MARQUEST WEEKLY COMMENTARY – AUGUST 17, 2015

Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was down 0.2 percent. The Marquest Monthly Pay Fund A units closed at $3.88 compared to $3.89 the previous week. Scotiabank’s strategist gives us a good perspective on the Canadian markets:

“We believe investors need to look past the TSX headline to assess extent of the pain. On an equal weight basis, the TSX is down 9.2% in 2015 and 21% YOY, i.e., in severe correction territory. The YOY performance spread between the TSX market cap (-4.2%; total return) and the equal weight version (-18%; total return) is the widest in over 15 years in light of Healthcare’s outsized impact on the market cap index. Hence, the headline TSX level of 14,277 is a complete mirage and a more appropriate level would be closer to 12,500 had the market cap/equal weight performance spread remained more in line. For investors, this situation has two key implications: (1) First, the muted upside for passive Canadian ETF investments. When risk appetite recovers and cyclicals rally, the impact on the market cap TSX could be modest, making the XIU ETF an unattractive vehicle. (2) Second, tracking the equal weight benchmark shows that the broad TSX universe is already very oversold and close to bear market conditions. Although this is obviously not good news, it does show that a lot of bad news is discounted.” 1

Significant contributors in the Fund last week were Algonquin Power (up 7.6 percent), Cameco (up 3.5 percent) and Cineplex (up 2.9 percent). Algonquin Power operates renewable power generation facilities in the US and Canada and owns a regulated power service in the US. Its projects are cost-of-service or long term contracted assets. Consequently, its revenues going forward are visible. It reported an in line quarter boosted by a strong US dollar and a rate case settlement for its US utilities. Cameco missed consensus estimates for the quarter. However, the most important driver of Cameco’s share price in the short term is that the first of Japan’s reactor restarts is imminent. Japan’s government has recently approved a long-term energy mix of up to 22 percent nuclear by 2030. Growing demand with 25 reactors applying to restart in Japan and supply side improvements, including the shelving of some uranium projects, should begin to affect Cameco’s value. Cineplex missed consensus estimates for the quarter but its market leading position, strong management team and strong movie slate lifted the stock price.

Canadian Natural Resources (down 7.0 percent), Magna International (down 3.8 percent) and Bank of Nova Scotia (down 1.6 percent) were last week’s laggards. CNQ had in line results for the quarter. It has an excellent asset portfolio of low cost, low risk liquids and gas development opportunities. However, WTI was down 2.9 percent on the week and this brought energy stocks down.

1 Source: Scotiabank, Portfolio Strategy Comment, August 17, 2015

Global Balanced Fund

Last week the MSCI World Index was down 0.2 percent. The C$ was up 0.3 percent against the US$. The Marquest Global Balanced Fund A units closed at $18.22 compared with $18.33 the previous week.

Significant contributors to performance were Whirlpool (up 3.4 percent), Pulte Homes (up 6.6 percent) and Home Depot (up 1.9 percent). Improving North American macroeconomic trends such as lower unemployment and modest wage inflation should improve prospects for these home buyer/consumer stocks.

Laggards were Tata Motors (down 10.7 percent), Magna International (down 3.8 percent) and Disney (down 2.5 percent).