MARQUEST WEEKLY COMMENTARY – MAY 25, 2015
Liis Palmer, Cassels Investment Management Inc.
Monthly Pay Fund
Last week the TSX was up 0.6 percent. The Marquest Monthly Pay Fund A units closed at $4.31 compared to $4.29 the previous week. Canada’s inflation rate fell below the central bank’s target band last month. CPI rose 0.8 percent in April from a year earlier versus forecasts of 1 percent.
Significant contributors in the Fund last week were West Fraser Timber (up 6.3 percent), Magna (up 6.3 percent) and Ag Growth (up 6.6 percent). Lumber prices are up from last month’s unsustainably low levels. US April Housing Starts were ahead of estimates at 1.135 million, 9.2 percent higher than last year. These factors influencea West Fraser’s stock price. Ag Growth is a leading manufacturer of grain handling and storage equipment. The company received Competition Bureau approval for its acquisition of VicWest’s Westeel division. The acquisition is expected to increase Ag Growth’s revenues by 45 percent and EBITDA by 25 percent, diversify revenues geographically and create cost saving opportunities in SG&A.
Laggards were Cameco (down 9.2 percent), Restaurant Brands (down 3.5 percent) and Teck Resources (down 6.4 percent). News that Tokyo Electric (Tepco) might sell some of its uranium inventories took Cameco’s stock price down. This appears to be a normal activity for Tepco since the Fukushima accident in March 2011. First Japanese reactors restart this summer and should improve the demand/supply dynamics and price for uranium. Nuclear is Japan’s cheapest energy source and there is government support for the restart of reactors. Falling base metals prices took Teck Resources’ stock price down.
Global Balanced Fund
Last week, the MSCI World Index was down 0.1 percent. The C$ was down 2.2 percent against the US$. The Marquest Global Balanced Fund A units closed at $18.50 compared with $18.23 the previous week. US yearly core inflation was up 1.8 percent in April. The Federal Reserve announced that it would be appropriate to start raising rates this year and the US dollar rallied. The European Central Bank announced that it would increase asset purchases for the next two months to maintain liquidity in the markets during the quiet summer months.
Significant contributors to performance were Magna (up 6.3 percent), Comcast (up 3.8 percent) and Whirlpool (up 3.8 percent). Magna management was presenting to investors last week with Credit Suisse. It is their top pick with estimated best-in-class earnings growth of 17 percent for 2016-2017. It trades at about 10 times 2016 earnings.
Laggards were Canada Dollar Futures (our hedge against a rising C$), Alaris Royalty (down 4.7 percent) and Tata Motors (down 1.4 percent).