MARQUEST WEEKLY COMMENTARY – JUNE 29, 2015.

Monthly Pay Fund

Last week the TSX was up 1.1 percent.  The Marquest Monthly Pay Fund A units closed at $4.13 compared to $4.08 the previous week.

Significant contributors in the Fund last week were Bank of Nova Scotia (up 3.5 percent), TD Bank (up 2.2 percent) and Brookfield Asset Management (up 3.3 percent).

CN Rail (down 3.6 percent), DH Corp. (down 2.3 percent) and Westshore Terminals (down 2.6 percent) were last week’s laggards.  We had taken our CN Rail weighting down in anticipation of the lighter volumes.  Energy related carloads should be lower.

CN expects 3 percent carload volume growth and double digit EPS growth in 2015.  The stock now trades at a modest premium to its five year average multiple.  Given that it is the best-in-class operator with strong cash flow and good earnings growth, CN is better value than it was and is a good business to be invested in.

Global Balanced Fund

Last week, the MSCI World Index was up 0.1 percent. The C$ was down 0.4 percent against the US$.  The Marquest Global Balanced Fund A units closed at $18.47 compared with $18.20 the previous week.  Global markets were choppy as the Greek tragedy dragged on and China’s stock markets continued a two week sell off.

Significant contributors to performance were Aetna (up 7.4 percent), Sanofi (up 5.4 percent) and HDFC Bank (up 6.7 percent).  As we discussed last week, Aetna’s price move reflected talk of mergers in the health management industry.

Sanofi’s new CEO announced that a five year strategic plan would be unveiled in November.  The cost of operating Sanofi’s industrial sites has weighed on profit margins.  Its top selling insulin drug, Lantus, is feeling competitive pressures but there is a follow-on product, Toujeo, coming to market as well as a new type of cholesterol lowering drug, Praluent, being introduced.

HDFC Bank has reported annual profit growth of more than 20 percent every year since 1998 and should benefit from Prime Minister Modi’s reforms aimed at boosting India’s economy.  HDFC’s success has been based on lending to India’s growing middle class and avoiding its most heavily indebted corporations.  Its loan growth was 17 percent last year versus 10.5 percent for its competitors.  It is an excellent proxy for economic growth in India.

Laggards were Whirlpool (down 4.5 percent), Westshore (down 2.0 percent) and Nestle (down 0.8 percent).