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MARQUEST WEEKLY COMMENTARY – AUGUST 31, 2015

MARQUEST WEEKLY COMMENTARY – AUGUST 31, 2015

Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was up 2.9 percent. The Marquest Monthly Pay Fund A units closed at $3.74 compared to $3.67 the previous week. WTI oil was up 12 percent on the week after falling to $37.75/barrel on Monday (after 8 consecutive weeks of price decreases). The price rise was attributed to short covering as well as storms, plant outages and reports of Saudi forces moving into Yemen. Prior to Friday, the short position in US crude oil had been the largest since last March.

Significant contributors in the Fund last week were TD Bank (up 5.2 percent) and Arc Resources (up 13.4 percent) and Suncor Energy (up 7.4 percent). All six Canadian banks beat consensus earnings estimates for the third quarter. The cost control initiatives that TD had begun earlier in the year produced benefits in the quarter and have laid down an infrastructure for more cost cuts. This is a good cushion to have in case of a potential future negative credit environment.

Lennar (down 5.3 percent), Hudson’s Bay (down 3.7 percent) and Telus (down 1.8 percent) were last week’s laggards. Toll Brothers, the luxury US homebuilder, reported quarterly earnings below consensus and New Home Sales were less than expected for last month. This took the prices of all homebuilders (including Lennar) down on concerns of slower home buying in 2015. Hudson’s Bay was weak given that a number of the company’s US peers have reported light second quarters. It is likely that challenging sales trends and investments in strategic growth initiatives (such as digital, OFF 5TH store openings and the expansion of Saks into Canada) will pressure profitability in the short term. However, the REIT IPO is expected in the next few years and should surface the value of the underlying real estate.

Global Balanced Fund

Last week the MSCI World Index was up 0.4 percent. The C$ was down 0.2 percent against the US$. The Marquest Global Balanced Fund A units closed at $17.77 compared with $17.59 the previous week. China’s stock market drops and the unexpected devaluation of the Yuan caused concerns about global economic growth which caused the VIX “fear gauge” to hit its highest level in 6 years on Monday. By Friday, it had fallen 50 percent from there. News that US GDP growth in Q2 had been revised up to 3.7 from 2.3 percent helped investor confidence.

Significant contributors to performance were Walt Disney (up 4.1 percent) and Arc Resources (up 13.4 percent) and AMC Networks (up 9.1 percent). Arc Resources benefitted from the 12 percent increase in the WTI oil price on the week and the consequent move in energy stocks.

The price rise was attributed to short covering as well as storms, plant outages and reports of Saudi forces moving into Yemen. Prior to Friday, the short position in US crude oil had been the largest since last March.

Laggards were Whirlpool (down 4.8 percent), Pfizer (down 2.2 percent) and HDFC Bank (down 2.2 percent).

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