also includes suspension of approvals on new game releases, stem from concerns over the addiction of gaming among children and their vision.

GLOBAL LARGE CAP STOCKS

QV Global Equity

Contributed by QV Investors Inc. 

 
The QV Global Equity Strategy (the “strategy”) returned 1.2% in Canadian dollars (CAD) during the third quarter, underperforming the MSCI World Index’s gain of 3.3%. The strategy returned 14.6% over the last 12 months versus the benchmark at 16.0%.

US equities continued to drive the bulk of global benchmark performance over the quarter. The US dollar weakened 1.7% over the period, tempering the returns in Canadian dollar terms.

Health care and information technology accounted for 74% of the benchmark’s return during the period. The strategy’s underperformance was predominantly driven by a combination of underweights and security selection in both sectors. Our above-benchmark allocation to energy also negatively impacted relative returns.

The strategy’s top contributing investments in the quarter were Berkshire Hathaway Inc., AutoZone Inc. and Microsoft Corp. The largest detractors were Varex Imaging Corp., The Swatch Group and Tesco PLC.

During the quarter, we initiated a position in Walgreens Boots Alliance Inc., a global retailer of pharmacy, beauty and health products. Walgreens has built a consistent track record of per share growth and was purchased below 10x expected earnings. Following its recent purchase of Rite-Aid stores, we expect Walgreens’ highly aligned management team to continue to deploy capital at attractive returns over time.  This investment improves the strategy’s valuation and profitability metrics and positions us well to benefit from demographic tailwinds in coming years. The investment was partially funded by the sale of health care benefits company Aetna Inc., whose share price had begun to reflect the value of CVS Health Corp.’s recent acquisition offer for the company.

With strong performance in the energy space, moderate trims were made among select energy holdings, as anticipated return profiles had narrowed. Proceeds were redeployed within existing holdings where valuations continue to appear attractive. Among these, AT&T Inc. was raised to a 4% weight. It trades at just over 9x expected earnings and pays a dividend yield of 6%, which is well covered by free cashflow. Despite our expectation for ongoing pressures in its entertainment segment, we forecast this business to be able to grow cash flows at a moderate pace with the help of recently acquired Time Warner Inc. We think AT&T is representative of other global strategy holdings – upside potential is reasonable, but downside risk appears lower than many other areas of the stock market.

Political and trade related uncertainty have pressured international stock markets in 2018, while a strong domestic economy has led to continued outperformance for US stocks. As a result, international valuations increasingly reflect negative policy outcomes while US valuations reflect continued improvements in corporate earnings. In conjunction with recent US dollar strength, these diverging trends appear increasingly likely to revert if the current narrative begins to shift. Into the medium term, generally high asset prices and leverage continue to pose a threat to future stock returns as the global monetary base begins to contract in future years alongside rising interest rates in the US.

The strategy’s holdings remain well diversified and reasonably priced, with little exposure to businesses whose valuations appear most at risk in a different environment. We believe this offers the strategy differentiated prospects over the next few years.

GLOBAL SMALL CAP STOCKS 

Mawer Global Small Cap Equity

Contributed by Mawer Investment Management Ltd. - Paul Moroz

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The Mawer Global Small Cap Equity Benchmark (the “Benchmark”) fell 0.40% during the quarter driven by weakness in Materials, Consumer Discretionary, and Financials. Geographically, Asia and Europe drove the benchmark’s negative performance. All performance values are provided in Canadian Dollar terms (unless otherwise stated).

The Mawer Global Small Cap Equity Fund (the “Fund”) returned 2.70% (before management fees) during the period, outperforming the Benchmark by 3.09%. The Fund’s relative performance was driven by positive security selection. The Fund’s holdings in Financials and Information Technology outperformed their benchmark peers. Jardine Lloyd Thompson and Bechtle led the gains in each sector respectively. Geographically, the Fund outperformed in each region it had exposure to, except Canada, led by the Fund’s holdings in the U.K. The positive relative performance was slightly offset by negative geographic allocation driven by the Fund’s underweight in the U.S. and overweight exposure to the U.K.

The top contributors during the period were Jardine Lloyd Thompson, Bechtle, and Fox Factory. British insurance broking and employee benefits company, Jardine Lloyd Thompson was up 45% during the quarter. The company is being acquired by Marsh & McLennan, a firm that offers clients insurance broking and human resources consulting. Bechtle is a German value-added reseller and IT service provider. The company announced the acquisition of French IT provider Inmac Wstore; the company’s largest acquisition to date which strengthens its position in Europe. Bechtle also reported strong Q2 results with strong organic growth and margins driven but its Systemhouse and e-commerce segments. Fox Factory is a designer, manufacturer, and assembler of high-end suspension systems for mountain bikes and motorized vehicles. The company posted strong Q2 results backed by strong growth in its bike and power vehicle segments, raising guidance for the year, helping support the 48% stock price appreciation over the quarter.

XP Power, Ascential Plc, and Amsterdam Commodities were the top detractors from performance during the quarter. XP Power, a provider of power converters and supplies, fell 18% on the quarter. No stock specific issues arose this quarter. Earlier in the year, the company continued to realize synergies from its acquisition of EMCO. Ascential is an organizer of B2B exhibits and provider of software and digital products. During the period, the company reported results showing margin compression due to its prior Clavis acquisition as well as the launch of its Money2020 conference in Asia. Despite this, the company maintained its strong Net Promote Score and its 90%+ customer retention rate in its information service business. Amsterdam Commodities is a Dutch trader and distributor of agricultural products. The company continues to experience profit headwinds due to lower trading volumes and foreign exchange headwinds.

​The end.





The commentary provided herein was written and contributed by Sub-advisors to the Compass Portfolio Series and compiled by ATB Investment Management Inc. (“ATBIM”).  This report is being provided for information purposes only and is not intended to replace or serve as a substitute for professional advice, nor as an offer to sell or a solicitation of an offer to buy any investment. Although the information has been obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is made as to their accuracy or completeness and ATBIM does not undertake to provide updated information should a change occur.

Any performance data provided for mutual funds assumes re-investment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that may reduce returns. Mutual Funds are not insured by the Canada Deposit Insurance Corporation, nor guaranteed by ATBIM, ATBSI, ATB Financial, the province of Alberta, any other government or any government agency. Commissions, trailing commissions, management fees, and expenses may all be associated with mutual fund investments. Read the fund offering documents before investing. Unit values of mutual funds will fluctuate and past performance may not be repeated.

Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in investment products that seek to track an index.  

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