MARQUEST WEEKLY COMMENTARY – MARCH 2, 2015

Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was up 0.4 percent. The Marquest Monthly Pay Fund A units closed at $4.61 after the $0.075 distribution ($4.69 before distribution) compared to $4.66 the previous week. Canadian CPI numbers were above expectations. This makes it less likely that the Bank of Canada will lower interest rates.

Significant contributors in the Fund last week were Hudson’s Bay (up 23.2 percent), Restaurant Brands (up 6.0 percent) and Royal Bank (up 3.0 percent). Hudson’s Bay has agreed to form two real estate joint ventures, with Simon Properties in the US and RioCan in Canada. The value of the real estate in the company has been apparent for some time and this move begins a process of revealing it. Royal Bank reported earnings ahead of expectations and raised its dividend.

Laggards were West Fraser Timber (down 8.0 percent), Enbridge (down 5.9 percent) and CN Railways (down 1.5 percent).

West Fraser’s share price has been very strong and the pull back is not unexpected. It has a strong balance sheet, generates free cash flow and has a great management team. The company has benefitted from the weak C$ and US housing strength. The lumber price is showing weakness partly due to the cold weather.

Enbridge announced Q4 EPS of $0.49 versus consensus $0.52. Guidance for 2015 was maintained. Enbridge is restructuring financially; transferring its Canadian liquids pipeline assets to Enbridge Income Fund Holdings and likely, transferring its US liquids pipeline asset to Enbridge Energy Partners. This will allow Enbridge to fund future growth with lower cost equity. This plan includes substantial dividend growth, expected to average 14-16 percent through 2018. The longer term investment thesis for Enbridge is intact.

Global Balanced Fund

Last week, the MSCI World Index was up 0.3 percent. The C$ was up 0.2 percent versus the US$. The Marquest Global Balanced Fund A units closed at $18.74 after the $0.09 distribution ($18.83 before distribution) compared with $18.78 the previous week. US GDP figures showed its economy expanded at a pace of 2.2 percent in Q4, down from 2.6 percent in the prior quarter. However, companies in our portfolio reported strong results.

Last week in the global equities portion of the portfolio, leading contributors were Magna International (up 4.2 percent), Keyera (up 3.7 percent) and Home Depot (up 2.1 percent).

Magna reported a strong Q4 with North American revenues up 7.5 percent and Asian revenues up 13 percent; Europe was flat. Margins were better than expected. Magna raised its quarterly dividend by 16 percent and announced a 2-for-1 stock split. The company will likely continue to buy back shares.

Home Depot also delivered strong Q4 results, well above consensus. Company-wide comparable store sales increased 7.9 percent, with U.S comparable stores sales increasing 8.9% year over year. During the quarter all three U.S. divisions exceeded management’s sales projections and all 19 regions delivered mid-single digit comps or better. Internationally, Home Depot’s Mexican business marked its 45th consecutive quarter of positive comps and the Canadian business marked its 13th consecutive quarter of positive comparisons (in local currency). Home Depot’s pro business continues to perform well. Strong pro business growth, as well as “doubledigit” sales growth in the company’s service business drove average ticket and transaction counts to new Q4 record highs.

Laggards were Time Warner (down 2.9 percent), Banco Santander (down 1.9 percent) and Schlumberger (down 2.1 percent).