I am an accredited or eligible investor as defined in National Instrument 45-106.




Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was down 0.6 percent, its fourth weekly loss.  The Marquest Monthly Pay Fund A units closed at $4.08 compared to $4.09 the previous week.

Significant contributors in the Fund last week were Hudson’s Bay (up 18.3 percent), CN Rail (up 3.3 percent) and Brookfield Asset Management (up 2.3 percent).  Hudson’s Bay is purchasing Germany’s leading department store chain, Kaufhof (31 percent market share), for C$3.4 billion.  To finance the purchase, its real estate joint venture with the Simon Property Group will purchase about 40 of Kaufhof’s properties for about C$3.3 billion.  The deal is expected to be accretive to HBC’s earnings immediately (before synergies) and should not require equity issuance.  Management’s strategy of acquiring iconic mid-tier and luxury department store banners with high-quality owned real estate assets is a way to create shareholder value by vending the real estate assets into a JV structure in which the value could be eventually recognized in a REIT IPO.  So far, they have shown themselves to be excellent operators in the retail space.  They mentioned that sales per square foot at the Queen Street store in Toronto had gone from $110 to $200.  It now has the largest shoe department in Canada.  According to management this concept will be expanded to Germany because women have an “unlimited capacity to buy shoes.”

Laggards were Bank of Nova Scotia (down 2.2 percent), Royal Bank (down 1.8 percent), Cameco (down 4.5 percent) and TD Bank (down 1.6 percent).  The stock prices of Canadian banks continue to be weak this year.  Investors are concerned that strong housing prices are a bubble and economic growth is slow partly due to weak commodity prices.  The banks are an oligopoly.  Their capital ratios are conservative.  The capital markets and wealth management sides of their businesses are doing well.  Stock prices will eventually rise to reflect this strength.

Global Balanced Fund

Last week, the MSCI World Index was down 0.3 percent. The C$ was up 0.3 percent against the US$.  The Marquest Global Balanced Fund A units closed at $18.20 compared with $18.14 the previous week.  The Federal Reserve said that while interest rates will likely rise this year, the pace of any tightening will be gradual as officials wait for evidence of a more robust economic recovery.  The NASDAQ hit an all-time high in the week.  In contrast, European markets were subdued waiting for a resolution to the Greek debt issue.

Significant contributors to performance were Aetna (up 6.3 percent), Comcast (up 3.2 percent) and CVS (up 2.5 percent).  Aetna’s share price move reflected talk of mergers in the health management industry.  Scale is increasingly important in that industry. Media reported that United Health would make an offer for Aetna.  This has not been confirmed.    Already the leader or close second across all market segments, the acquisition of Aetna would give United the undisputed #1 spot across all the market segments – commercial, Medicare, and Medicaid.  The transaction would have anti-trust implications though.  CVS announced the acquisition of Target’s pharmacy business.  This deal allows CVS to expand at 20 percent of the cost of developing free-standing locations and is expected to improve script volumes and operating profit.

Laggards were Novo Nordisk (down 4.9 percent), Sanofi (down 3.7 percent) and Schlumberger (down 4.5 percent).  Novo Nordisk and Sanofi suffered with European stocks.  Schlunberger’s price fell with falling energy prices.

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