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




Liis Palmer, Cassels Investment Management

Last week the Marquest Monthly Pay Fund (A units) closed at $4.97 (with the $0.075 per unit distribution, the equivalent of $5.05) down from $5.12 the previous week. The TSX was down 1.6 percent in the same period. The MSCI World Index was down 2.3 percent. The C$ was down 0.8 percent against the US$. Given increasing concerns about global economic growth and the weakness in the markets early in the week, good economic news out of the US caused a rally on Friday. US non-farms payrolls rose by 248,000 last month (consensus was a 215,000 increase) and August’s US unemployment rate was revised down to 5.9 percent from 6.1 percent. Unfortunately, Canada’s news was not so good. The Canadian trade deficit in August was reported as $610 million (expectations had been for $1.6 billion) and exports fell 2.5 percent from July. The negative trade report was evidence that our economic recovery was not keeping step with the US. The C$ fell to 88.82 cents.

Leading contributors in the portfolio were AutoCanada (up 12.3 percent), Saputo (up 4.6 percent) and Veresen (up 5.1 percent). A number of dealers, including RBC, had been noting that AutoCanada had gotten oversold. However, when it was announced that Berkshire Hathaway agreed to buy Van Tuyl Group, one of the largest operators of car dealerships in the US, AutoCanada share price rose. AutoCanada owns 33 auto dealerships mostly across Western Canada. Warren Buffett sees huge potential for consolidation in the industry over the longer term. Veresen had announced the acquisition of a 50 percent interest in the Ruby pipeline (a long haul gas pipeline in the US) which could feed into the planned Jordan Cove LNG plant. With or without the Pacific Northwest LNG plants moving forward, as Scotia put it: “From a strategic standpoint, owning long-haul gas pipeline connecting a prolific basin to a reliable market with no indigenous supply makes a lot of sense.”

Laggards in the portfolio were Sherritt (down 14.4 percent), Black Diamond (down 9.9 percent) and LyondellBasell (down 9.6 percent). We met with Sherritt management. They are refinancing debt to cut costs and while the Ambatovy nickel project goes forward, they have consistent cash flow from their Cuban operations. The stock price drop reflects investor concerns with regard to commodity prices. Nickel was down 4.7 percent in the month. Black Diamond is one of the largest remote accommodation providers in Canada. Black Diamond’s peer, Civeo, announced a profit warning based on reduced customer room demand due to project delays and uncertainty. In response to the share price weakness, Black Diamond announced that their outlook was fundamentally unchanged from Q2. The company noted geographic diversification, smaller-scale project sizes and contracted assets. LyondellBasell is the third largest chemicals manufacturer in the world and has a major competitive advantage being located near the US shale gas fields. Since natural gas is a major feedstock of the olefins chain, this advantage boosts its ethylene margins. It is the largest polypropylene producer and one of the top five polyethylene producers in the world. Plastics demand grows as the economy improves. LyondellBasell has high operating rates, lean manufacturing and an enviable geographic position. We took advantage of last week’s price weakness to add to our position.

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